McDonald’s to Exit From Russia After Three Decades
In deciding to sell, the fast-food giant joins a raft of Western companies, from auto makers to brewers, in exiting Russia having initially opted to pause its operations in the country.
McDonald’s had in March said it would temporarily close its 847 restaurants in Russia while continuing to pay the 62,000 people it employs there. Since then, pressure has mounted on Western companies—particularly from the Ukrainian government—to pull the plug on their Russian operations. Moscow has also pressured companies, threatening legislation to nationalize assets and compel executives to resist Western sanctions.
The departure of McDonald’s from Russia is particularly notable given its arrival was emblematic of a rush among Western companies in the 1990s to enter the country, seeking to profit from its move from communism to capitalism. McDonald’s opened its first Russian location in Moscow’s Pushkin Square in 1990, when thousands of locals lined up to get their first taste of the American chain’s burgers and fries.
On Monday, McDonald’s said that continued ownership of its business in Russia was no longer tenable nor consistent with its values, as well as posing practical and commercial challenges.
“We have a commitment to our global community and must remain steadfast in our values,” Chief Executive Chris Kempczinski said in a statement.
McDonald’s said it would now pursue the sale of its entire portfolio of restaurants in Russia to a local buyer. It said those restaurants would no longer use the McDonald’s name, logo, branding or menu. The company owns and operates 84% of its restaurants in Russia, with the rest run by franchisees.
Russia’s state-run TASS news agency reported Monday that McDonald’s restaurants in the country would reopen under a different name next month.
In connection with the exit, McDonald’s said it expects to record an accounting charge of between $1.2 billion and $1.4 billion, and recognize a significant foreign currency translation loss.
Russia and Ukraine accounted for around 9% of McDonald’s revenue last year, given the high percentage of company-owned restaurants in those markets. The countries accounted for 2% of sales at all McDonald’s restaurants—including those owned by franchisees—and less than 3% of operating income, the company has said.
McDonald’s owns around 100 restaurants in Ukraine that remain closed.
The decision from McDonald’s came the same day another big Western company, French auto maker Renault SA, reached a deal to cede its 68% stake in Russia’s biggest car maker, AvtoVAZ, to a state-backed entity. Unlike McDonald’s, though, Renault has kept an option to take back some of its assets in a few years, a potentially valuable hedge on the Russian market stabilizing in the medium term.
Western companies across sectors have been under pressure to divest their operations in Russia since the country invaded Ukraine in late February. That move triggered waves of sanctions from Western governments that have also made it hard to continue to do business in the country.
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In recent months, companies have exited or signaled their intention to pull back in various ways.
Oil major Shell PLC has been exiting its Russian businesses in phases, saying most recently it would sell its retail gas stations and lube business to Russian giant Lukoil PJSC. Shell said it took a $3.9 billion posttax charge related to its decision to leave Russia. BP PLC has said it would exit its joint venture stake in Russian producer Rosneft, taking a $25.5 billion hit. It hasn’t said how it would do that.
French banking giant Société Générale SA said last month that it would exit Russia, selling its operations to one of Russia’s richest people, and taking a more than $3 billion hit.
Budweiser brewer Anheuser-Busch InBev SA initially said it would suspend its license for the Bud brand in Russia, but otherwise took a wait-and-see approach in terms of its joint venture there. It changed course last month, saying it would seek to sell its stake in the business to its partner.
McDonald’s had also kept its options open until now. In an email to McDonald’s operators, employees and suppliers, Mr. Kempczinski said the decision to leave wasn’t easy and wouldn’t be simple to execute given the size of its business in Russia and the challenges of operating there.
Mr. Kempczinski said he had focused on five questions: could the company legally operate in Russia; could it meet the needs of customers and workers unimpeded; was its presence in Russia brand-enhancing; and does it make good business sense. He said the answer to each was no and that he didn’t see that changing for the foreseeable future. The fifth question was whether operating in Russia aligned with the company’s values.
Mr. Kempczinski also emphasized the brand’s history in Russia. McDonald’s had first begun eyeing the Russian market in the late 1970s, and it took repeated discussions with government officials to provide food for the 1980 Moscow Olympics and, later, open restaurants in the country.
Some of McDonald’s locations in Russia eventually became among the chain’s top-performing stores.
On Monday, some ordinary Russians said they would simply get their fast food elsewhere.
“Let McDonald’s leave. In fact, I am happy they are leaving,” said Alexander Vishnyakov, 35, a driver from St. Petersburg. “I will now switch to Russia’s own fast-food outlets.”
Write to Dean Seal at email@example.com