(The Daily Upside)
GLOBAL ECONOMY
No More Pause: McDonalds and Renault Exit Russia for Real
“Unusual and delicious.” That is how one woman described McDonald's food to the Canadian Broadcasting Corporation on the day the fast food franchise’s first Soviet location opened in Moscow in 1990.
On Monday, McDonald’s “delicious” food departed Russia under unusual circumstances — the company announced plans to sell its Russian business and “de-arch” all franchises in the fallout of war. French automaker Renault announced it’s hitching its own ride out of the country.
Old McDonald Sold a Farm
Many multinational food and restaurant brands such as Starbucks, Pepsi, Coca-Cola, and KFC, have paused operations in Russia due to its invasion of Ukraine. Few have taken the radical step of leaving altogether. “Some might argue that providing access to food and continuing to employ tens of thousands of ordinary citizens is surely the right thing to do,” wrote McDonald's CEO Chris Kempczinski, in a frank letter to franchisees. “But it is impossible to ignore the humanitarian crisis caused by the war in Ukraine.”
McDonald’s plans to remove its name, logo, brand, and menu from all of its Russian restaurants, sell the remaining operations to a local buyer, and keep its trademarks in the country to protect against infringement. Russian state news agency TASS said McDonald’s locations will open under a new name next month. It’s a far cry from three decades ago, when the Golden Arches entered the Soviet Union as a symbolic ambassador of Western capitalism, signaling the end of the Cold War. Now, the company leaves behind a significant, though not devastating, chunk of business:
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McDonald’s owns 84% of its Russian stores, and restaurants in Russia and Ukraine accounted for 9% of its annual revenue last year, or roughly $2 billion. The two countries accounted for 3% of operating income.
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McDonald’s expects to record a $1.2 billion to $1.4 billion non-cash charge to exit Russia. That may be more appealing than the $50 million a month, or 5 to 6 cents per share, in real cash that it’s been losing to maintain shuttered assets.
Shift to Reverse: Renault was a more recent entrant into Russia than McDonald's, but its acquisition of iconic carmaker Lada in 2016 was further proof of how globalized economic relations had come since the fall of the Iron Curtain. Renault plans to sell its 68% stake in Lada parent AvtoVAZ to a Russian state entity for a single ruble, though the agreement includes buyback rights should Renault want to return. Considering that AvtoVAZ sold 350,000 vehicles, or 12% of Renault’s total last year, it just might.
The Takeaway: Western banks, including UniCredit and Citigroup, are exploring swapping assets with Russian banks in their own bid to get out for good, according to the Financial Times. The hope for a ceasefire or end to the war in Ukraine seems dim, suggesting that BlackRock CEO Larry Fink was right when he said the conflict will mark the end of the last three decades of growing globalization.
