McDonalds announced Monday that it will exit its Russian business after more than 30 years of operation, in light of the country's ongoing invasion of Ukraine.
The fast-food giant said war has caused an unpredictable operating environment and that continued ownership is "no longer tenable, nor is it consistent with McDonald’s values." It's expected to cost $1.2 billion to $1.4 billion.
As part of the exit, McDonald's is pursuing the sale of its entire Russian portfolio—roughly 850 restaurants—to a local buyer. In the meantime, the chain will ensure all employees will be paid until the close of any transaction, and that they have future employment with a future buyer. McDonald's was the first U.S. fast-food chain to open in the Soviet Union, according to the AP. The company debuted not long after the fall of the Berlin Wall.
The company will "de-Arch" the restaurants, meaning stores will longer use the chain's name, logo, branding, and menu. However, McDonald's will keep its trademarks in Russia.
The move comes more than two months after McDonald's temporarily closed Russian stores, about 84 percent of which are company-owned. The chain's Ukraine business remains closed, as well, but the company is still paying full salaries of all employees, providing relief through Ronald McDonald House Charities, and supporting refugees with food donations, housing, and employment.
McDonald's executives said in Q1 the company spent $27 million on salary, lease, and supplier payments, as well as $100 million of costs for inventory in its supply chain that will “likely will be disposed of” due to temporary closures.
“We have a long history of establishing deep, local roots wherever the Arches shine," CEO Chris Kempczinski said in a statement. "We’re exceptionally proud of the 62,000 employees who work in our restaurants, along with the hundreds of Russian suppliers who support our business, and our local franchisees. Their dedication and loyalty to McDonald’s make today’s announcement extremely difficult. However, we have a commitment to our global community and must remain steadfast in our values. And our commitment to our values means that we can no longer keep the Arches shining there.”
Despite the upcoming transaction, McDonald's reaffirmed previously released 2022 projections, including 40 percent operating margin, more than 1,300 net restaurant openings, and between $2.1 billion to $2.3 billion in capital expenditures. Russia and Ukraine accounted for 2 percent of systemwide sales in 2021, but had a negligible impact on sales results in Q1.
Global same-store sales for McDonald’s rose nearly 12 percent in the year's opening quarter including 3.5 in the U.S. following a 13.6 percent jump in the comparable period last year. Revenues company-wide increased 11 percent to $5.7 billion as net income declined 28 percent to $1.1 billion.
Several restaurant chains paused operations in Russia because of the Ukraine conflict, including Starbucks, Yum! Brands, and Burger King.
Similar to McDonald's, Burger King is in the process of removing its ownership stake in Russia. The company, which holds 15 percent, entered the country 10 years ago through a joint venture partnership. The chain halted all corporate support for the Russia market, including operations, marketing, supply chain, and approval for new development. It also demanded the closure of Burger King restaurants, but its Russian partner refused.