McDonalds will spend up to $50m to expand its chain in Russia by 20% this year, with plans to commence franchising operations within three years, according to remarks by Khamzat Khasbulatov, head of McDonald's in Russia, reported by the St Petersburg Times.

It will devote 20% of its marketing budget to persuade Russian consumers to have breakfast in its restaurants.

"We will open 25 restaurants in Russia this year, five or six of those in St. Petersburg, and I see the current tempo of expansion continuing for the next few years," Khasbulatov said at a press breakfast. "Of the new additions, we will put the emphasis on drive-thru and standalone restaurants," he said.

McDonald's has 129 restaurants throughout Russia, 82 of which are in Moscow and 15 in St. Petersburg. The company spends between $1.5m and $2m to set up each new restaurant.

Recently, it invested $10,000 per restaurant just to launch a new breakfast menu, which the chain hopes will double the significance of its breakfast sales to the overall sales volume.

"Our research showed that 90% of Russians have no opportunity to have breakfast outside of their home. That's a huge market for us to explore," Khasbulatov said.

Unlike fastfood rivals Subway, Pizza Hut and KFC, among others, which have activated their expansion in Russia through franchise deals, McDonald's directly owns and runs all its restaurants in Russia.

Its Russia McDonald's business model is the opposite to the one the company employs in the U.S. and Europe - where franchisees run 80% and 50% of the McDonald's restaurants respectively.

Analysts said the chain's "delay" in introducing franchises is a wise strategy. "Regional restaurant franchises [in Russia] can really vary in the quality and service that they offer," Alexander Gragin, partner at Deloitte in Moscow and head of the consumer industrial products division, said.

"The tricky part of selling franchises is finding reliable partners in the regions," he said. "Also the legal situation with franchises at the federal level is as yet unclear."

Aton brokerage's consumer products analyst, Alexei Yazykov agreed. "[McDonalds] will want firm control over the process," Yazykov said.

Not ruling out selling existing McDonalds restaurants to franchises in the future, Khasbulatov said the company will be careful to create a strong legal base before embarking on any franchise agreements.

"I think franchising is a possibility for us in 2008, but ... [for franchisees] I have to find people who will work better than our managers," he said.