McDonald’s leads fresh exodus of brands from Russia

McDonald’s led a fresh exodus of the west’s biggest consumer brands from Russia on Tuesday, with Coca-Cola, PepsiCo, Starbucks and Unilever among those halting or cutting operations in response to Vladimir Putin’s invasion of Ukraine.

The first McDonald’s to open in Moscow in January 1990 was seen as one of the markers of the end of the Soviet Union, with more than 30,000 people queueing up to buy a burger.

On Tuesday, though, McDonald’s said it will temporarily close all of its 850 restaurants in Russia and suspend other operations in the country. Hours later, Starbucks said the local licensee that operates its 130 cafés in Russia would also “pause” operations immediately.

Coca-Cola said it was “suspending its business” in Russia shortly before PepsiCo, the beverages and snacks group, announced it would suspend the production and sale of drinks brands including Pepsi while maintaining sales of “essential foods”.

Unilever said it had paused all imports and exports into and out of Russia, and would stop its advertising there but that it planned to continue supplying essential food and hygiene products made in Russia.

Yum Brands, which has over 1,000 restaurants in Russia, said on Tuesday it was suspending operation of the KFC outlets it owns and finalising plans to suspend its Pizza Hut operations in partnership with its master franchisee.

Putin’s invasion has triggered days of boardroom debates about how to protect employees in Russia while signalling concern for Ukrainian colleagues and their condemnation of the war.

McDonald’s will continue to pay its employees in Russia. Kevin Johnson, Starbucks’ chief executive, said it would “provide support” to its nearly 2,000 workers in the country and PepsiCo said maintaining its food business would let it support the livelihoods of its 20,000 Russian staff.

“The consumer goods [companies] were very late to the party but they did move,” said Jeffrey Sonnenfeld, a Yale School of Management professor who estimated that about 300 major companies have joined what he called “the business blockade”.

Companies were pulling out or pulling back now because “they realised that they were going to be on the wrong side of history”, he said.

Chris Kempczinski, McDonald’s chief executive, described western executives’ dilemma in a memo to staff and franchisees on Tuesday. The situation was “extraordinarily challenging” for a global brand such as McDonald’s, he said.

“For 66 years, we have operated with the belief that communities are made better when there’s a McDonald’s nearby,” he wrote, adding that the fast-food chain employs 62,000 people in Russia and serves millions of customers there each day.

“At the same time, our values mean we cannot ignore the needless human suffering unfolding in Ukraine,” Kempczinski said.

Russia and Ukraine together accounted for about 9 per cent of McDonald’s revenues last year, or more than $2bn. But the two countries contributed less than 3 per cent of its operating income, as it owns most restaurants there, making them less profitable than its franchised operations.

It was “impossible to predict” when McDonald’s would be able to reopen its Russian locations, Kempczinski said.

McDonald’s was the latest in a string of companies to put its business on hold in Russia, from tech groups to carmakers, but the Golden Arches stood out as a symbol of Russia’s opening to western brands in the post-Soviet era.

Levi Strauss’s blue jeans were once coveted on the Soviet black market and became popular after the fall of the iron curtain but this week it too said it would suspend commercial operations in Russia.

Ramon Laguarta, PepsiCo’s CEO, noted in an email to staff that Pepsi-Cola had entered the Russian market at the height of the Cold War, saying it had “helped create common ground between the United States and the Soviet Union”.

Consumer brands have diverged in their response to Moscow’s invasion of Ukraine as they struggle to respond to growing pressure from western employees, consumers and investors while doing the right thing by their Russian workers and customers.

Last Friday, the $280bn New York State Common Retirement Fund urged McDonald’s, PepsiCo and other consumer companies to consider pulling out of Russia in response to the crisis.

Additional reporting by Polina Ivanova in London