NRN editor and restaurant operations expert Ron Ruggless breaks down what you should be watching in the industry this week. Connect with him on the latest operations trends and news at @RonRuggless and [email protected].
U.S. restaurant brands have realized expansion opportunities over the past decade in the growing markets of Brazil, Russia, India and China, but an early and big player in the growth abroad this past month ran head-on into the downside.
McDonald’s Corp., you could say, hit a BRIC wall, especially in the R (ussia) part.
The world’s largest burger brand, which has more than 400 restaurants in Russia, objected on Friday to the Russian government’s recent decision to close a dozen of its restaurants after weeks of highly publicized health and safety investigations of its locations there.
See the latest McDonald's closures in Russia >>
“We are closely studying the content of the agency documents to determine what should be done to re-open the restaurants as soon as possible,” the company said in a statement.
The health investigations of the Oak Brook, Ill.-based McDonald’s franchised units came against a backdrop of heightened tensions between the United States and Russia over troops in the Ukraine and annexation of Crimea.
While Russian authorities maintain that the restaurants have been closed for health reasons, critics say the closures are a response to U.S. sanctions against Russia.
Such exposure to the uncertainties of geopolitics comes as more U.S. brands look for opportunities abroad. The BRIC countries have proved to offer prospects for major U.S. restaurant brands, but also a certain amount of hazards. The next frontier of Mexico, Indonesia, South Korea and Turkey — or the so-called MIST countries — harbor their own risks.
Meanwhile, the Russian news agency Ria Novosti on Friday reported that about 100 inspections of McDonald’s units were underway in various regions of the country.
Ria Novosti said Russia’s consumer watchdog division, Rospotrebnadzor, launched checks in 18 regions throughout central Russia. And the news agency said the 12 closures so far were politically popular among Russians polled by SuperJob’s Research Center, which found 62 percent of Russian respondents would support the closure of all McDonald’s restaurants in the country.
Multinational corporations have been a key driver in Russia’s economy, so a complete shutdown of a brand like McDonald’s is unlikely, observers note.
McDonald’s restaurants employ thousands of Russian citizens, so a ban on the brand would lead to sizable unemployment, according to a news analysis by George Zack of BidnessEtc.com.
“In addition, the spillover effect will further affect local Russian businesses since more than 80 percent of raw materials are sourced in from domestic businesses within Russia,” Zack noted.
Furthermore, Arkady Dvorkovich, Russia’s deputy prime minister, said earlier this week that Russian authorities have no plans of banning McDonald’s.
Among the dozen McDonald’s units temporarily shuttered was the popular one in Moscow’s Pushkin Square, the first store opened in Russia.
What McDonald's Pushkin Square unit signifies
(Continued from page 1)
Masha Gessen, in a New York Times opinion piece on Thursday, recalled the importance of that first unit to the nation.
“The first time I stood in line to enter Moscow’s first McDonald’s — then the largest McDonald’s in the world — was in the spring of 1991,” Gessen recalled. “The country was still called the Soviet Union, and that McDonald’s on Pushkin Square, though it had been open for a year, was still a unique place in several ways: It was a public space where ordinary people could have a private conversation while eating food they could afford, sold to them by polite staff. The few other existing cafes and restaurants in the city offered either an exorbitantly priced experience or a humiliating one.”
Gessen also noted that the consumer authority that closed the McDonald’s in August was known for wielding its power for politics. “It banned wine imports from Georgia when relations with Russia soured, and dairy products from Belarus when the normally pliant neighbor edged westward,” Gessen said.
“A quarter century ago, the opening of its first branch in Moscow symbolized that Russia was taking down barriers between itself and the Western world,” he continued. “It also symbolized the end of four decades of enmity between the USSR and the USA (no matter if the company that initially ran the Moscow restaurant was based in Canada rather than the United States). The same process is now occurring in reverse…. McDonald’s serves as a symbol of America and the West, against which President Vladimir Putin has declared war.”
Gessen, who also authored “Words Will Break Cement: The Passion of Pussy Riot,” added in the New York Times article that supermarket and restaurant owners in Russia are struggling due to a recent ban on Western food imports. “And now the owners of McDonald’s franchises, though they use almost exclusively Russian suppliers, are being made to pay for hitching their wagon to a quintessentially American brand,” he wrote.
Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless
