McDonald’s sells Russian restaurants to licensee for undisclosed price
UPDATE: May 19, 2022: McDonald’s announced on Thursday that it has sold its portfolio of Russian restaurants to existing incumbent Alexander governorwho will operate the units under a new brand. governor became a McDonald’s licensee in 2015 and operated 25 units in Siberia.
The deal is expected to close in the coming weeks, subject to regulatory approval and other conditions. By conditions of sale, governor will retain McDonald’s employees in the purchased units for at least two years. governor also pledged to pay the salaries of the company’s employees who work in 45 regions of Russia until the conclusion of the agreement, and will also cover existing debts to owners, utilities and suppliers. The sale price was not disclosed.
- McDonald’s will sell its Russian business to a local buyer because “ownership of the business in Russia is no longer tenable or consistent with McDonald’s values,” the company said in a press release on Monday. The chain temporarily closed its restaurants and suspended operations in Russia on March 8.
- The Golden Arches expects to take a charge of between $1.2 billion and $1.4 billion to amortize its investment in the Russian market, which it first entered 32 years ago.
- McDonald’s shared in April that shutting down operations in Ukraine and Russia cost it $127 million. Most of this loss ($100 million) was attributed to supply chain inventory that operators were forced to dispose of.
Overview of the dive:
If it weren’t for a sale, McDonald’s shuttered Russian units would continue to siphon off the company’s wallet. During the company’s first-quarter earnings call, chief financial officer Kevin Ozan said pursuing employee wages, rent and supplier payments in Russia and Ukraine would cost between $50 million and $55 million. per month.
Leaving the market also has a cost. Russia and Ukraine generated about 9% of McDonalds’ revenue and accounted for 3% of operating profit before Russia’s invasion of Ukraine in February, GlobalData chief executive Neil Saunders wrote in a statement. press release sent by e-mail.
“While McDonald’s may take such a hit in its stride, it will leave a hole in its growth plans that will not be easily filled in the short term,” Saunders said.
Saunders wrote that McDonald’s predicted the $1.2 billion to $1.4 billion fee would be a consequence of “financial difficulties faced by Russian shoppers and the fact that McDonald’s will not license its brand or identity,” which which will likely result in a sale price well below the initial value of the business. The mega chain will keep its trademarks in Russia, but will remove the McDonald’s name, logo, branding and menu from its units in Russia in a process the company has called “de-Arching”.
The company will continue to pay its Russian employees until a sale is finalized and wants to ensure that “employees have future employment with any potential buyer,” according to the press release. However, McDonald’s has no plans to sell its Ukraine business and its units remain closed while the company continues to pay full employee wages.
CEO Chris Kempczinski said on McDonald’s first-quarter earnings call that the company would decide on next steps for its Ukraine and Russia businesses by the end of the second quarter, making Monday’s announcement a bit surprising. The company reaffirmed its financial outlook for 2022, including an expected operating margin of 40%, in its press release.
“McDonald’s decision will likely cause other brands, particularly those in the United States, to reconsider their plans for Russia,” Saunders said.
A host of large restaurant chains temporarily suspended operations in Ukraine in Russia after Russia invaded Ukraine in February. It’s possible that Golden Arches’ impending sale of its Russian units could trigger sales at rival chains seeking to minimize losses and backlash from the war.