Starbucks and McDonald’s are temporarily closing units in Russia

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UPDATE: March 9, 2022: As of Wednesday morning, Papa John’s also suspended all company operations in Russia. The pizza chain’s Russian units are all independently owned and operated by a master franchisee who “controls operations and provides all supplies and ingredients for the restaurants through an owned and operated supply chain.” The company has ceased all commercial support and engagement with the Russian market and is donating dry goods and ingredients to refugees in Eastern Europe through a partnership with World Central Kitchen.

Diving Brief:

  • Starbucks and McDonald’s announced on Tuesday that they were halting business operations in Russia following the country’s invasion of Ukraine. Neither company has predicted when their Russian stores might reopen.
  • The Golden Arches has 850 restaurants and 62,000 workers in Russia, and 84% of its Russian restaurants are company-owned. Starbucks has 130 total restaurants in Russia, all of which are licensed but not owned by the company, according to data released Tuesday by the Yale Chief Executive Leadership Institute.
  • McDonald’s is experiencing supply chain issues “as well as other operational impacts” in Russia, CEO Chris Kempczinski said in a statement. The Eurasian country accounted for about 0.7% of McDonald’s global value in 2020, Ramsey Baghdadi, consumer analyst at GlobalData, wrote in an emailed statement. Starbucks’ Russian stores also account for less than 1% of its global revenue.

Overview of the dive:

The small size of McDonald’s operations in Russia means that “fear of losing sales is not the main factor at play here”, according to Baghdadi, and Starbucks appears to be in the same boat.

The mega-channels have drawn criticism and boycott threats due to their silence on the Russian-Ukrainian conflict and their continued presence in Russia. Its rival chains Papa John’s, which has not yet halted operations in its 185 Russian units according to Yale data, and Yum Brands, which temporarily ceased business operations in Russia on Monday, also drew scorn from consumers for not trying to punish Russia with their wallets sooner.

Yum Brands has more restaurants in the area than McDonald’s, with 1,000 KFC locations and 50 Pizza Huts. Unlike the Golden Arches, however, the majority of these units are operated by independent owners under license or franchise agreements.

Massive franchise systems would make it more difficult to cease all business in a country than for non-franchised businesses, such as retailers, Baghdadi said.

“As 72% of consumer purchases are driven by ethics or a brand’s support of a social cause, it becomes difficult for these companies to balance consumer expectations and operational needs, putting pressure on international fast food.” Baghdadi mentioned.

Yet McDonald’s was quick to shut down its operations in Ukraine. The company suspended operations at its 100 Ukrainian restaurants on Feb. 24, more than 10 days before doing the same in Russia, which could alienate American consumers. Starbucks does not have stores in Ukraine.

But the burger chain, along with Starbucks and Yum, announced investments to support employees affected by the dispute. McDonald’s continues to pay full salaries for employees in Ukraine and said it would do so for all of its employees in Russia as well. Starbucks said it would continue to “provide support” to its approximately 2,000 Russian employees, but did not provide details. McDonald’s also said it would “closely monitor the humanitarian situation”, although it did not disclose details.

Starbucks initially donated royalties received from Russian business operations to humanitarian relief efforts in Ukraine, and the Starbucks Foundation donated $500,000 to World Central Kitchen and the Red Cross to support their efforts in Ukraine.

In contrast, Yum has donated $1 million to the Red Cross to support Ukrainians, activated its Yum Disaster Relief Fund to support Ukrainian employees, and matches employee donations to UNICEF, the Red Cross, World Food Program and the efforts of the International Rescue Committee in Ukraine.

McDonald’s is making the largest financial commitment, donating $5 million to its Employee Relief Fund and supporting International Red Cross relief efforts in Ukraine. The Ronald McDonald House Charity in Ukraine shares medical supplies across the country, and OMRM Poland and OMRM Latvia also provides aid to the region.

The gestures could help businesses save face as Russia’s attacks escalate, especially as they align with the Biden administration’s Tuesday announcement that the United States will not will import more Russian oil.

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