Russia: The Companies Leaving and Those Still Invested

Ziryan Aziz reports on the businesses still operating in Russia, over two hundred days into the invasion of Ukraine.

Photo by Damir Babacic

After 32 years since McDonald’s first opened its doors to curious Muscovites, all the way back in the 1990s Soviet Union, the American fast-food conglomerate will be closing its doors for the last time. But is this the only company to shut down operations within Russia?

McDonald’s has chosen to leave Russia for good, citing the Russian Invasion of Ukraine as reason for the unstable conditions for operating. In mid-May, the company announced that it had finally found a Russian buyer, Alexander Govor, who will take on the company’s 850 stores and 62,000 staff. Govor had pledged to rebrand the McDonald stores in Russia, and established a new fast-food chain called Vkusno i Tochka ("Tasty and thats it")

Other western brands, like Nike, Adidas, and Renault who had initially only suspended their operations, have also decided to abandon the Russian market altogether. With a pricey cost to remain, and with the threat of having their assets seized by the state, the departure of western companies operating in Russia has only accelerated. However, despite the international pressure, several well-known brands continue to do business, for varying reasons.

Complex Franchise Agreements

One such reasons why some companies have found it difficult to remove their brands from the Russian market, is because they do not directly own their stores in Russia. They are locked in franchise agreements.

In March, the popular British supermarket chain, Marks & Spencer (M&S), still had 48 outlets open across Russia. However, it's stores were operated by a Turkish company called FiBA, who had the right to sell M&S products, but M&S did not own the operations bearing their name.

Breaking franchise agreements can be difficult legally, and in response M&S suspended its supplies to FiBA before it was agreed all its stores would close in late May.

Other chains like Burger King have been less successful in leaving the Russian market. The producer of the Whopper burger, which is owned by the parent company, Restaurant Brands International Inc (RBI), still has its estimated 800 franchise locations open. Much like Marks & Spencer, RBI doesn’t own any of its restaurants In Russia. Instead, Burger King has a complex joint-venture-style master franchise agreement.

RBI has a 15% stake in Burger King Russia Ltd, and 30% of the joint venture is owned by Alexander Kolobov, Burger King’s master franchisee in Russia.

The rest is divided between VTB, a Russian state-owned bank, and Investment Capital Ukraine, an equity and asset management firm in Kyiv. But, there is an ongoing dispute between RBI and Kolobov as to who has the authority to close the stores, and whilst RBI would like its Russian based stores to close, legally, it has little right to enforce this.

However, Burger King is not alone with the challenges of breaking away from the Russian market. The Swedish homeware giant, IKEA, is facing a similar issue. In March, the company made a statement on their website, claiming:

“The war has had a huge human impact already. It is also resulting in serious dis-ruptions to supply chain and trading conditions. For all of these reasons, the company groups have decided to temporarily pause IKEA operations in Russia” – IKEA Franchise, IKEA.

IKEA has closed 17 stores in Russia to date, and pledged €20 million to help Ukrainian refugees, with a further €10 million worth of products for international charities.

However, INGKA Group, a holding group based in the Netherlands, has chosen to keep all 14 of its MEGA shopping centres open. The Netherlands based group was created by the founder of IKEA, operating 86% the IKEA’s global stores, and manages sales channels un-der the IKEA Concept and IKEA Brand.

In the same statement, IKEA said that MEGA sites will remain open, so “people in Russia have access to their daily needs and essentials such as food, groceries and pharmacies.” The Russian MEGA Shopping centres are managed under IKEA Centres Russia and attracts over 250 million visitors a year.

Still Operating

As mentioned, many Western companies have suspended their operations in Russia, and some for legal reasons are unable to completely detach. But there are some who choose to actively remain within the Russian market.

Some of the more well-known corporations and businesses include banks like Citigroup, Deutsche Bank, Goldman Sachs, and JPMorgan Chase, who have all publicly stated that they are in the process of winding down their operations in Russia, but are committed to leaving in the near future.

Others are less keen. Hard Rock, best known for the Hard Rock Café chain, is keeping its Moscow and St. Petersburg stores open for business. Hard Rock has said it will donate the profits from its franchises to humanitarian causes in Ukraine, but like all foreign businesses that still operate in Russia, the taxes generated through sales and other means could be used to fuel the Russian war effort.

The popular online dating platforms Tinder and Match.com, are also continuing to do business in Russia, unlike their competitor Bumble, who removed their app from the Russian and Belarusian Google and Apple stores.

Domino’s Pizza has chosen to keep its 188 stores open across the country but said it won’t accept any royalties from its Russian franchise operations. This is a similar pledge by TGI Friday’s, who will also keep its stores open, but will donate franchise fees to Ukrainian relief efforts. It is unclear whether either company has suspended shipments of ingredients and other materials to their franchise locations.

PepsiCo, the American multinational food, snack, and beverage corporation, best known for producing the Pepsi drink, is still selling its goods in Russia. The corporation has suspended the sale of its major drink brands, capital investments, advertising and promotional activities. However, due to what it describes as a “humanitarian” effort, it still sells dairy produce in the country, such as cheese, and baby formula. It is unclear at the time of writing, what percentage of baby formula in Russia is trademarked under PepsiCo.

A major competitor, Nestlé, is also promising to only sell ‘essential’ items, like cereals, specialist pet foods, and baby food/formula. In 2014, Nestlé trademarked baby formula accounted for a staggering 48.7% of all baby formula in Russia.

Closing Remarks

The examples used in this article make up only a small percentage of the 247 international businesses identified as still operating, in some capacity.

In total, there are 11 major United Kingdom based businesses that have either only scaled back operations, postponed investments, development, marketing, or outright continue to do business as usual. For businesses based in the European Union, this number is much higher.

Many companies based in China, India, and further afield may seek to take advantage of the departure of Western businesses and look to fill the void left behind. Chinese businesses are currently in a good position to increase their presence in the Russian market, as China seeks to strengthen its relationship with Russia, and Russia needs foreign investment to recover lost revenue.

Indeed, it is incredibly important to highlight the evolution of businesses during this volatile period of Eastern European history. For the companies that remain active within Russia, during its invasion of Ukraine, this only emphasises that shareholder profits will always be the primary objective, whatever the cost.

A comprehensive and updated list on these businesses has been provided by Yale University’s School of Management, and can be found in the attached link here.

Similar: The Cost of Living Crisis in the UK

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