What is in this article?:
- Crimea crisis complicates restaurant business in Russia, Ukraine
- Working with local partners
- Expansion plans on hold
The current conflict presents unique challenges to Western businesses, including restaurants, which have been monitoring the situation closely.
Working with local partners
Russian resentment toward the United States likely would spring from whatever economic sanctions the Obama administration and Congress decide to impose in response to Moscow’s move to annex the Crimea peninsula from Ukraine, observers of the situation said.
President Obama announced new sanctions March 20, including freezing the U.S.-held assets of 20 high-ranking Russian individuals with close ties to Russian President Vladimir Putin, as well as the freezing of assets of Russia’s Bank Rossiya.
The sanctions could undo much of the goodwill built between the United States and Russia in recent years to open up the latter country to Western businesses, Derek Bloom, an employment attorney based in the Moscow office of Marks & Sokolov, said this week during a webinar, “Russia and Ukraine: What Employers Need to Know and Do During Times of Crisis.” Bloom noted that Putin has indicated publicly that Russia would respond “asymmetrically” to sanctions from the United States.
“The threat by Russia is contradictory to a multiyear effort to improve the investment environment in Russia,” Bloom said, “and it could undermine a lot of effort made in the last decade to make it easier for foreigners to work in Russia.”
Historically, it had been difficult to get visas and work authorization for a Western executive to live in Russia to establish and run a brand as well as train Russian staff, but usually the country’s immigration service would not strictly enforce quotas, Bloom said. That is likely to give way to a tougher “no-exceptions” attitude in the current geopolitical climate, he said.
Bloom also noted that brands doing business in Russia should double-check their political-risk insurance and work with their local partners and franchisees to ensure as much compliance as possible with changing Russian labor laws.
Mike Shattuck, president of Focus Brands International, said he and his team are monitoring closely “the tit for tat” that could arise between the United States and Russia, where Focus has 118 Cinnabon units, 11 Auntie Anne’s locations and three Moe’s Southwest Grill restaurants. However, he added, the most important thing Focus or other franchisors with interests in Russia could do right now is work closely with local staff and partners.
“We have a lot of good contacts on the ground there, so we’ll leverage our local network in Russia to keep our finger on the pulse, and that’s what we can do,” Shattuck said.
Like Snead, he worries some about anti-Western backlash: “There could be a retaliation against U.S. brands operating in the market,” he said, “and we’re not low-profile there.”
Beyond keeping its Russian workforce safe, Focus also is developing contingencies for other business disruptions on Shattuck’s radar, such as a theoretical suspension of trade between Russia and Europe, which would make it difficult to supply ingredients to the restaurants, or a scenario in which Russia froze the movement of capital from its restaurants and banks back to the United States.
“The flow of currencies could be a problem, because every remittance made to the U.S. has to be approved,” he said. “That could be a risk to our royalties and franchise fees.”
Snead agreed and added that the decline in the value of the Russian ruble is spiking food costs and the cost of labor, as executives from within Russia or from the United States have reservations about working in an uncertain environment.