More than three decades ago, McDonald’s became the first American fast food restaurant to operate in the former Soviet Union. But yesterday, McDonald’s began the process of unloading its business in Russia. The sell-off is another symbol of the country’s increasing isolation resulting from its war in Ukraine.
McDonald’s has 850 restaurants in Russia that employ 62,000 people. McDonald’s officials point to the humanitarian crisis caused by the war, saying holding onto its business in Russia “is no longer tenable [able to be defended], nor is it consistent with McDonald’s values.”
The Chicago-based fast food giant said in early March that it was temporarily closing its stores in Russia but would continue to pay employees. Without naming a Russian buyer, McDonald’s said yesterday that it would seek one to hire its workers and pay them until the sale closes.
The chain’s restaurants in Ukraine are also closed. The company continues to pay full salaries for its employees there as well.
CEO Chris Kempczinski says the “dedication and loyalty to McDonald’s” of employees and hundreds of Russian suppliers made it a difficult decision to leave. “However, we have a commitment to our global community and must remain steadfast in our values,” Kempczinski says. “Our commitment to our values means that we can no longer keep the arches shining there.”
As it tries to sell its Russia restaurants, McDonald’s plans to start removing golden arches and other symbols and signs with the company’s name.
Western companies have wrestled with extricating themselves from Russia. Many have endured hits to profits in order to keep from closing operations in the face of sanctions. Others have stayed in Russia at least partially, with some facing backlash from customers.
For McDonald’s, its first restaurant in Russia opened in the middle of Moscow more than 30 years ago, shortly after the fall of the Berlin Wall. It was a powerful symbol of the easing of Cold War tensions between the United States and the Soviet Union, which would collapse in 1991.
Now the company’s exit is symbolic of a new era, analysts say.
“Its departure represents a new isolationism in Russia, which must now look inward for investment and consumer brand development,” says Neil Saunders, a corporate analyst.
McDonald’s has more than 39,000 locations across more than 100 countries. Franchisees own most of them. The corporation owns and operates only about 5% of the establishments.
Saunders says McDonald’s owns most of the restaurants in Russia. The sale price likely won’t be close to the value of the business before the invasion. Russia and Ukraine combined accounted for about 9% of McDonald’s revenue and 3% of operating income before the war, Saunders says.
McDonald’s expects to lose earnings of between $1.2 billion and $1.4 billion over leaving Russia. Still, officials say exiting Russia will not keep the company from adding about 1,300 restaurants elsewhere in 2022.
Do you think McDonald’s is making the right decision to pull out of Russia? Why or why not?
(The oldest of Moscow’s McDonald’s outlets opened on January 31, 1990. AP)