Food companies, long symbols of the West in Russia, stop operations

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Food companies, long symbols of the West in Russia, stop operations

When McDonald’s opened its doors in Moscow’s Pushkin Square in 1990, it was greeted by more than 30,000 Russians who happily waited in line for hours, spending a large portion of their daily wages trying to taste America. were eager to

Through burgers and fries, a food diplomacy was forged that flourished over the past three decades as corporations such as McDonald’s and PepsiCo, private investment firms, and individuals brought food, culture, and good-old to factories and restaurants. Billions of dollars were invested in its construction. American Capitalism for Russia. It was perestroika and glasnost sandwiched between two buns.

“McDonald’s was much more than a simple restaurant opening, when the Golden Arches celebrated the 30th anniversary of its first location in the Soviet Union,” Mark Carrena, former managing director of McDonald’s Russia, told Voice of America in 2020. became a symbol of the entire opening of the USSR.”

But Russia’s invasion of Ukraine has changed everything, and food companies and restaurant chains have struggled how to respond. Amid mounting pressure to act, McDonald’s announced on Tuesday that it was temporarily closing about 850 of its locations in Russia and halting operations in the country.

“In the more than 30 years that McDonald’s has operated in Russia, we have become an essential part of the 850 communities in which we operate,” company chief executive Chris Kempczinski said in a statement announcing the move. He said that the company has given employment to 62,000 people in the country.

Soon after McDonald’s was announced, other major food companies and restaurants followed suit. Starbucks said it is also closing all of its locations in Russia, where they are owned and operated by Kuwaiti conglomerate Alashya Group. Coca-Cola said it was stopping sales there.

And PepsiCo, whose products have been in Russia since the early 1970s, said it would no longer sell Pepsi and 7-Up there, but would continue to produce dairy and baby food products in the country as a “humanitarian” effort and To hold tens. Thousands of manufacturing and agricultural workers are employed.

Investors, as well as social media users, are pressing businesses to exit Russia, particularly the fast-food chain, which has been criticized for lagging behind other companies with decisions about their Russia operations. Is.

For food companies that have spent decades cultivating the Russian market, the task of stopping or closing operations in the country is complicated. This often included opening up Byzantine local supply and manufacturing chains, addressing the fate of thousands of Russian employees, and opening up closer ties with Russian banks, investors, and others, which allowed them to flourish all these years.

Russian operations make up only 3 percent of McDonald’s operating income but 9 percent of its revenue. Similarly, Russia accounts for $3.4 billion, or 4 percent, of PepsiCo’s annual revenue of $79.4 billion. The company states on its website that it is the largest food and beverage manufacturer in Russia. It has more than 20 factories in the country.

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“PepsiCo always has been. PepsiCo was under Nixon,” said Bruce W. Bean, a professor emeritus at Michigan State University’s law school who, as a U.S. attorney in Russia, worked with companies investing there. .

“Obviously, PepsiCo can walk away from the business,” Mr. Bean said. “It will hurt them, but it will hurt the Russians who picked up the business, the Russians who distribute its product — it hurts them more.”

Some companies – such as Yum Brands and Papa John’s, which have hundreds of restaurants with names on them in Russia – are most likely to close or not because many are owned by individuals or groups of investors through franchise agreements. are, franchise experts said.

“It’s messy,” said Ben Lawrence, a professor of franchise entrepreneurship at Georgia State University. As long as the franchisees are meeting the requirements under their agreement and paying royalty fees, it is difficult to ask them to close, he said.

KFC and Pizza Hut owner Yum said on Tuesday it was suspending operations of 70 company-owned KFCs and all 50 franchise-owned Pizza Huts in Russia. (The vast majority of the 1,000 KFCs in Russia are franchise-owned and, at this time, are not part of these suspensions.) Yum also said it would suspend all “investment and restaurant development” in Russia and that no one from the region. will also remove the profit. human effort.

McDonald’s, which has invested millions of dollars into building restaurants in Russia and is a symbol of American culture, has felt the impact of geopolitics firsthand. In 2014, when the United States and other countries imposed economic sanctions on Russia over its annexation of Crimea, officials suddenly closed several McDonald’s locations in Russia, including Pushkin Square, citing sanitary conditions. The Pushkin Square location reopened after 90 days.

For the better part of the past two decades, Russia has been one of the fastest growing markets for American brands, especially fast-food chains. McDonald’s, KFC, Subway and others flourished not only because they were the noonday glimpse of Western civilization, but also because they were relatively inexpensive places to get food.

According to a report by research firm NPD Group, visits to fast-food restaurants in Russia rose 13 percent in 2018, as consumers turned to cheaper restaurants for the “best in terms of price and portion size.” The group noted that last year, the industry’s rebound from Covid-19 led to a 21 percent increase in traffic.

Christopher Wayne said in a 2011 New York Times interview, “I can be successful in my sleep, there’s a lot of opportunity here.” A Colorado native who arrived in Russia with the National Nuclear Security Administration in the early 2000s, Mr. Wayne soon saw other opportunities, shopping at Papa John’s and becoming the largest pizza franchise in Russia. (They also had restaurants in Poland and Germany.)

In May last year, Mr. Wine’s company, PJ Western, which now holds exclusive rights to sell Papa John’s pizza in the region, revealed plans to open about 30 stores each year in Russia by 2029 and predicted that sales would quadruple. will be more than that time.

The document also reflects the close ties that Mr. Wain has built with others to expand business in Russia. Partners include Washington Capitals hockey star Alex Ovechkin, who has previously expressed support for Russian President Vladimir V. Putin; Finnish private-equity firm CapMan; and Russian private-equity firm Baring Vostok.

PJ Western, Papa John’s, Mr. Emails sent to Ovechkin, CapMan and Baring Vostok were not returned.

McDonald’s, after recognizing the uncertainty of its position in 2014, worked hard to show that it was one of the most “Russified” foreign corporations in the country, said Mr. Karena, former managing director of McDonald’s Russia. The company, which owns 84 percent of its 847 restaurants in Russia, employs thousands of people, sources all of its food and packaging locally and was the biggest taxpayer to Russia in the food industry, Mr. Karena said. The CEO told the magazine a year ago. , (He now works for the confectionery company Mars Wrigley.)

“Over the past two years, we have been more proactive in showing the authorities how Russian we are and how much we really contribute to the economy,” Mr Carrena told the magazine. “We produce everything locally, and except for me, everyone else in the company is Russian. We’re very much local, and we support local businesses and communities.”

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