No more Big Mac in Moscow, but at least Ukrainians can enjoy the iconic burger again. A new restaurant chain is opening to replace McDonald’s in Russia, while old restaurants can finally reopen in Ukraine. Fast food was once one of the most powerful symbols of easing Cold War tensions, but now McDonald’s is leaving Russia after 32 years. Let us explore the burger war!
The war from the fast-food restaurants’ perspective
It was 4 am on 24 February in London when Ian Borden, McDonald’s President of International Operations, sent an urgent message to his boss, CEO Chris Kempczinski in Chicago. Vladimir Putin had announced an hour earlier the Russian invasion of Ukraine; attacks started against Kyiv, Kharkiv, and Odesa. Borden told Kempczinski that the company’s 109 Ukrainian restaurants would be closed but that McDonald’s would continue to pay the wages of its more than 10,000 employees in the country.
Subsequently, McDonald’s also joined the list of companies that have stopped doing business in Russia due to the invasion of Ukraine. This step came as the Russo-Ukrainian war put increasing pressure on companies to act. “Our restaurants are closed for safety reasons; however, those located in the areas that are currently safe (as far as it’s possible) for our employees provide food to local communities. Local authorities take the products and distribute them where they are most needed,” the statement by McDonald’s Ukraine said. The products in question are those that do not require cooking: rolls, donuts, desserts, cheese, milk, water, juices, tomatoes, apple slices, as well as eggs, cups, forks, spoons, and mixers.
Unlike its rival, Burger King is still open in Russia but has pledged $3 million to support Ukrainian refugees and announced that free Whopper meal vouchers would be distributed to refugees arriving in European countries. Restaurant Brands International Inc. (RBI), the holding company behind Burger King, claimed it would donate profits from its more than 800 franchises in Russia to humanitarian causes. The company told BBC that its restaurants are run by franchisees with whom RBI has „long-standing legal agreements” that are not easily changeable at this point.
The other competitor, KFC, has opened its kitchens for cooking for military hospitals, territorial defense, military forces, and other organizations in need. „We call out to the restaurant business all over Ukraine to join, open their kitchens to cook and deliver food to those who need it most now,” their statement said.
Slow reopening in Ukraine
McDonald’s announced on 11 August that they would begin a phased reopening of some of their restaurants in western Ukraine and the capital, Kyiv, where other US companies, including Nike, are also open. “We have spoken extensively to our employees who have expressed a strong desire to return to work and see our restaurants in Ukraine reopen,” Paul Pomroy, Corporate Senior Vice President of International Operated Markets, said in a message to the corporation’s employees. He added that “in recent months, the belief that this step would support a small but important sense of normalcy has grown stronger.”
The decision was taken after discussions with Ukrainian officials, security experts, and suppliers. McDonald’s has 109 restaurants in Ukraine, but it was not announced yet how many will reopen and when they will reopen, it is also a secret where they will first welcome customers. The Ukrainian economy has been terribly hit by the war, but the reopening of businesses, even if on a limited scale, would help the situation. To illustrate the plight, the International Monetary Fund expects Ukraine’s economy to shrink by 35% this year.
No Big Mac after 32 years
While in Ukraine, McDonald’s begins its reopening, in Russia, the corporation has sold 853 of its restaurants to a licensee, although it will retain its brand in the country. „The continuation of business in Russia is no longer sustainable and is not consistent with McDonald’s values,” the company said in a statement, pointing out that Russian forces led by President Vladimir Putin have been accused of a range of war crimes in their invasion of Ukraine.
Anna MacDonald, a fund manager at Amati Global Investors, told the BBC Radio 4 Today Programme that firms who were joining the wave of corporations leaving Russia were doing so because shareholders and wider stakeholders would not stand for the continued generation of revenues and profits from the country. „It was affecting our share prices, and the feeling was that it was just utterly inappropriate to continue to do so,” she added.
