For companies going global, the BRIC countries have long been focal targets—growing, increasingly open and welcoming regions in which they could access new consumer markets. For consumers in these rapidly developing economies, the most popular entrants often came bearing food. Westernized menu items like hamburgers, coffee, and sweets appealed to consumers who sought a cutting-edge, hip, and cosmopolitan image.
But with Russia’s illegal invasion of Ukraine, consumers in one of those BRIC nations find themselves without any access to the Big Macs and Frappucinos they have grown accustomed to finding. McDonald’s, Starbucks, KFC, and Pizza Hut all halted operations and closed their company-owned stores throughout Russia in the weeks following the invasion. These moves meant the closures of hundreds of store locations throughout the country.
However, it does not necessarily mean the brands are disappearing completely. Most of them rely on franchising models, such that they maintain some restaurants owned by the parent corporation but license others to local franchisees. Those local owners might choose to keep the restaurants open for a while, at least until sanctions leave them unable to replenish their supplies.
In addition to these complicated relationships with franchisees, the brands must determine what to do about the tens of thousands of local employees who work for them. Sanctions make it difficult to continue paying them, but the brands also express an unwillingness to leave their individual employees completely bereft and without any income. Similarly, for brands like McDonald’s that have worked to build local supply chains for their meat and potatoes, abruptly halting all orders threatens to harm small suppliers and vendors that likely have come to rely on the purchases it makes.
The decision to leave, whether in the short term or for good, is also difficult from a strategic and financial perspective. Businesses logically must consider their long-running, determined efforts to enter the markets and the beneficial profits they make there. For McDonald’s for example, the Russian market is highly profitable. It accounts for about 3 percent of the restaurant corporation’s operating expenses, but it provides 9 percent of its revenues. Overall, the fast food sector has exhibited substantial growth in Russia in recent years too, so leaving means a painful loss of revenue.
But the situation and the grave risk to Ukraine it constitutes, as well as the legal sanctions imposed by the United States and other nations, mandate that the companies drastically limit their operations. Still, if and when the war comes to an end, they might regret giving up whatever gains they have made in the Russian market; the hope (whether reasonable or not) might be that they will be able to return to a different Russia, one in which customers fed up with the damages of Vladimir Putin’s warmongering reject his government and express longing for closer connections with, and purchases from, the West.
Discussion Question:
- Consider the analysis of the Russian market in Chapter 8. Have there been any hints of the risks of investing in this BRIC nation in the recent past? Should companies have anticipated the potential threat of a geopolitical crisis?
- How might brands use the experience of the war in Ukraine to establish contingency plans for their global operations in other potentially unstable settings?
Source: Julie Creswell, “Food Companies, Long Symbols of the West in Russia, Pause Operations,” The New York Times, March 8, 2022