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  • Writer's pictureThe San Juan Daily Star

Food companies, long symbols of the West in Russia, pause operations

The Pushkin Square McDonald’s in 2020. The company said it was temporarily closing its nearly 850 locations in Russia.

By Julie Creswell

When McDonald’s opened its doors in Moscow’s Pushkin Square in 1990, it was welcomed by more than 30,000 Russians who happily waited hours in line, eager to spend a sizable chunk of their daily wages for a taste of America.

Through burgers and fries, a food diplomacy was forged, one that flourished over the past three decades as corporations like McDonald’s and PepsiCo, private investment firms, and individuals plunged billions of dollars into building factories and restaurants to bring food, culture and good-old American capitalism to Russia. It was perestroika and glasnost sandwiched between two buns.

“McDonald’s was more than the opening of a simple restaurant,” Marc Carena, a former managing director of McDonald’s Russia, told Voice of America in 2020 when the Golden Arches celebrated the 30th anniversary of its first location in what was the Soviet Union. “It came to symbolize the entire opening of the USSR to the West.”

But Russia’s invasion of Ukraine has changed everything, and food companies and restaurant chains have struggled with how to respond. Amid mounting pressure to act, McDonald’s announced Tuesday that it was temporarily closing its nearly 850 locations in Russia and halting operations in the country.

“In the 30-plus years that McDonald’s has operated in Russia, we’ve become an essential part of the 850 communities in which we operate,” Chris Kempczinski, the company’s CEO, said in a statement announcing the move. He noted that the company employed 62,000 people in the country.

Soon after the McDonald’s announcement, other prominent food companies and restaurants followed. Starbucks said it, too, was closing all of its locations in Russia, where they are owned and operated by Kuwaiti conglomerate Alshaya Group. Coca-Cola said it was halting sales there.

And PepsiCo, whose products have been in Russia since the early 1970s, said it would no longer sell Pepsi and 7-Up there but would continue to produce dairy and baby food products in the country as a “humanitarian” effort and to keep tens of thousands manufacturing and farmworkers employed.

Investors, as well as social media users, have been applying pressure on businesses to pull out of Russia, especially fast-food chains, which have been criticized for lagging behind other companies with decisions about their Russia operations.

For food companies that have spent decades cultivating the Russian market, the act of pausing or ceasing operations in the country is complex. It involves unwinding often byzantine local supply and manufacturing chains, addressing the fates of tens of thousands of Russian employees, and untangling close ties with Russian banks, investors and others that allowed them to flourish all these years.

Russian operations make up only 3% of McDonald’s operating income but 9% of its revenue. Likewise, Russia accounts for $3.4 billion, or 4%, of PepsiCo’s annual revenue of $79.4 billion. The company says on its website that it is the largest food and beverage manufacturer in Russia. It owns more than 20 factories in the country.

Some companies — like Yum Brands and Papa John’s, which have hundreds of restaurants bearing their names across Russia — most likely have less control over whether those restaurants close because many are owned by individuals or groups of investors through franchise agreements, franchise experts said.

“It’s messy,” said Ben Lawrence, a professor of franchise entrepreneurship at Georgia State University. As long as the franchisees are meeting the requirements under their agreement and paying the royalty fees, it’s hard to tell them to shut down, he said.

Yum, which owns KFC and Pizza Hut, said Tuesday that it was suspending operations at 70 company-owned KFCs and all 50 franchise-owned Pizza Huts in Russia. (The vast majority of the 1,000 KFCs in Russia are franchise-owned and, at this time, not part of these suspensions.) Yum also said it would suspend all “investment and restaurant development” in Russia and divert any profits from the region to humanitarian efforts.

McDonald’s, which has invested millions of dollars into building restaurants in Russia and is a symbol of American culture, has felt the effect of geopolitics before. In 2014, when the United States and other nations imposed economic sanctions on Russia over its annexation of Crimea, authorities suddenly closed down a number of McDonald’s locations in Russia, including in Pushkin Square, citing sanitary conditions. The Pushkin Square location reopened 90 days later.

For the better part of the past two decades, Russia has been one of the fastest-growing markets for American brands, particularly fast-food chains. McDonald’s, KFC, Subway and others thrived not only because they were a midday glimpse of Western civilization but also because they were relatively cheap places to grab a meal.

Visits to fast-food restaurants in Russia in 2018 grew 13%, according to a report by research firm NPD Group, as consumers turned to the inexpensive restaurants for “the best in terms of price and portion size.” Last year, traffic jumped 21% as the industry rebounded from COVID-19, the group noted.

“I could succeed in my sleep, there is so much opportunity here,” Christopher Wynne said in a New York Times interview in 2011. A Colorado native who arrived in Russia with the National Nuclear Security Administration in the early 2000s, Wynne soon saw other opportunities, buying into and becoming the largest Papa John’s pizza franchisee in Russia. (He also owned restaurants in Poland and Germany.)

In May 2021, Wynne’s company, PJ Western, which now holds the exclusive rights to sell Papa John’s pizza in the region, showed plans to open about 30 stores each year in Russia through 2029 and forecast that sales would more than quadruple during that time.

The document also shows the close ties that Wynne has forged with others to expand the business in Russia. Partners include Alex Ovechkin, a Washington Capitals hockey star who has previously expressed support for Russian President Vladimir Putin; Finnish private equity firm CapMan; and Russian private equity firm Baring Vostok.

Emails sent to PJ Western, Papa John’s, Ovechkin, CapMan and Baring Vostok seeking comment were not returned.

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