U.S. fast food giant McDonald’s confirmed earlier this week that it will permanently leave Russia, ending over 30 years operating in the country.
The move is not only hugely symbolic but comes at a time when Russia is wooing Eastern and Latin American brands to replace the roster of Western companies shuttering stores temporarily or permanently.
The opening of McDonald’s first outlet on Moscow’s Pushkin Square in January 1990 became an emblem of a Cold War thaw and just a year later the Soviet Union collapsed and Russia opened up its economy to Western businesses.
Yet more than three decades later, dozens of retail and F&B corporations have temporarily shuttered their stores or have announced their permanent departure from Russia, prompting the country to try and attract brands from Turkey, China, Brazil, and India.
These markets have – for now – remained largely neutral on the Russian invasion of Ukraine and desperate Russian malls hope they can plug the huge gap left by Western brands with new operators.
The worst case scenario for Russian shopping centers could see as many as 30-40% of stores left empty, and Bulat Shakirov, president of The Russian Council of Shopping Centers (RCSC) – the organization representing shopping center owners and retailers – confirmed in March that its representatives had visited Turkey aiming to attract more than 200 brands, with a similar mission slated for China.
Amid the exodus, Indian retailers have also spied an opportunity. Companies like home furnishing retailer Maspar and fashion retailer Killer Jeans are understood to be looking to open in Russia, while at least four companies have already agreed franchise agreements in Russia, with another dozen or so expected to follow suit.
India has taken a neutral stance in the conflict and, despite mounting evidence of war crimes in Ukraine, is for now continuing to do business with Russia, citing crucial defence, oil and food supply needs.
The RCSC said it was negotiating with its corresponding representatives in the four countries about finding alternatives to western brands.
“A list of foreign companies that have temporarily ceased operations in Russia was sent to them so that appropriate equivalents can be found,” affirmed a statement on the RCSC website. “Over time this will help supplement or completely replace goods of the defunct brands with ones of a similar quality and design.”
Domestic fashion companies are also upping their growth plans and are opening new locations, among them Detsky Mir, Sportmaster and Gloria Jeans.
McDonald’s Exits Russian Market
McDonald’s departure comes after it temporarily closed its 850 outlets in March and the fast food giant said Monday that its decision followed the “humanitarian crisis” and “unpredictable operating environment” caused by the Ukraine war.
In a message to staff and suppliers, McDonald’s chief executive Chris Kempczinski, said: “This is a complicated issue that’s without precedent and with profound consequences. Some might argue that providing access to food and continuing to employ tens of thousands of ordinary citizens, is surely the right thing to do. But it is impossible to ignore the humanitarian crisis…And it is impossible to imagine the Golden Arches representing the same hope and promise that led us to enter the Russian market 32 years ago.”
McDonald’s said it would sell all its sites to a local buyer and would begin the process of ‘de-arching’ the restaurants, removing its name, branding and menu. It will retain its trademarks in Russia.
McDonald’s is to write off a charge of up to $1.4 billion to cover the exit and said its priorities include ensuring its 62,000 employees in Russia continue to be paid until any sale is completed and that they had “future employment with any potential buyer”.
Western Retailers Face Tough Choices
The move begs the question what will happen to other Western retailers and F&B brands operating in Russia with, for example, furniture and homewares giant IKEA sitting on a slate of IKEA-anchored shopping centers.
Back in March, amid public pressure, a host of international companies announced they were pausing operations in Russia, hoping the situation would resolve, allowing them to reopen. International brands, including Starbucks
Regardless, the prospects of Western retailers reopening in Russia appear increasingly bleak and Russia’s malls are already looking East for salvation.