De-Arching: McDonald’s sells its operations in Russia, leaves the country

McDonald’s is closing in Russia, ending an era of optimism and deepening the country’s isolation due to its war in Ukraine.

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

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

McDonald’s said it was the first time the company had “divested” or exited a major market. He plans to start removing the golden arches and other symbols and signs bearing the company name. McDonald’s said it would also 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 restaurant closures. It also lost $100 million in inventory.

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

Western companies have struggled to extricate themselves from Russia, enduring the hit to their bottom lines by suspending or closing operations in the face of sanctions. Others have remained in Russia at least partially, with some facing backlash.

French carmaker Renault said on Monday it would sell its majority stake in Russian carmaker Avtovaz and a factory in Moscow to the state – the first major nationalization of a foreign company since the start of the war.

Maxim Sytch, 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 operations in Russia. .

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

Russia’s first McDonald’s restaurant opened in central Moscow more than three decades ago, shortly after the fall of the Berlin Wall. It was a strong symbol of the easing of Cold War tensions between the United States and the Soviet Union, which would collapse in 1991.

Today, the company’s exit is 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 closure meant a reversal of the Soviet era of isolation.

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

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

“It’s impossible to predict what the future holds, but I choose to end my message with the same spirit that brought McDonald’s to Russia: hope,” he wrote in his letter to employees. “So let’s not end by saying ‘goodbye’. Instead, let’s say it like they do in Russian: until we meet again. »

McDonald’s owns 84% ​​of its restaurants in Russia; the rest is operated by franchisees. Because it won’t license its brand, the selling price is unlikely to be close to the company’s pre-invasion value, said Neil Saunders, chief executive of analytics firm GlobalData. of business.

McDonald’s said it expected to take a profit charge of between $1.2 billion and $1.4 billion for leaving Russia.

McDonald’s has over 39,000 locations in over 100 countries. Most are owned by franchisees – only about 5% are company owned and operated.

McDonald’s said exiting Russia would not change its forecast to add 1,300 net restaurants this year, which will contribute about 1.5% to company-wide sales growth.

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

Shares of McDonald’s closed down $1 on Monday at $244.04.