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Starbucks joins McDonald's in exiting Russia

McDonald's is selling its Russia business
McDonald's is selling its Russia business after 32 years 01:01

Starbucks is making a complete exit from Russia, joining the lengthening list of other corporations departing the country due to its invasion of Ukraine.

The coffee shop chain's licensed partner agreed to suspend operations at its 130 stores in Russia, and the company and will now take its brand out of the market completely, Starbucks announced on Monday. It will offer job assistance and pay its nearly 2,000 workers in Russia for six months, the company added.

"We condemn the unprovoked, unjust and horrific attacks on Ukraine by Russia, and our hearts go out to all those affected," Kevin Johnson told employees in March before retiring as CEO. "The invasion and humanitarian impact of this war are devastating and create a ripple effect that is felt throughout the world.

The Seattle-based company's move echoes that of other large corporations that have suspended operations or withdrawn from Russia. McDonald's is selling its Russian business — which includes 850 restaurants that employ 62,000 people — to existing licensee Alexander Govor, the fast-food chain announced Thursday.

The deal comes days after McDonald's said it would exit Russia due to its invasion of Ukraine in February. Govor is acquiring all of the company's restaurants in Russia and will operate them under a different name. Terms of the deal, which is expected to close in a few weeks, were not disclosed.

Like Starbucks, the Chicago-based company had announced in early March that it was temporarily closing its stores in Russia but would continue to pay employees. On Monday, it said it would seek to have a Russian buyer hire those workers and pay them until the sale closes. It didn't identify a prospective buyer.

CEO Chris Kempczinski said the "dedication and loyalty to McDonald's" of employees and hundreds of Russian suppliers made it a difficult decision to leave.

"However, we have a commitment to our global community and must remain steadfast in our values," Kempczinski said in a statement, "and our commitment to our values means that we can no longer keep the arches shining there."

As it tries to sell its restaurants, McDonald's said it plans to start removing golden arches and other symbols and signs with the company's name. It said it will keep its trademarks in Russia.

"This was the very best of a series of difficult choices," James O'Rourke, professor of management at the University of Notre Dame's Mendoza College of Business, said in an email. "Under this arrangement, McDonald's Russian employees will have a steady employment future, ordinary citizens will have a mostly familiar neighborhood spot for a sandwich and a soft drink, and by 'de-arching' the 850 stores in Russia McDonald's Corporation will protect the brand and recover at least some of its capital investment."  

The first McDonald's in Russia opened in the middle of Moscow more than three decades ago, shortly after the fall of the Berlin Wall. It was a powerful symbol of the easing of Cold War tensions between the United States and Soviet Union.

McDonald's was the first American fast food restaurant to open in the Soviet Union, which would collapse in 1991.

How effective have sanctions been against Russia? 04:26

McDonald's decision to leave comes as other American food and beverage giants including Coca-Cola, Pepsi and Starbucks have paused or closed operations in Russia in the face of Western sanctions.

Corporations from British energy giants Shell and BP to French carmaker Renault have pulled out of Russia, taking a hit to their bottom lines as they seek to sell their holdings there. Other companies have stayed at least partially, with some facing blowback.

On Monday, Renault gave its Russian assets to the Kremlin, both parties announced, "marking the first major nationalization since the onset of sanctions over Moscow's military campaign in Ukraine," Agence France-Presse said.

McDonald's said it expects to record a charge against earnings of between $1.2 billion and $1.4 billion over leaving Russia.

Its restaurants in Ukraine are closed, but the company said it is continuing to pay full salaries for its employees there.

McDonald's has more than 39,000 locations across more than 100 countries. Most are owned by franchisees - only about 5% are owned and operated by the company.

McDonald's said exiting Russia won't change its forecast of adding a net 1,300 restaurants this year, which will contribute about 1.5% to companywide sales growth.

Last month, McDonald's reported that it earned $1.1 billion in the first quarter, down from more than $1.5 billion a year earlier. Revenue was nearly $5.7 billion.

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