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Mar 8, 2022

McDonald’s to shutter 850 Russia stores after backlash

Activist investor Carl Icahn says he wants McDonald's suppliers to treat animals better

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McDonald’s Corp. is temporarily closing all 850 Russia locations, following mounting criticism that the fast-food chain failed to act quickly following the nation’s invasion of Ukraine.

The company will continue paying its 62,000 employees in Russia, McDonald’s said in a letter Tuesday from Chief Executive Officer Chris Kempczinski. McDonald’s has also temporarily closed its 100 locations in Ukraine and continues to pay its employees there. 

“As we move forward, McDonald’s will continue to assess the situation and determine if any additional measures are required. At this juncture, it’s impossible to predict when we might be able to reopen our restaurants in Russia,” Kempczinski said. “We are experiencing disruptions to our supply chain along with other operational impacts. We will also closely monitor the humanitarian situation.” 

European and U.S. companies are increasingly pausing operations in Russia after its invasion, which has resulted in civilian deaths, hardship and a refugee crisis. Unlike many restaurant peers, which franchise in Russia, the majority of McDonald’s locations in the country are owned and operated directly by the company. This means the situation for McDonald’s is more complex, as it has to consider the day-to-day business of running a restaurant.

McDonald’s shares rose 0.9 per cent to US$226.41 at 1:41 p.m. in New York. The stock has tumbled about 15 per cent so far in 2022, greater than the decline of the S&P 500 over the same period.

The suspension of operations marks a historic reversal for the burger company that’s become a face of globalized business. With its 1990 arrival in Moscow, which was then part of the Soviet Union, the company became a powerful symbol in the ascent of capitalism over communism. A reported 30,000 people lined up at the restaurant on its first day of operations.

Today, while only about 2 per cent of all McDonald’s restaurants are in Russia or Ukraine, they account for about 9 per cent of global revenue, mostly due to the fact that the majority are directly owned and operated by McDonald’s. 

However, Cowen Inc. analyst Andrew Charles said last week that the exposure to Russia and Ukraine is “immaterial” to McDonald’s despite the large chunk of revenue. That’s because the countries account for less than 3 per cent of operating profit, or US$311 million of the US$10.4 billion in operating profit that McDonald’s reported last year.

James Rutherford, an analyst with Stephens, said that McDonald’s decision to forgo sales and continue paying staff “could temporarily cause a more pronounced impact on operating income than the 3 per cent operating income mix would suggest.” However, this may be at least partially offset by the decline of the ruble versus the dollar, he wrote in a research note.