De-Arching: McDonald’s to sell Russia business, exit country

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This article was published 15/05/2022 (914 days ago), so information in it may no longer be current.

McDonald’s is closing its doors in Russia, ending an era of optimism and increasing the country’s isolation over its war in Ukraine.

The Chicago burger giant confirmed Monday that it is selling its 850 restaurants in Russia. McDonald’s said it will seek a buyer who will employ its 62,000 workers in Russia, and will continue to pay those workers until the deal closes.

“Some might argue that providing access to food and continuing to employ tens of thousands of ordinary citizens, is surely the right thing to do,” McDonald’s President and CEO Chris Kempczinski said in a letter to employees. “But it is impossible to ignore the humanitarian crisis caused by the war in Ukraine.”

McDonald’s said it’s the first time the company has ever “de-arched,” or exited a major market. It plans to start removing golden arches and other symbols and signs with the company’s name. McDonald’s said it will also will keep its trademarks in Russia and take steps to enforce them if necessary.

McDonald’s said in early March that it was temporarily closing its stores in Russia but would continue to pay its employees. It was a costly decision. Late last month, the company said it was losing $55 million each month due to the restaurant closures. It also lost $100 million worth of inventory.

McDonald’s has also closed 108 restaurants in Ukraine and continues to pay its employees there.

Western companies have wrestled with extricating themselves from Russia, enduring the hit to their bottom lines from pausing or closing operations in the face of sanctions. Others have stayed in Russia at least partially, with some facing blowback.

French carmaker Renault said Monday that it would sell its majority stake in Russian car company Avtovaz and a factory in Moscow to the state — the first major nationalization of a foreign business since the war began.

Maxim Sytch, a professor of management and organizations at the University of Michigan’s Ross School of Business, said McDonald’s and others also face pressure from customers, employees and investors over their Russian operations.

“The era where companies could avoid taking a stance is over,” Sytch said. “People want to be associated with companies that do the right thing. There’s much more to business __ and life __ than maximizing profit margins.”

McDonald’s first restaurant in Russia opened in the middle of Moscow more than three decades 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 Soviet Union, which would collapse in 1991.

Now, the company’s exit is proving symbolic of a new era, analysts say. Sytch, who lived in Russia when McDonald’s entered the market and remembers the excitement surrounding the opening, said the closing signifies a reversal to the Soviet era of isolation.

“It’s really painful to see the many years of gains on the democratic front being wiped out with this atrocious war in Ukraine,” he said.

Kempczinski left open the possibility that McDonald’s could someday return to the Russian market.

“It’s impossible to predict what the future may hold, but I choose to end my message with the same spirit that brought McDonald’s to Russia in the first place: hope,” he wrote in his employee letter. “Thus, let us not end by saying, ‘goodbye.’ Instead, let us say as they do in Russian: Until we meet again.”

McDonald’s owns 84% of its restaurants in Russia; the rest are operated by franchisees. Because it won’t license its brand, the sale price likely won’t be close to the value of the business before the invasion, said Neil Saunders, managing director of GlobalData, a corporate analytics company.

McDonald’s said it expects to record a charge against earnings of between $1.2 billion and $1.4 billion over leaving Russia.

McDonald’s has more than 39,000 locations across more than 100 countries. Most are owned by franchisees — only about 5% are owned and operated by the company.

McDonald’s said exiting Russia will not change its forecast of adding a net 1,300 restaurants this year, which will contribute about 1.5% to companywide sales growth.

Last month, McDonald’s Corp. reported that it earned $1.1 billion in the first quarter, down from more than $1.5 billion a year earlier. Revenue was nearly $5.7 billion.

In afternoon trading, shares of McDonald’s shed 21 cents to $244.83.