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McDonald’s seeks to sell Russian business that is ‘no longer tenable’

French automaker Renault also announced the sale of its Russian assets for one ruble amid the ongoing war in Ukraine

People dine at a McDonald's restaurant in Moscow. (Source: AFP/Getty Images)
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McDonald’s is done with Russia after more than three decades of investment, concluding that doing business there is “no longer tenable” as the war in Ukraine stretches into a third month.

The fast food giant’s decision to seek a local buyer for hundreds of Russian stores marks the first time it has given up on a major international market, chief executive Chris Kempczinski noted Monday in a letter addressed to the “Global McFamily.” But it’s “impossible to ignore the humanitarian crisis caused by the war in Ukraine,” he said.

The moves underscore the other-shoe question for the hundreds of multinationals that have suspended or curtailed operations in response to Moscow’s Feb. 24 invasion of its neighbor — whether to sever ties altogether. Meanwhile, many of the companies that have maintained operations — including several that have cited humanitarian reasons such as providing food — have been swept up in a global backlash as consumers and investors register their shock at the wartime devastation and reports of atrocities.

Renault, which has been called out by name by Ukrainian President Volodymyr Zelensky, said Monday that it sold its 68 percent stake in Russia’s biggest automaker, AvtoVAZ, to the government. The sale price was 1 ruble, according to Reuters, albeit with a six-year option to buy back the shares; last year, the French carmaker valued its Russian assets at nearly $2.3 billion.

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At the same time, a blistering regimen of international sanctions has made the country a costly and troublesome place to do business. McDonald’s leadership concluded that continuing to operate in Russia no longer made good business sense and would damage its brand. The Golden Arches, one of the most recognizable logos in the world, is a $180.8 billion marvel of globalization: It had more than 40,000 stores worldwide at the end of 2021 and records more than $23.2 billion a year in sales.

It joins more than 900 companies — including Ikea, Intel, Uber, Adidas and BP — that made “principled exits” from the country, as described in a widely followed list from Yale University.

The ranks of those “buying time” or “digging in” has dropped to 371, illustrating how financial and reputational liabilities are stacking up as the conflict grinds on, according to Jeff Sonnenfeld, the Yale professor behind the list.

He called McDonald’s a “late-mover” in the rush to exit the country. He also said the company’s departure flies in the face of the longtime “Golden Rule of Diplomacy,” which holds that no two countries with a McDonalds would ever fight each other.

Russia and Ukraine had a wide array of overlapping business relationships when the war started. Now there’s pressure to make a choice or risk being seen as financing a rogue state. McDonalds “could not serve Russian customers and buy from Russian suppliers, but they were still sending cash into Putin’s war machine by paying salaries,” Sonnenfeld said in an email to The Washington Post.

The decision to sell its Russia stores winds down a significant chapter for the Chicago-based company, which opened its first store in Moscow in January 1990 — two months after the fall of the Berlin Wall and less than two years before the collapse of the Soviet Union. Tens of thousands of Russians lined up for the opening, which many remembered as a seminal moment in their lives in interviews decades later with The Post.

By the time the Ukrainian war began, McDonald’s had roughly 62,000 employees in 850 communities, according to a March 8 statement from the company. Unlike Burger King, which franchises its restaurants to local operators, McDonald’s operates about 84 percent of its stores there, according to a company disclosure. Russia and Ukraine collectively accounted for 9 percent of its revenue last year.

It’s not yet clear who will acquire the Russian restaurants — though government officials have suggested that domestic competitors should take McDonald’s place.

The sold-off restaurants could form the backbone of something new or effectively function as a Russian knockoff version — though Kempczinski was adamant that the future owner was not to use the McDonald’s name or serve its menu. Moscow regional governor Andrey Vorobyov, in a statement on Telegram posted from the state-owned Tass news agency, said the authorities “will support the McDonald’s restaurant chain when it passes under the control of Russian partners.”

After the company temporarily closed its Russian stores in March, a local alternative, Uncle Vanya, applied to trademark a logo that looked strikingly similar to McDonald’s emblematic Golden Arches — appearing to lay the groundwork for a takeover of existing shuttered McDonald’s restaurants.

Vyacheslav Volodin, speaker of Russia’s lower house in parliament, said at the time that Russian brands should take over McDonald’s locations. “They announced they are closing. Well, okay, close. But tomorrow in those locations we should have not McDonald’s, but Uncle Vanya’s,” he said. “Jobs must be preserved and prices reduced.”

Josh Gerben, a D.C.-based patent and trademark lawyer, says it remains to be seen whether McDonalds’ departure is going to be a voluntarily sale as opposed to a forced nationalization. The Uncle Vanya trademark was later withdrawn, he says, but it really doesn’t matter because Russian authorities in general are not recognizing U.S. trademark laws or government sanctions.

“Is Russia going to allow an orderly transition to take place, and not just seize the business, seize the trademarks?” Gerben said. “Up until now we’ve seen a lot of propaganda, and a lot of posturing from the Russian government. Now we’re going to see if the bark has any bite.”

Renault is further along in its plans to depart the country, having already agreed to sell its assets to the government.

Russia is the company’s second-largest market, according to Bloomberg News. In March, Luca de Meo, chief executive of Renault, warned that leaving the country would create a “very complex situation” by eating into the company’s profits and sales, Reuters reported.

Now the automaker will sell all of its shares in Renault Russia to the Moscow city government — and its nearly 68 percent stake in Russian automaker AvtoVAZ, which produces the Lada car, to a Russian federal agency, according to a news release.

“We have taken a difficult but necessary decision; and we are making a responsible choice towards our 45,000 employees in Russia, while preserving the Group’s performance and our ability to return to the country in the future, in a different context,” de Meo said in a news release.

Russia’s Ministry of Industry and Trade also announced that the “Russian assets of the Renault Group” would “become state property.”

Russia considers nationalizing Western businesses that have closed over Ukraine invasion

Zelensky had criticized the company by name in a speech before the French Parliament in March, The Post reported.

“Renault, Auchan, Leroy Merlin and others. They must cease to be sponsors of Russia’s military machine, sponsors of the killing of children and women, sponsors of rape, robbery and looting by the Russian army,” Zelensky said.

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There is a possibility that either company could reenter Russia at a later date.

Kempczinski ended his letter Monday by noting it was “impossible to predict” what the future might hold.

“Thus, let us not end by saying, ‘goodbye.’ Instead, let us say as they do in Russian: До новой встречи. ‘Until we meet again.’ ”

Colby Itkowitz, Andrew Jeong and Isabelle Khurshudyan contributed to this report.

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