CEO Chris Kempczinski said in a letter to employees that it is „impossible to ignore the humanitarian crisis caused by the war in Ukraine and it is impossible to imagine the Golden Arches representing the same hope and promise that led McDonald’s to enter the Russian market 32 years ago.” After all, it has been more than 32 years since McDonald’s opened its first restaurant, in Moscow, symbolizing the easing of Cold War tensions. By then, the Soviet system was falling apart, and Western businesses and ideas could infiltrate behind the Iron Curtain. After the opening, hundreds of people queued up to try McDonald’s burgers and fries in Moscow’s Pushkin Square. As the Cold War ended, the arrival of the American fast food restaurant chain was a key moment in opening up the Soviet Union’s economy.
„If you cannot go to America, come to McDonald’s in Moscow” was a McDonald’s advertising slogan in Russia at the time. Kristy Ironside, an economic historian of Russia at McGill University, told NPR’s All Things Considered that in many ways, the departure of the Golden Arches is as symbolic as their arrival in 1990.
The „M” stays, but so does the taste? – Vkusno i tochka
In February, McDonald’s still owned 84 percent of its stores in Russia, and its Russian and Ukrainian restaurants accounted for 9 percent of its annual revenue, or about $2 billion. The fast-food chain initially said its top priority was to ensure that its 62,000 local employees would receive their salaries until a final agreement on the sale was reached and they could get jobs with the new owner.
Before long, Alexander Govor, who had 25 McDonald’s franchises in Siberia, bought the remaining 853 stores in Russia and started reopening the former McDonald’s restaurants under a new brand name, Vkusno i tochka, meaning „Tasty and that’s it.” The new restaurant chain was launched with the opening of a store in Moscow’s Pushkin Square as part of a sales deal, the financial terms of which were not announced; however, the new company agreed to keep all 62,000 McDonald’s employees.
Not much else will change: Govor says there is no reason to reinvent the wheel of McDonald’s world-famous system. The logo is different but still evocative of the golden arches: a circle and two yellow elongated flaps, representing beef hamburger patties and French fries, turned into a stylized letter „M”. Social media users have noticed that the logo is similar to other popular brands’ logos, including the Japanese chain Mos Burger, Marriott hotels and the Warner Brothers logo from 1972. Others have compared it to a drowning stick figure, cricket bats, or the flag of Bangladesh. According to the newspaper Izvestia, Sistema PBO, the company controlling the former McDonald’s stores, has submitted eight possible names to Rospatent, the Russian government agency in charge of intellectual property. Among the names reportedly under consideration were „Tot Samyi,” meaning „The Same One”, and „Svobodnaya Kassa,” which translates to „Available Cash Register.” McDonald’s has assured that Russian beef, chicken, and potato suppliers will remain unchanged.
Of course, the classic menu items will also have to be renamed. The Filet-O-Fish has been rebranded as Fish Burger, and the burgers are now called Grand instead of Royal. The McDonald’s app’s name has changed to My Burger for Russian users, but Reuters reports that the change is only temporary. The app’s home page reportedly featured a slogan: „some things are changing, but stable work is here to stay”. Of course, there has been plenty of criticism of the „new” restaurant chain’s products. Some have complained about the expired cheese sauce, and others said they found insects in their burgers. However, it is worth adding, that the new scheme has not yet been in operation long enough to draw any firm conclusions about the products’ quality.
They are indeed better off without the Russians
According to RBC Capital Markets analyst Christopher Carril, the decision to sell could eventually boost the stock price despite the temporary setback. „Looking ahead, the sale of MCD’s Russia operations will effectively shift MCD’s franchised mix to ~95%, from ~93% prior, a benefit to margins in a challenging cost environment, and ultimately the stock, in our view,” Carril wrote in a note to clients on Monday. The fast-food giant also said that they actually improved operating margins with the sale. CFO Kevin Ozan told investors that the Russian business had an operating margin below the global average. This means that selling Russian restaurants has improved the operating margin.
However, this good news should be tempered a little because the withdrawal from the Russian market cost the company around $1.2-1.4 billion. In addition, McDonald’s said the suspension of operations in Ukraine and Russia cost $127 million, or 13 cents per share, in the first quarter alone.
Graphics by Réka Pisla