Why some global fast-food chains remain open for business in Russia
There are no Tim Hortons restaurants in Russia, but that hasn’t stopped scores of Canadians from sending the restaurant chain angry messages on social media about doing business in the country.
Their actual target is the chain’s owner, Restaurant Brands International (RBI), which also owns Burger King — a fast-food chain that’s still open for business in Russia.
Toronto-based RBI says its 800 Burger Kings in the country remain open because they’re stand-alone franchise operations that are independently owned.
But the explanation still doesn’t sit well with Canadians who want businesses to suspend all operations in Russia, to protest its invasion of Ukraine.
“Everything has to be done to try and put an end to this,” said Dan Goldstein of Montreal, who has Ukranian-Jewish roots and is a descendant of holocaust survivors.
He posted multiple complaints about Burger King’s presence in Russia on the Tim Hortons Facebook page because of his concern for the people of Ukraine.
“We’re dealing with a despotic regime … that really has no interest in terms of what’s right or wrong,” said Goldstein. “Anybody who has any ability to make an impact has a moral imperative to to do what they can.”
Many companies pull out
By Tuesday, several multinational companies, including McDonald’s, Starbucks and Coca-Cola, announced they would suspend all business operations in Russia.
RBI said while its Burger King franchise locations remain open, it will suspend all corporate support for the Russian market and redirect corporate profits from the franchise operations to help support Ukrainian refugees.
“We are watching the attack on Ukraine and its people with horror and are focusing our efforts in the region on contributing to the safety of Ukrainians seeking shelter and security,” said an RBI spokesperson in an email.
Restaurant chains KFC and Subway announced similar plans for their Russian operations. They will redirect profits and support humanitarian efforts in Ukraine, but KFC’s approximately 900 franchise locations will stay open as will Subway’s approximately 450 franchise locations.
However, other restaurant chains have suspended all operations in Russia, including their independently-owned locations.
Although franchisee-owned KFCs in Russia remain open, its parent company, Yum! Brands, announced on Tuesday it’s finalizing an agreement to temporarily close the company’s 50 Pizza Huts in the country, most of which are also franchisee-owned.
Last week, Starbucks denounced Russia’s attack of Ukraine, but kept open its 130 stores in the country owned by a licensed partner. Then on Tuesday, the coffee chain giant announced its partner had agreed to temporarily close up shop.
McDonald’s confirmed to CBC News on Thursday that it is closing its more than 800 restaurants in Russia, including the small portion that are franchisee-owned.
Chains still in Russia respond
CBC News asked Yum! Brands, Subway and RBI why they’re unable to temporarily close all franchise operations in Russia.
Yum! Brands did not respond.
Subway said it doesn’t directly control independent franchisees and their restaurants.
RBI spokesperson Leslie Walsh said in an email that Burger King has “long-standing legal agreements” with its franchisees in Russia “that are not easily changeable in the foreseeable future.”
Toronto-based franchise lawyer Ed Levitt, with the firm Dickinson Wright, said franchisors don’t have the power to arbitrarily shut down their franchisees, even if head office has a compelling argument.
“If it’s not specified in the agreement, that power isn’t given to the franchisor. That’s just the reality,” said Levitt.
He said the franchisor would have to negotiate an agreement with the franchisee to close up shop, and that might be a challenge for some companies doing business in Russia.
“The franchisees, I guess they’re Russian, right? Maybe their sympathies are completely with Russia, and they don’t want to make this statement, this embargo and close down,” he said.
Levitt said some companies may have been able to broker a deal with their franchisees by offering financial incentives to help soften the blow.
McDonald’s said on Tuesday it will continue to pay salaries of its 62,000 employees in Russia now out of work due to the company’s exit from the country.
‘Not a good look’
Regardless of the reason behind it, businesses staying open in Russia causes an optics problem.
“To have their brands associated with a dictatorial regime that is creating all sorts of death and destruction in Ukraine, that’s not a good look,” said Rob Person, a professor of International Relations at the Military Academy in West Point, N.Y., speaking in a personal capacity.
He said, along with economic sanctions, the aim of the businesses pulling out is to convince the Russian people they need to take a stand against Russian President Vladimir Putin.
“If there are hundreds of thousands of Russians that go out into the streets protesting against him as things get worse and worse, I think that’s about the only thing that could influence Putin on this,” said Person.
Levitt suggests any Russian franchisees resistant to closing may eventually change their mind as public sentiment against Russia grows and/or the country’s economy crumbles, making it more difficult to run a profitable business.
“As public attitudes change, maybe the franchisor can convince them [to close] because it’s a good business decision, never mind being a political or moral decision.”