Dive Brief:
- McDonald’s will sell its Russian business to a local buyer, as “ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald’s values,” the company announced in a press release Monday. The chain temporarily closed its restaurants and paused operations in Russia on March 8.
- The Golden Arches expects to record a charge of between $1.2 billion and $1.4 billion to write off its investment in the Russian market, which it first entered 32 years ago.
- McDonald’s shared in April that halting operations in Ukraine and Russia cost it $127 million. Most of that loss ($100 million) was attributed to supply chain inventory that operators were forced to dispose of.
Dive Insight:
If not for a sale, McDonald’s shuttered Russian units would continue to siphon from the company’s wallet. On the company’s Q1 earnings call, CFO Kevin Ozan said the continuation of employee salaries, lease and supplier payments in Russia and Ukraine would cost between $50 million and $55 million monthly.
Exiting the market comes with a cost, too. Russia and Ukraine generated around 9% of McDonalds revenue and represented 3% of operating income prior to Russia’s invasion of Ukraine in February, Neil Saunders, managing director of GlobalData, wrote in an emailed statement.
“While McDonald’s can take such a hit in its stride, it will leave a hole in its growth plans that is not easily filled in the near-term,” Saunders said.
Saunders wrote McDonald’s predicted $1.2 billion to $1.4 billion charge was a consequence of “financial challenges faced by Russian buyers and the fact that McDonald’s will not license its brand name or identity,” likely resulting in a sale price far below the business’s initial value. The mega chain will maintain its trademarks in Russia, but will remove the McDonald’s name, logo, branding and menu from its units in Russia in a process the company referred to as “de-Arching.”
The company will continue to pay its Russian employees until a sale is finalized and wants to ensure “employees have future employment with any potential buyer,” according to the press release. McDonald’s shared no plans to sell its Ukraine business, however, and its units there remain closed while the company continues to pay full employee salaries.
CEO Chris Kempczinski said on McDonald’s Q1 earnings call that the company would decide on next steps for its Ukraine and Russia businesses by the end of Q2, which makes Monday’s announcement a bit of a surprise. The company reaffirmed its 2022 financial outlook, including an expected 40% operating margin, in its press release.
“McDonald’s decision will likely make other brands, especially those from the US revisit their plans for Russia,” Saunders said.
A slew of major restaurant chains temporarily paused operations in Ukraine in Russia after Russian invaded Ukraine in February. It’s possible that the Golden Arches’ impending sale of its Russian units could spark sales across rival chains looking to minimize losses and backlash resulting from the war.
