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