Starbucks, McDonald’s Exit Russia as Ukraine War Rages On

Starbucks joined McDonald’s in announcing a permanent end to its operations in Russia this week, having previously suspended trading in Russia in March. This news is coming amid a exodus from Russia of Western companies, such as tech company Apple and IKEA furniture retailer.

Following Russia’s invasion of Ukraine, Western businesses in Russia have been rushing towards the exit, symbolizing an end to decades of economic, political, and diplomatic cooperation between the nation and the West.

A month after the Russian invasion of Ukraine in February 2022, Starbucks and McDonald’s followed other major global brands in announcing a temporary closure of their businesses in Russia. In scenes reminiscent of the burger chain’s 1990 opening in the country, consumers rushed to McDonald’s restaurants to get a last meal before the closures, despite freezing winter temperatures.

According to CNN, the temporary closure in both Russia and Ukraine cost McDonald’s $127 million, including $100 million for disposed food and inventory, and $27 million to cover staff costs and payments for leases and supplies. The closures affected McDonald’s net income, which fell 28% in the first three months of the year.

McDonald’s announced on May 16 that its temporary closing of Russian restaurants would become permanent. “The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald’s values,” the company said in a statement.

The company later found a buyer in Russian businessman Alexander Govor, who already operated 25 of McDonald’s outlets in Siberia. With the same 62,000 staff, nearly 850 Russian restaurant will continue to operate under their new names. McDonald’s has been busy taking down all golden arches and related branding atop its restaurants—in a process it calls “de-Arching”.

A week later, Starbucks followed in McDonald’s footsteps, announcing its decision to “exit and no longer have a brand presence in the [Russian] market”. The cafe chain said in a statement that it would continue to pay its 2,000 employees’ salaries for six months.

American capitalism symbols

The path for Seattle-based Starbucks to enter Russia in 2007 was laid by pioneer McDonald’s, which opened its first ever store in Moscow’s Pushkin Square in what was then the Soviet Union in 1990. Hundreds of people queued to make their first ever order at the burger chain, where a Big Mac—or Bolshoi Mak locally—cost 3.85 rubles, the equivalent of two and half hours work for an average earner in the country.

The Chicago-based restaurant chain’s entry into the Soviet Union, nearly two years before the fall of the communist state in December 1991, was anything but straightforward and reportedly followed 14 years of tortuous negotiations. Washington Post, the company invested $35 million in a meat-processing, dairy, and bakery plant outside Moscow whose sinister façade earned it the name “McGulag” among visitors.

The arrival of McDonald’s—an iconic symbol of American capitalism—in the Soviet Union was emblematic of a wider thaw in Soviet-American tensions. Mikhail Gorbachev assumed the Soviet leadership role in 1985. He began a remarkable process of change in his country. This included democratizing politics, lifting freedoms of speech, and partially decentralizing economic power.

He is most well-known for his cooperative relations with Western counterparts. In 1987, he signed the landmark Intermediate-Range Nuclear Forces Treaty (with U.S. President Ronald Regan) and subsequently withdrew Soviet troops from Afghanistan between 1988-89. Gorbachev was responsible for the dissolution of Soviet Union and overseeing the fall of communist regimes within the Soviet bloc.

During the following 32 years of its presence in Russia, McDonald’s expanded to 847 restaurants employing 62,000 people. Following the fall of the Soviet Union in 1991 and the country’s rejection of communist economic policies, other Western businesses thrived in Russia. To cater for new customers, Apple, Nike and Starbucks all came to Russia.

Starbucks opened the first Russian Starbucks in September 2007. It has since expanded to 130 stores and hired 2,000 people in Russia. The stores were operated by a licensee, and accounted for less than 1% of the company’s annual global revenue.

According to Reuters, before the outbreak of the war in Ukraine, McDonald’s stores in both Russia and Ukraine were generating roughly $310 million annually.

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