McDonald’s takes the exit route in Russia, to shut shops after 30 years

McDonald’s takes the exit route in Russia, to shut shops after 30 years
McDonald’s takes the exit route in Russia, to shut shops after 30 years

McDonald’s said Monday that it has begun the process of selling its company in Russia, more than three decades after being the first American fast food restaurant to operate in the Soviet Union. The move is just another reminder of Russia’s growing isolation over its war in Ukraine.

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A man walks by a McDonald’s restaurant in Moscow, Russia on March 23, 2020. Sergei Fadeichev/TASS (Photo by Sergei Fadeichev\TASS via Getty Images)

Holding on to its business in Russia “is no longer tenable, nor is it compatible with McDonald’s principles,” according to the corporation, which operates 850 outlets in Russia and employs 62,000 people.

In early March, the Chicago-based fast food chain announced that it would down its outlets in Russia temporarily but would continue to pay its employees. McDonald’s said Monday that it will seek a Russian buyer to recruit and pay its employees until the transaction is completed, without naming a potential bidder.

The “dedication and commitment to McDonald’s” of employees and hundreds of Russian suppliers, according to CEO Chris Kempczinski, made the choice to depart tough.

“However, we have a duty to our worldwide community and must stay firm in our principles,” Kempczinski said in a statement.

McDonald’s wants to start removing golden arches and other emblems and signage with the company’s name as it looks to sell its locations. It stated that its trademarks will remain in Russia.

Western corporations have struggled to get out of Russia, suffering the financial consequences of suspending or shutting operations in the face of sanctions. Others have stayed in Russia in some capacity, with some experiencing repercussions.

Renault said on Monday that it will transfer the state its majority ownership in Russian automaker Avtovaz as well as a facility in Moscow, marking the first substantial nationalisation of a foreign corporation since the conflict began.

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McDonald’s first restaurant in Russia opened more than three decades ago, immediately after the collapse of the Berlin Wall, in the heart of Moscow. It was a potent symbol of the lowering of Cold War tensions between the US and the Soviet Union, which would eventually fall apart in 1991.

Analysts believe the company’s leaving is now symbolising a new era.

“Its exit reflects a new isolationism in Russia, which now has to look inside for investment and consumer brand growth,” said Neil Saunders, managing director of business analytics firm GlobalData.

He claims that McDonald’s controls the majority of its locations in Russia, but that because the company refuses to licence its name, the sale price will be nowhere like what it was before the invasion. Before the war, Russia and Ukraine accounted for around 9% of McDonald’s revenue and 3% of operational profits, according to Saunders.

McDonald’s said it expects to take a $1.2 billion to $1.4 billion loss against profits as a result of its exit from Russia.

Although its restaurants in Ukraine remain closed, the corporation claims to be paying full salaries to its staff there.

McDonald’s operates in over 100 countries and has over 39,000 locations. The majority are held by franchisees, with the firm owning and operating only approximately 5%.

McDonald’s stated that leaving Russia will not affect its plan to open a net 1,300 outlets this year, contributing around 1.5 percent to overall sales growth.

McDonald’s announced last month that it earned $1.1 billion in the first quarter, down from $1.5 billion a year ago. The total revenue was around $5.7 billion.