McDonald’s Exit From Russia Ends a Hopeful Era
Soviet customers stand in line outside the just-opened first McDonald's in the Soviet Union on Jan. 31, 1990.
Article by Therese Raphael in Bloomberg
McDonald’s Exit From Russia Ends a Hopeful Era
If the 1990 opening in Pushkin Square was a symbol of hope, Monday’s exit announcement is confirmation that Russia is now not just uninvestible, but intolerable.
When the first golden arches appeared in Moscow’s Pushkin Square in 1990, it didn’t matter that it was mid-winter. It was as if the snow in Narnia had begun to melt, and the natural state of things was being returned in glorious technicolor. Russians queued around the corner for a taste of once forbidden patties.
“If you can’t go to America, come to McDonald’s in Moscow,” ran a McD’s ad. Soon other global brands piled in and dotted streetscapes with their logos and storefronts. The country of Potemkin imported many such familiar façades that were effective in conferring a kind of legitimacy to its government. Whether it was McDonald’s or Hugo Boss, such frontages suggested a country hip to modernity.
On Monday, McDonald’s Corp. took the decision to pull the plug and “de-arch” Russia. That’s markedly different than simply shuttering an outlet as McDonald’s and other brands did two weeks after Vladimir Putin launched his invasion of Ukraine. Employees continued to be paid and stores stood with logos aloft, still on the books of the parent company. Such actions could easily be reversed in a way that a wholesale market exit can’t be. Many other international brands did the same as a sign of disapproval but not yet despair.
Now companies are properly leaving. On Monday, French carmaker Renault SA announced it is selling all its Russian assets to a government-controlled entity. More will no doubt follow. It’s like seeing Narnia’s thaw thrown into reverse.
McDonald’s Chief Executive Officer Chris Kempczinski recalled that the company’s entry into the Russian market 32 years ago had been a triumph of hope. “Hope for a country that was opening itself to the world after decades of isolation. Hope that the world was becoming a little more connected” — symbolized by being able to get the same Big Mac in Moscow that you got in Chicago.
Hope, however, needs some kind of handle. Kempczinski says he considered the legal constraints on operations, whether the brand could meet customer needs and operate the business freely, whether its presence was brand-enhancing, whether it made business sense and whether it aligned with McDonald’s values. Only the last one gave pause — what about the 62,000 employees, the franchisees and all the local relationships? In the end, though, the humanitarian crisis in Ukraine caused by Putin’s war provided the answer.
For a company that built a global empire on a strategy of replication, what it now describes as “de-arching” — meaning the brand’s logo, name and menu can no longer be used — is unprecedented. Execution is likely to be messy and the company doesn’t have a timeline. McDonald’s says it’s looking to sell its nearly 850 restaurants in Russia to a local buyer. Most of the outlets are company owned, but over 100 are controlled by franchisees and some of those have refused to shut down or remove the golden arches.
McDonald’s aims to keep paying its employees in Russia until a buyer is found. But those workers, franchisees and a large network of suppliers and service-providers all face an uncertain future, collateral damage of Putin’s war. Gone too will be Ronald McDonald House charities and Hamburger University, which taught business skills and provided career opportunities.
Government-backed entities are likely to try to convince Russians nothing much has changed or that a domestic McDonald’s will be even better. In March, a new Russian restaurant me-too chain revealed its logo — a Cyrillic “B,” (pronounced as a V in Russian) that looks like the golden arches sideways.
New York Times journalist Tom Friedman’s observation that no two countries with McDonalds would fight a war against each other seemed to hold true. We’re probably back to reminding ourselves of a rather more mundane rule: that countries without the rule of law, whose leaders-for-life are not democratically accountable, are capable of crazy things.
For a $181 billion company, a non-cash charge of approximately $1.2 billion to $1.4 billion for its investment in Russia is hardly a major hit; shares barely moved in early trading. But McDonald’s exit is further confirmation that a new iron curtain descended on Feb. 24. It’s confirmation that Russia is no longer investible, even for a burger franchise with a presence in 100 countries. And for Russians themselves, it’s another sign that winter has returned. Who knows how long it will last this time.
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