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  • Writer's pictureDavid Baker

McDonalds leaves Russia … forever?

No two countries that both had a McDonald’s restaurant have ever gone to war, or so a popular international business/political science theory has repeatedly claimed, but the ongoing war between Russia and Ukraine has put a lie to the myth. Worse still, Russia’s invasion of Ukraine (or whatever euphemism Russia has been using this week) has now led to the hamburger giant’s decision to leave Russia altogether.

When Russia began its incursion three months ago, international pressure immediately built for foreign companies to stop doing business with (or in) Russia and McDonald’s was one of the first to heed the call, announcing it was suspending operations until Russia withdrew from Ukraine. Russia quickly responded by ‘suspending’ trademark and other intellectual property protections for the Golden Arches and other branding in the country, creating considerable uncertainty for companies hoping a return to normalcy was not far off.

The immediate financial impact on McDonald’s was the reported loss of $55 million in monthly revenue while the long-term implications for the brand remained unknown.

Now it seems all is lost, at least for Russian Ronald McDonald, Big Macs, and Happy Meals.

McDonald’s has announced that it has decided to make permanent the shuttering of hundreds of its Russian locations in March and, instead of reopening them, to sell them to a Russian businessman. Alexander Govor, an existing McDonald’s licensee who operates 25 restaurants in Siberia, has agreed to buy McDonald’s 850 Russian restaurants and operate them under a new name. Govor has been a licensee since 2015 and also agreed to retain McDonald’s 62,000 Russian employees for at least two years while paying the salaries of McDonald’s corporate employees until the sale closes.

McDonald’s did not disclose the terms of the sale, but in fiscal year 2021, McDonald’s Russian operations contributed 9% of the company’s total annual sales, or around $2 billion. It is subject to regulatory approval but is expected to close within a few weeks.

McDonald’s was one of the first Western consumer brands to enter Russia in 1990 after the fall of the Berlin Wall and its large, brightly colored store near Pushkin Square in Moscow was lauded as a sign of optimism in the wake of the Cold War.

Why It Matters. This is the first time McDonald’s ever has exited a major market and it is entering unfamiliar territory when it comes to retaining and trying to enforce its IP rights. While the company has announced that it will remove golden arches and other symbols and signs with the company’s name from stores, it has also announced that it intends to maintain its trademarks in Russia and take steps to enforce them if necessary. How it will do so is unknown.

It is also unclear how many other U.S. chains will follow McDonald’s lead and leave Russia. For example, Starbucks temporarily closed its 130 Russian stores and its in-country franchisee Kuwait-based Alshaya Group, was continuing to pay its 2,000 Russian employees, until recently confirming that it too was permanently leaving the Russian marketplace.

In contrast, Papa John’s has suspended corporate operations in Russia and is no longer accepting royalty payments from its 185 stores there, but its stores remain open.

Hedging its bet, McDonald’s left open the possibility that it could one day return to Russia.

“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,” CEO Chris Kempczinski wrote in a letter to employees. “Thus, let us not end by saying, ‘goodbye.’ Instead, let us say as they do in Russian: Until we meet again.”

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