When the first golden arches appeared in Moscow’s Pushkin Square in 1990, it did not matter that it was the middle of winter. It was as if the snow in Narnia had begun to melt, and the natural state of things was being returned in glorious technicolor. Russians queued around the corner for a taste of once forbidden patties.
“If you can’t go to America, come to McDonald’s in Moscow,” an advertisement said.
Soon other global brands piled in and dotted streetscapes with their logos and storefronts. The country of Potemkin imported many such familiar facades that were effective in conferring a kind of legitimacy to its government. Whether it was McDonald’s or Hugo Boss, such frontages suggested a country hip to modernity.
On Monday last week, McDonald’s Corp decided to pulled the plug and “de-arch” Russia. That is markedly different from simply shuttering an outlet as McDonald’s and other brands did two weeks after Russian President Vladimir Putin launched his invasion of Ukraine on Feb. 24.
Employees continued to be paid and stores stood with logos aloft, still on the books of the parent company. Such actions could easily be reversed in a way that a wholesale market exit cannot be. Many other international brands did the same as a sign of disapproval, but not yet despair.
Now companies are properly leaving.
French automaker Renault SA also on Monday last week announced it was selling all of its Russian assets to a government-controlled entity.
More companies are no doubt to follow. It is like seeing Narnia’s thaw thrown into reverse.
McDonald’s chief executive officer Chris Kempczinski said that the company’s entry into the Russian market 32 years ago had been a triumph of hope: “Hope for a country that was opening itself to the world after decades of isolation. Hope that the world was becoming a little more connected,” symbolized by being able to get the same Big Mac in Moscow that you got in Chicago.
However, hope needs some kind of handle.
Kempczinski said that he considered the legal constraints on operations, whether the brand could meet customer needs and operate the business freely, whether its presence was brand-enhancing, whether it made business sense and whether it aligned with McDonald’s values.
Only the last point gave pause — what about the 62,000 employees, the franchisees and all the local relationships?
However, in the end, the humanitarian crisis in Ukraine caused by Putin’s war provided the answer.
For a company that built a global empire on a strategy of replication, what it now describes as “de-arching” — meaning the brand’s logo, name and menu can no longer be used — is unprecedented. Execution is likely to be messy and the company does not have a timeline.
McDonald’s said it is looking to sell its nearly 850 restaurants in Russia to a local buyer.
Most of the outlets are company-owned, but more than 100 are controlled by franchisees, and some of those have refused to shut down or remove the golden arches.
McDonald’s aims to keep paying its employees in Russia until a buyer is found, but those workers, franchisees and a large network of suppliers and service-providers all face an uncertain future, collateral damage of Putin’s war. Gone, too, would be Ronald McDonald House charities and Hamburger University, which taught business skills and provided career opportunities.
Government-backed entities are likely to try to convince Russians nothing much has changed or that a domestic McDonald’s would be even better.
In March, a new Russian restaurant chain revealed its logo — a Cyrillic “B,” (pronounced as a “V” in Russian) that looks like the golden arches sideways.
New York Times journalist Tom Friedman’s observation that no two countries with McDonalds would fight a war against each other seemed to hold true. It is a reminder of a rather more mundane rule: that countries without the rule of law, whose leaders-for-life are not democratically accountable, are capable of crazy things.
For a US$181 billion company, a non-cash charge of approximately US$1.2 billion to US$1.4 billion for its investment in Russia is hardly a major hit; shares barely moved in early trading.
However, the McDonald’s exit is further confirmation that a new iron curtain descended on Feb. 24. It is confirmation that Russia is no longer investible, even for a burger franchise with a presence in 100 countries. For Russians themselves, it is another sign that winter has returned. Who knows how long it will last this time.
Therese Raphael is a columnist for Bloomberg Opinion covering healthcare and British politics. Previously, she was editorial page editor of the Wall Street Journal Europe.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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