McDonald's highlights the challenge Russia presents for brands

McDonald’s, the quick-service restaurant chain, has outlined the thinking behind its decision to halt operations in Russia, and described this situation as “a complex situation for a global brand”.

The challenge

Kevin Ozan, evp/chief financial officer at McDonald’s, told the 2022 UBS Global Consumer and Retail Conference that the war in Ukraine raises deep ethical and economic questions with few easy answers. “As you would imagine, this is a really challenging and complex situation for a global brand like us,” he said.

“We certainly don't take this decision lightly. But, for us, this is about doing what we believe is the right thing to do both for our global business and for our local people.”

What’s happening

McDonald’s will shutter its 850 stores in the country, where it employs 62,000 people and serves millions of customers per day. It will also continue to pay staff in Russia and Ukraine, where its 108 stores have been forced to close due to the conflict. “Certainly since the beginning of this crisis, our number one priority has been our people,” Ozan said.

The background

McDonald’s joined a slew of major brands ceasing their Russian operations, but its decision has extra resonance, as it is perhaps the brand most associated with the economic opening up of the Soviet Union. When McDonald’s opened a branch in Pushkin Square, Moscow in 1990, it generated worldwide headlines. The largest McDonald’s in the world at the time, seating 900 people, it served thousands of people on its first day, as thousands more waited in line to have their first “Bolshoi Mak”.

And the QSR is cognisant of its vital role in serving hungry consumers on the move in Russia today – and of its strong equity in the country built up over many years. “We have been doing business in Russia for decades. We are certainly a part of communities throughout the country where we feed and support a lot of people,“ Ozan said.

The outlook

Together, Russia and Ukraine currently generate around 2% of system-wide sales for McDonald’s, as well as 3% of operating income and 9% of revenue. And Ozan predicted the store closures would cost the firm around $50m per month until it is safe to open stores again.

“We expect this to be temporary,” he noted. “We will continue to assess the situation and hopefully can keep people updated as things progress.”

Sourced from SeekingAlpha