The pressure on food companies and restaurants to take a stand against Russia’s invasion of Ukraine intensified last week, and many announced that they were halting operations or temporarily closing restaurants in Russia.
McDonald’s decision to temporarily close all of its restaurants was made easier logistically because the company owns 84% of Russia’s 847 McDonald’s locations, despite the fact that the company has operated in the region for 30 years. (McDonald’s told investors last week that it would spend $50 million a month on leases, employee salaries, and other expenses in order to close all 847 of its restaurants).
However, due to the franchising model, the decision to suspend operational support is more symbolic than literal for other fast-food chains.
When Restaurant Brands International announced that it was “suspending support” for the Russian market, it did not specify what this meant for the franchisees who own the 800 Burger Kings in Russia. An investment-based consortium led by the Russian state-owned VTB Bank was reported to own 550 Burger King restaurants in Russia in 2019.
VTB’s Russian website was unavailable. There is no way we can speak on behalf of our franchisees, according to a statement from Restaurant Brands International. We can confirm that we are fully compliant with all applicable sanctions when it comes to doing business in Russia.
Last week Yum Brands announced it was closing 70 company-owned KFC restaurants in Russia and completing an agreement to close 50 franchise-owned Pizza Hut restaurants, but it was unclear if the remaining 900-plus KFC restaurants in Russia that are owned by franchisees would be open. Russia’s VTB bank was reportedly part of an investment consortium that bought 180 KFC restaurants in 2018. An email sent to Yum Brands seeking comment went unanswered.
Because the Russian-based franchisees, not the parent company, have invested money and taken on significant financial risks in operating the stores, their reluctance to close their doors has much to do with this. Franchise fees or royalties, construction costs to comply with corporate standards, employee wages, and food costs are all the responsibility of the franchise owner, not the parent company.
The Russia-Ukraine War and the Global Economy
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While Papa John’s and Yum Brands may be able to withstand the short-term closure of their Russian restaurants, smaller businesses may not be able to do so.
Russian-owned businesses are owned by Russians or Russian institutions that don’t share our beliefs or requirements,” MSA Worldwide founder Michael Seid said. In order for the Russian franchisee to pay its employees, it is in debt. Ultimately, they’re going to do what’s best for them, and the rest will fall into place.”