EVOLUTION OF DISTRIBUTION

VLADIVOSTOK, Russia -- F. Bruce Krysiak and his son, Bruce W. Krysiak, told SN Global they became interested in helping the Russians develop a more efficient food distribution system several years ago. Indeed, they were offered control of more than 100 formerly state-run supermarkets around Moscow early in 1990. But that opportunity was only a setup for long-term failure, said the younger Krysiak. "All those stores were the traditional little markets that were at the heart of Russia's problem," he said. "They were all 1,000 or 2,000 square feet, the same thing we had in the U.S. 50 years ago and evolved away from. "I was concerned that, if we took on these stores, we could never squeeze the inefficiencies out of the existing distribution system. Running them would have diverted us from the goal of putting in place a comprehensive, self-sustaining food system serving a much larger Russian consumer base." The elder Krysiak, who had been investigating other possibilities in Russia, said by coincidence he was contacted by a group of Seattle businessmen who had established personal relationships with Russian businessmen during the 1990 Goodwill Games in Seattle. The Seattle group was seeking access to Russia's Far East fishing waters, and the Russians were seeking hard cash to fund various business ventures, he said. With him as a go-between, a fish-for-food deal was put together that allowed U.S. fishing vessels to take fish from Russian waters and to use part of the proceeds to help improve the food system in Russia. Most U.S. firms are hesitant to do business with Russia without cash up-front, he said. But he was able to convince several American firms to ship product to Russia, with payment eventually coming from the proceeds of the fish-for-food deal. "The original fish-for-food deal yielded an unexpected benefit," he said. "Since the fish had been caught in the Russian Far East -- from waters which for 50 years had been controlled by the Dalryba fishing organization based in Vladivostok -- business leaders from Vladivostok were sent to the U.S. to buy more American food." The younger Krysiak met with Yuri Karetin, the head of KRPS -- the supplier of food to the Dalryba fleet -- and formed a business alliance with him that served as the foundation for Giant. He said he and Karetin agreed that the key to developing a successful food distribution system in Russia was to begin over by creating, controlling and vertically integrating the many steps in the food distribution process. "To simply create supermarkets would not help," he said, "because supplying these facilities could not be coordinated and controlled. The key was a one-step distribution system."