When things are going poorly for a company in one country, the natural instinct is to try and pivot and focus resources elsewhere. This was the case for McDonald’s in 2016 when the company announced they would be closing their restaurants in Russia.
In addition to this, a new report has emerged that claims McDonald’s is planning to leave Russia permanently because of new anti-Western sanctions, and a general distrust of foreign businesses. So should investors be worried? This wouldn’t be the first time that a major fast food chain has left Russia under less than favorable conditions.
Five years ago, amid political tensions with Ukraine, Burger King also shuttered its locations there as well. And while it looks like McDonald’s is leaving Russia right now, we have to wonder whether or not this will actually end up being a good thing for the company and its shareholders…
Is McDonald’s Leaving Russia a Good Thing?
McDonald’s is closing restaurants in Russia, and it’s not a good sign for the company. The chain has been struggling to compete there, so what does this mean for McDonald’s?
As more international businesses are leaving Russia, it doesn’t bode well for the fast food chain. In addition to this, McDonald’s has faced stiff competition from home grown chains that have been able to adapt better culturally.
This is also a negative sign for McDonald’s as they try to dominate the market in Russia with their American-style products. Due to these factors and new sanctions on Western companies imposed by Putin, it looks like we will see a lot less of McDonald’s in Russia.
This could be a bad thing or a good thing depending on how you look at it. One thing is certain: if McDonald’s isn’t careful, they could experience some serious trouble soon.
Why is McDonald’s leaving Russia?
McDonald’s has been a popular fast food chain in Russia for over 20 years. But with the new anti-Western sanctions and general distrust of foreign businesses, it looks like the company is leaving Russia for good. So why would this be a positive thing?
It’s not that McDonald’s leaving Russia will suddenly turn things around for the brand – but rather than spend their time trying to overcome the political and social hurdles there, they can focus on other markets that are more receptive to their business.
With McDonald’s gone, Russian consumers will have to look elsewhere for their fast food fix. This could have a significant impact on the largest fast food chain in the world: McDonald’s. Though they may be gaining by not spending time and money in an area where they don’t feel welcomed, there is also the chance that this could lead to slowdowns in revenue and profit growth as a result of not having any presence in Russia anymore.
What Happens When Fast Food Chains Leave Countries?
McDonald’s is the latest company to announce their departure from Russia, following in the footsteps of Burger King who left five years ago. Burger King’s departure was a result of political tensions with Ukraine. When McDonald’s closed their restaurants in Russia last year, it was largely due to the country’s current economic turmoil.
But what happens when major fast food chains shut down locations? It might be good news for shareholders in some cases. In other cases, companies end up losing a lot of money and seeing a decrease in share prices as well.
Burger King left Ukraine amid political tensions and saw an 11% drop in share price. In comparison, when McDonald’s closed its restaurants in Russia last year due to economic turmoil, it saw its share price increase by 8%. However, this might not be the case for all companies that leave countries.
Burger King was also struggling financially before they left Ukraine because of increased competition from local restaurants and a lack of innovation at home. This kind of situation led to the restaurant chain eventually closing up shop there completely.
Looking at the Bigger Picture
The news that McDonald’s is closing its restaurants in Russia because of the new Western sanctions is troubling. Not only is this a blow to the company’s business, but it also has implications for the global chain. This isn’t the first time that an American fast food chain has closed its doors in Russia.
Burger King left the country in 2013 amid political tensions with Ukraine and now it looks like McDonald’s will be following suit. However, we have to remember that this could actually end up being a good thing for both McDonald’s as well as shareholders.
For starters, this move could allow McDonald’s to focus their resources on countries where they are performing better, like China or Japan. Second, this could free up some capital for them to invest in other areas, like developing new products or increasing operations efficiency across the board.
And finally, though it might seem counterintuitive at first glance, this shift could actually create an even bigger opportunity for McDonald’s down the road when these sanctions expire and relations between Russia and Western countries become more amicable again.
Maybe then we’ll see just how much of a dent these anti-Western sanctions can make on companies like McDonald’s and Burger King.
The Problem With Russia for Global Franchises
Fast food chains like McDonald’s are not typically welcome in countries with a strong distrust of Western business practices. And Russia is a perfect example of this type of country. Russia has been ramping up anti-Western sentiment in recent years, and it appears that the latest round of sanctions against them have only served to make matters worse.
Russian president Vladimir Putin has made it clear that he wants to protect Russian businesses from foreign competition, and that the new sanctions will be used as an excuse to take stricter measures when it comes to opening up the market.
McDonald’s is one of the world’s most recognizable brands, so it should come as no surprise that they’ve found themselves in trouble in Russia. In fact, McDonald’s shares dropped more than 4% on Monday after news emerged that they were planning to leave Russia for good due to new Western sanctions.
The company said that “it would be difficult for McDonald’s Corporation to continue working” with existing sanctions in place.
McDonald’s is in trouble. This leaves us with a number of questions, but the first one should be this: what will happen to McDonald’s if they leave Russia? Russia doesn’t have a McDonald’s. They have KFC and Pizza Hut, but no Mickey D’s.
Maybe that’s because Russians are more of a vodka-and-salad kind of people, or maybe it’s because there are too many geopolitical tensions for a company like McDonald’s to break into the market.
Whatever the reason, this means that McDonald’s is not leaving a country that already has their product readily available and is willing to buy it; they’re leaving behind a potential customer base.
McDonald’s has been trying to court other markets lately– such as Brazil and India– in order to grow their business abroad. These markets have shown promise for the fast food chain, but there are major obstacles in both countries.
Brazilians don’t really trust big companies– especially American ones– and Indians are very sensitive about what they eat (no beef allowed!). So while these countries may look promising on paper, they’re not without their own problems that could potentially hamper growth.
Bottom line: McDonald’s is in trouble. This strategy will likely result in lower global sales– which means less profit for shareholders.