McDonald's, a Rare Holdout in Russia, Has Been Mum on Its Plans

McDonald's, a Rare Holdout in Russia, Has Been Mum on Its Plans

McDonald’s Corp. is fighting the tide of U.S. companies cutting ties to Russia, where the fast-food operator has more than 800 locations and no easy way out.

As European and U.S. companies suspend operations in the region after Russia’s invasion and stepped-up authoritarian measures, McDonald’s has yet to comment or lay out its plans. Pressure is rising to respond, with calls for a boycott of McDonald’s trending on social media. 

Companies with the financial means need to stand together or risk a blow to their reputation for failing to cut ties with a country that has drawn international opprobrium for invading a neighbor, said Gene Grabowski, a partner at communications firm Kglobal who has more than 30 years of crisis management experience.

“The moral risk and the risk to the world is great,” he said. “This goes beyond mere business.”

McDonald's, a Rare Holdout in Russia, Has Been Mum on Its Plans

Unlike many restaurant peers, which franchise in Russia, the majority of McDonald’s locations in the country are owned and operated directly by the company. This means the situation for McDonald’s is more complex, as it has to consider the day-to-day business of running a restaurant. While other companies are also under pressure to withdraw from Russia, most have at least come out condemning Russia’s invasion, which has amplified McDonald’s silence. 

On top of the public-image risks, U.S. and European sanctions on Russia, as well as President Vladimir Putin’s retaliatory measures, have rapidly made doing business there more complicated. Higher commodity prices sparked by the conflict are creating yet another headache on top of pre-existing inflationary pressures.

It’s not clear whether the sanctions are affecting McDonald’s operations. The company hasn’t commented on its operations in Russia and Ukraine. Corporate filings show 84% of the 847 McDonald’s locations in Russia are company-owned, along with all of its 108 restaurants in Ukraine. This boosts their sales to the parent: While only about 2% of all McDonald’s restaurants are in Russia or Ukraine, they account for about 9% of global revenue. 

McDonald’s shares rose 1% to $226.51 at 11:03 a.m. in New York on Tuesday. The stock has tumbled about 15% so far in 2022, greater than the decline of the S&P 500 over the same period. 

However, Cowen Inc. analyst Andrew Charles said last week that the exposure to Russia and Ukraine is “immaterial” to McDonald’s despite the large chunk of revenue. That’s because the countries account for less than 3% of operating profit, or $311 million of the $10.4 billion in operating profit that McDonald’s reported last year.

‘Really Hard’

If the Russian market were important to McDonald’s for business alone, it might be easier for the company to distance itself. But the restaurant chain has decades of operations there, the sunk cost of investment, employees and Russian consumers to worry about.

“It would be really hard for them to stop serving customers right now, especially in Russia, and then start back up again assuming there’s a cease-fire and all of this settles down,” BTIG LLC analyst Peter Saleh said.  

“There would be some cost, if you shut down, you have to lay off all your employees,” he said. “And then to restart you have to rehire all those employees and train people. For sure, you would have some issues with hiring and staffing.” There could also be public-relations problems, as well, if the company is viewed as abandoning the market and then trying to come back, he said.

If McDonald’s were to take a step back from Russia, it would mark a historic reversal for the company that’s become a face of globalized business. With its 1990 arrival in Moscow, which was then part of the Soviet Union, the company became a powerful symbol in the ascent of capitalism over communism. A reported 30,000 people lined up at the restaurant on its first day of operations.

The company could opt for a similar strategy as Starbucks Corp., which said last week it will donate royalties from its 130 licensed cafes in Russia to Ukrainian relief efforts. Yum! Brands Inc., whose KFC and Pizza Hut locations in Russia are mostly franchised, is also redirecting profits there to humanitarian efforts. Rival Restaurant Brands International Inc.’s Burger King, which has about 800 franchised restaurants in Russia, has released a statement condemning the attacks.

Kiara Sotelo, a Chicago-based McDonald’s worker and a leader with the “Fight for $15” movement to raise the minimum wage, criticized the company’s inaction.

“It’s shameful that McDonald’s is putting profits ahead of taking a stand for democracy in Ukraine and around the world,” Sotelo said in a statement. 

Investors are also expressing concern. 

“It’s certainly not great for McDonald’s,” said Kevin McCarthy, senior vice president at Neuberger Berman, which owns 2.5 million shares of McDonald’s. 

©2022 Bloomberg L.P.