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The Impact Of McDonald鈥檚 Pulling Out Of Russia - YouTube
Channel: CNBC
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The opening of the first
Russian McDonald's was a
[3]
really big deal.
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Russians back at that time
during Glasnost were
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interested in anything
Western, Western culture.
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They were starving for it.
[13]
But 30 years later, amid
pressure from US consumers
[17]
following Russia's invasion
of Ukraine, McDonald's
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announced it would be
temporarily closing all 850
[23]
locations in Russia, which
accounts for about 9% of
[27]
McDonald's global revenue.
[28]
Mcdonald's shares dropped
steadily since the invasion
[31]
began on February 24th and
hit a low of
[34]
$222 following news of the
exit.
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In an unprecedented
movement, over 750 companies
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have since curtailed
operations in Russia.
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The first Russian
McDonald's opened in Moscow
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on January 31, 1990,
shortly before the Soviet
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Union collapsed.
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It was a really big moment
for the country, and the
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restaurant drew large
crowds.
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Some have been waiting for
two and a half hours.
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And because this is Moscow,
not everyone knows why.
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This woman joined the line
knowing something must be on
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sale here. She thought it
was ice cream.
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It was the biggest
McDonald's in the world.
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And the fast-food chain
sold 34,000 burgers on its
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first day.
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But for the Soviet Union,
McDonald's meant more than
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just hamburgers.
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Two months after the fall
of the Berlin Wall, the
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introduction of its first
American restaurant
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symbolized capitalism and
the gateway to the West.
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I was there in the spring of
1988 when the Reagan
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Gorbachev Summit was
happening in May, and they
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did a pop up of McDonald's
just to introduce it.
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People were very excited
and there were all these
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lines to line up and see
it.
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I waited for a little while
and I kept saying to my
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friends, "really, this is
not what you want to wait in
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line for." I mean, no
offense to McDonald's, but
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it's not great food, you
know, but they were just
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excited for anything
American because they really
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loved American products.
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They loved American
fashion. They loved American
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food. They loved any
information they could get
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about America.
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McDonald's hired 630 workers
out of 27,000
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applicants, and all
employees were trained to
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smile. Totally opposite
from Soviet culture at the
[140]
time.
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The indoctrination of the
young staff has created a
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pep rally enthusiasm that
confounded some first day
[147]
customers.
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Because it's very unusual
for Soviet people to be kind
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and to be polite to
everybody.
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The fast-food giant quickly
expanded into Russia,
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eventually adding about 850
locations, the largest
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American exposure to Russia
since it owns a majority of
[166]
its restaurants.
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McDonald's in Russia was
somewhat popular.
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It accounted for about 9%
of McDonald's global
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revenue. But that's mostly
because McDonald's owned the
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majority of its restaurants
in Russia.
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But it was only about 2% of
its systemwide sales, which
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is an indication of every
customer who goes and buys a
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Big Mac and McNuggets.
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Not necessarily how much
money trickles through to
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McDonald's overall.
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On March 8th, 2022,
McDonald's announced its
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plans to temporarily close
restaurants and pause
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operations in Russia in
response to the country's
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invasion of Ukraine.
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McDonald's took some time to
finally make a statement and
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to shut down its
restaurants in Russia.
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I believe it was about a
week after the Kremlin
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initially invaded Ukraine,
and in that time, they had
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come under pretty heavy
criticism, particularly from
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Yale professor, Jeffrey
Sonnenfeld, for failing to
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say anything on the matter,
for failing to say anything
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with regards to well-wishes
for the Ukrainian community,
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the Ukrainian operators,
that kind of thing.
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Amid pressure for US
companies to shut down their
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presence in Russia.
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Other fast-food chains have
followed suit.
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But unlike McDonald's,
those chains don't actually
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operate the locations
themselves.
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Later in the day, Starbucks,
PepsiCo and Coca-Cola
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announced their plans to
pause business activity in
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Russia. Yum Brands, which
franchises about 1000 KFC
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restaurants and 50 Pizza
Hut locations in Russia,
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decided to suspend all
investment and restaurant
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development in the country.
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Burger King, which entered
Russia through a joint
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venture agreement, is
moving to divest its 15%
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stake in the Russian
business and suspending all
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corporate support to its
800 franchised locations.
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It's a way of symbolically
showing that we don't stand
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with their actions in
Ukraine, but it's also a way
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of cutting off Russia from
the West, from the US.
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And I think also this is
part of a general movement
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as a whole for US companies
to respond to political
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movements, things that go
beyond just selling
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hamburgers. Think about
like the Black Lives Matter
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movement, for example, in
June of 2020.
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There's no telling when or
if McDonald's will resume
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its operations in Russia,
but the company is taking
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quite a hit to its bottom
line.
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84% of its 850 locations in
Russia are operated by
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McDonald's. The rest are
operated by franchisees.
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McDonald's CFO has said
it's losing about $50
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million per month during
the shutdown, or roughly
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$0.05 to $0.06 per share.
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We're working through the
exact impact of all of that
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right now, but it also will
include things like paying
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our lease costs for mostly
leased sites in Russia.
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We'll have some supply
chain related costs and some
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various other costs.
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McDonald's has also closed
its 108 locations in Ukraine
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for safety reasons.
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Russia and Ukraine together
account for roughly 2% of
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McDonald's systemwide sales
and 3% of its operating
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income. In the meantime,
the fast-food chain has
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committed to still paying
its employees in both
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countries.
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If they continue to pay
their employees, 62,000
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employees in Russia, that
impact will remain at around
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that $50 million per month.
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If they stop paying their
employees, I think that
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number comes down
dramatically. We just don't
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know if or when they will
stop paying their employees
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in that market.
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I think once they do, I
think it's kind of another
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retrenchment backwards.
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It takes much longer for
them to restart operations
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there. If they don't have
employees, it'll take a lot
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longer to do.
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McDonald's said in a
statement that "at this
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juncture, it's impossible
to predict when we might be
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able to reopen our
restaurants in Russia." Some
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analysts expect that those
Russian restaurants won't
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reopen until the end of the
year.
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Some predict this move
could be permanent.
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If this comes to a
resolution over the coming
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weeks or months.
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It's possible that they can
restart operations, and
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again, it will be much
easier for them to restart
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operations if they're
continuing to pay employees
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and have them on the
payroll versus they stop
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paying people and they have
to go find other jobs.
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It'd be much more difficult
to find those 62,000
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employees again and restart
operations.
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Another concern is the
possibility of sales across
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broader Europe slowing down
as the war continues, as
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well as the overall risk of
globalization.
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One thing is for certain
the end of McDonald's in
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Russia would be just as
historic as its beginning.
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The trouble is, those who
support the war are probably
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going to view it as another
unjust action by the West
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for what they think is a
modest military operation in
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Ukraine that they've been
convinced is totally
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justified. And so hugely
symbolic on the way in for
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everyone. A different
symbolism on the way out.
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And of course, Sarah, Pepsi
was the first one in there,
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1984. And that was, Mike
said in his meeting, that's
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gone too.
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