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New York (CNN Business)McDonald’s became the symbol of glasnost in action 30 years ago when it opened its first restaurant in Moscow. But after temporarily shutting down more than 800 restaurants following the invasion of Ukraine, McDonald’s has decided to leave Russia altogether.
The burger chain will sell its Russia business, saying the “humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald’s values.”
In March, shortly after the war began, McDonald’s followed other Western companies and temporarily shut down its restaurants in Russia.
Once the sale is finalized, the Russian restaurants will be “de-Arched,” meaning the locations will no longer be allowed to use the McDonald’s name, logo or menu. McDonald’s (MCD) said its employees will still be paid until the transaction closes and that “employees have future employment with any potential buyer.”
CEO Chris Kempczinski said he’s proud of the more than 60,000 workers employed in Russia and said the decision was “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,” he said.
End of an era
The decision brings to a remarkable end McDonald’s three-decade relationship with Russia. McDonald’s opened the doors of its first restaurant in Moscow on January 31, 1990. More than 30,000 were served and the Pushkin Square location had to stay open hours later than planned because of the crowds.
Its arrival in Moscow was about more than just Big Macs and fries, noted Darra Goldstein, a Russia expert at Williams College. It was the most prominent example of Soviet Union President Mikhail Gorbechev’s attempt to open up his crumbling country to the outside world.
“There was a really visible crack in the Iron Curtain,” she previously said. “It was very symbolic about the changes that were taking place.” About two years later, the Soviet Union would collapse.
McDonald’s exit “represents a new isolationism in Russia, which must now look inward for investment and consumer brand development,” said Neil Saunders, managing director of GlobalData said in a note Monday. He added that other Western brands take “principled stance on the concepts of freedom and democracy” and revisit their businesses in Russia.
A big cost to leaving
McDonald’s will take a significant write-off from exiting Russia — between $1.2 billion to $1.4 billion. Shares were barely changed in premarket trading.
“The fact that McDonald’s owns most of its restaurants in Russia means there is an asset rich business to sell,” said Saunders. “However, given the circumstances of the sale, the financial challenges faced by potential Russian buyers, and the fact that McDonald’s will not license its brand name or identity, it is unlikely the sale price will be anywhere near the pre-invasion book value of the business.”
In its most recent earnings report, McDonald’s said closing its restaurants in Russia had cost it $127 million last quarter. Nearly $27 million came from staff costs, payments for leases and supplies. The other $100 million was from food and other items it will have to dump.
McDonald’s had 847 restaurants in Russia at the close of last year, according to an investor document. Together with another 108 in Ukraine, they accounted for 9% of the company’s revenue in 2021.
— CNN Business’ Danielle Wiener-Bronner contributed to this report.
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