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McDonald’s, Starbucks and Coca-Cola suspend business in Russia amid mounting public pressure

A McDonald's restaurant in Des Moines on April 27. (Charlie Neibergall/AP)

Several major American food and beverage companies announced Tuesday that they would suspend their operations in Russia, a step that comes after days of mounting public pressure on the corporate world to sever ties with the country over the Kremlin’s invasion of Ukraine.

The group included McDonald’s, Starbucks, Coca-Cola and PepsiCo, some of which had operated in Russia for decades and had faced heightened scrutiny in recent days as other companies elected to halt their business dealings there. A veritable naughty-or-nice list, compiled by a Yale University professor, generated headlines by highlighting the companies maintaining normal operations.

McDonald’s chief executive Chris Kempczinski said the global fast food chain would temporarily close its 850 restaurants in the country.

“Our values mean we cannot ignore the needless human suffering unfolding in Ukraine,” he said.

The company said it will continue paying its 62,000 Russian employees while stores are closed.

The decision is a notable shift for a company that has usually shied away from inserting itself into polarizing topics, industry experts say, signifying changes in global culture where corporations are no longer choosing to be neutral on social issues but responsive and declarative about their stances.

McDonald’s, Starbucks, Coca-Cola and PepsiCo halted their operations in Russia on March 8, amid mounting public pressure over the Kremlin’s invasion of Ukraine. (Video: Reuters)

Shortly after the McDonald’s announcement, Starbucks, Coca-Cola and PepsiCo announced they would pause services in Russia.

Starbucks’s licensed partner, the Kuwait-based Alshaya Group, which owns and operates 130 stores in Russia, will temporarily shutter locations and “provide support” to its roughly 2,000 local employees, Starbucks CEO Kevin Johnson said in an open letter. The company will also halt all shipments of Starbucks products to the country.

“The invasion and humanitarian impact of this war are devastating and create a ripple effect that is felt throughout the world,” Johnson wrote in a letter last week, as more people demanded that companies take a stance.

Coca-Cola, in a brief statement Tuesday, made a similar announcement and suspended its business in Russia.

And PepsiCo, which has operated in Russia for more than six decades, halted its soda sales, including its eponymous cola and 7UP. But the company said it would continue to manufacture milk, baby formula and baby food, allowing it to keep tens of thousands of workers employed.

“Pepsi-Cola entered the market at the height of the Cold War and helped create common ground between the United States and the Soviet Union,” the company’s chief executive, Ramon Laguarta, wrote in an email to employees.

But after days of remaining in full operation, the company decided to partially pull out “given the horrific events occurring in Ukraine,” Laguarta said.

McDonald’s is in a unique category among businesses that have announced halts and freezes in service or products in Russia. Fast-food brands have largely continued operating because many of their restaurants are owned by franchisees, and corporate brands have limited abilities to control operations at local facilities.

McDonald’s owns more than 80 percent of its Russian locations compared with roughly 5 percent of restaurants that are owned in the United States.

The stores that are company-owned are mainly for testing products and other corporate goals, according to John A. Gordon, an independent restaurant chain expert and founder of Pacific Management Consulting Group.

Gordon said the company owns a lot more stores in Europe because the sales and profits are higher. The closing down of its stores in Russia combined with the decision to continue paying employees will come with a significant financial hit but not one that will bankrupt the company or cause markets to react in a volatile manner.

“We don’t know how long ‘temporarily’ means in terms of closures, but McDonald’s will report an operating loss,” he said. “What will happen now is the Wall Street security analysts will actually lower their earning forecast because of the Russia and Ukraine effect. McDonald’s stock price won’t be arbitrarily affected.”

McDonald’s announcement is also a sign that companies are moving away from antiquated business mentalities that center shareholder interests above all others, Gordon said.

“It’s really about the stakeholders, which is greater world of nations and people,” he said.

Other companies, such as Yum Brands, which owns Pizza Hut and KFC, might find it more difficult to replicate McDonald’s stance as many of the locations are owned by franchisees, who are likely Russians themselves, making it a bit more challenging to just close shop, Gordon said, who counts Yum Brands among his clients.

Yum Brands announced on Tuesday that it is suspending operations of KFC company-owned restaurants in Russia and finalizing an agreement to suspend all Pizza Hut restaurant operations in the country, in partnership with its master franchisee.

“This action builds on our decision to suspend all investment and restaurant development in Russia and redirect all profits from operations in Russia to humanitarian efforts,” the company said in a statement.

Yet McDonald’s expressing global solidarity with Ukraine is among the most bold and decisive moves taken by a restaurant chain of its magnitude, said Aaron Allen, a restaurant analyst and founder of Aaron Allen & Associates.

“This will absolutely be a watershed moment and will reflect a precedent, not just for war but for other causes or means of showing solidarity,” he said. “You’re pretty much closing off your revenue to make a statement. Agreeing to put purpose over profits is an indication that world’s largest restaurant chain taking a leadership stand.”

Jacob Bogage contributed to this report.

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