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Issue #583 | Forest Products

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2014 Media Kit
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McDonald’s quits Crimea as fears of trade clash grow

By: | at 08:28 AM | Channel(s): International Trade  

Crimea’s annexation by Russia, which Ukraine and the West do not acknowledge, has worried companies with assets in the Black Sea peninsula as it is unclear how the change may impact their business.

While McDonald’s did not mention the political situation in its statement, its decision to leave the region is likely to be seen as emblematic of the rift in Western-Russian relations, now at their lowest ebb since the end of the Cold War.

“Due to operational reasons beyond our control, McDonald’s has taken the decision to temporarily close our three restaurants in Simferopol, Sevastopol and Yalta,” a spokeswoman said.

The Crimean outlets are not franchises, but owned and operated by McDonald’s itself.

The closures follow Geneva-based Universal Postal Deutsche Post’s announcement that it was no longer accepting letters bound for Crimea as delivery to the region was no longer guaranteed.

Economic relations between Russia and Ukraine have worsened since Russia annexed Crimea last month in response to the ousting of Russian-backed president Viktor Yanukovich after months of street protests in Kiev.

Targeted sanctions imposed on a number of prominent Russians by the United States and the European Union have alarmed some foreign investors.

Russia raised the price it charges Ukraine for gas on Thursday for the second time this week, almost doubling it in three days and piling pressure on its neighbor as it teeters on the brink of bankruptcy.

Moscow has frequently used energy as a political weapon in dealing with its neighbors, and European customers are now concerned Russia might again cut off deliveries.

Economic Pressure

Moscow is applying economic pressure in other areas, while Ukraine has responded.

Russian riot police last month took control of a factory belonging to a Ukrainian confectionery magnate in the city of Lipetsk as part of an investigation into the company’s affairs, the Ukrainian government has said.

Petro Poroshenko, a billionaire oligarch known as the “Chocolate King”, is the front-runner in Ukraine’s presidential election, which is set for May 25.

Ukraine this week temporarily banned seven Russian food companies from selling some of their products on Ukrainian territory.

McDonald’s said it hoped to resume work as soon as possible but said it would help relocate staff to work in mainland Ukraine, signaling it did not expect its Crimean businesses to reopen in the near future.

The company’s decision was welcomed by the deputy speaker of the Russian parliament, Vladimir Zhirinovsky, known for his anti-Western rhetoric, who demanded that McDonald’s pull its business out of Russia entirely.

“It would be good if they closed here too ... if they disappeared for good. Pepsi-Cola would be next,” Russian media quoted Zhirinovsky as saying.

Zhirinovsky, whose nationalist Liberal Democratic party largely backs President Vladimir Putin in parliament, said the party would organize pickets at McDonald’s restaurants across the country.

McDonald’s, which currently operates more than 400 restaurants in Russia, was the first international fast-food chain to tap the Russian market when it opened in Moscow’s Pushkin Square before the collapse of the Soviet Union.

That branch had the highest sales and served the most customers of any McDonald’s outlet in 2012.

A Russian backlash again McDonald’s products would have a significant impact on company profits. McDonald’s sees Russia as one of its top seven major markets outside the United States and Canada, according to its 2013 annual report.

However Russian moves to shun McDonald’s burgers could easily backfire, according to Russian newswire RBK, which detailed Russian food suppliers to McDonald’s that would suffer as a result.