McDonald’s and Starbucks to temporarily close all restaurants in Russia

McDonald’s and Starbucks are closing all their outlets in Russia, joining the exodus of western brands that has followed Vladimir Putin’s invasion of Ukraine.

When the first McDonald’s opened in Moscow in January 1990, it was seen as one of the markers of the end of the Soviet Union, with over 30,000 people queueing up to buy a burger. On Tuesday, though, McDonald’s said it would temporarily close all its 850 restaurants in Russia and suspend other operations in the country.

Hours later, Starbucks said that the local licensee which operates its 130 cafés in Russia would also “pause” operations immediately. The US coffee chain had said last week that the outlets would remain open, but that it would donate their royalties to humanitarian relief efforts for Ukraine.

Russia and Ukraine together accounted for about 9 per cent of McDonald’s revenues last year, or more than $2 billion. The two markets contributed less than 3 per cent of the burger group’s operating income, as wholly-owned restaurants such as it largely has in both countries are less profitable than its franchised operations.

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Chris Kempczinski, McDonald’s chief executive, told employees and franchisees that it was “impossible to predict” when McDonald’s would be able to reopen its Russian locations. The company was experiencing supply chain disruptions as a result of the conflict and would continue to monitor the “humanitarian situation” in the region, he added.

Restaurant closures

The Chicago-based burger chain had already shut down its roughly 100 McDonald’s restaurants in Ukraine.

McDonald’s is the latest in a string of companies to put its business on hold in Russia, but the Golden Arches stood out as one of the American brands that became a symbol of the post-Soviet era.

Earlier this week, Levi Strauss - whose blue jeans were coveted on the black market in Soviet Russia - also said it would suspend commercial operations in Russia.

In his letter on Tuesday, Kempczinski said the situation was “extraordinarily challenging” for a global brand such as McDonald’s.

“For 66 years, we have operated with the belief that communities are made better when there’s a McDonald’s nearby,” he wrote, adding that fast-food chain employs 62,000 people in Russia and serves millions of customers there each day.

“At the same time, our values mean we cannot ignore the needless human suffering unfolding in Ukraine,” Kempczinski said in a memo to employees and franchisees.

McDonald’s will continue to pay its employees in Russia, he said. Kevin Johnson, Starbucks’ CEO, said it would “provide support” to the nearly 2,000 people in Russia who depend on Starbucks for their livelihood.

Consumer brands have diverged in their response to Russia’s invasion of Ukraine as they struggle to respond to growing pressure from western employees, consumers and investors while doing the right thing by their Russian workers and customers.

Yum Brands, owner of Pizza Hut and KFC, said on Tuesday that it would pause investment in new restaurants in the country and redirect all profits from its existing operations there to humanitarian efforts while it assesses possible further changes. Nearly all of its 1,000 KFC restaurants and 50 Pizza Hut locations are operated by franchisees.

Last Friday, the $280bn New York State Common Retirement Fund urged McDonald’s and other companies including PepsiCo to consider pulling out of Russia in response to the crisis.

The fund, which owns about $410mn of McDonald’s stock, said that ending its operations in Russia “would address various investment risks associated with the Russian market and play an important role in condemning Russia’s role in fundamentally undermining the international order that is vital to a strong and healthy global economy.”

Shares in McDonald’s, which have fallen by 13 per cent in the past month, were up slightly in afternoon trading in New York. Starbucks stock, down 10 per cent in the past month, was also little changed. - Copyright The Financial Times Limited 2022