Name: McDonald’s CEO on why it was so difficult to leave Russia
Uploaded: 2022-07-22
Duration: 7 min 21 s
Description: Chris Kempczinski discusses the challenges the fast food chain faced departing Russia.

Chris Kempczinski discusses the challenges the fast food chain faced departing Russia.

McDonald’s CEO on why it was so difficult to leave Russia

Features

Mcdonald's was embraced by the Russian population after 32 years being there for Mcdonald's to leave. Russia was far more complex than most people would realize. They risked enormous boycotts. Bad will the whole accepted view in the western world is that Russia is doing something terrible in Ukraine and it's the moral obligation of people and businesses everywhere not to help that. So that's what they came to realize. And they left. I went to Mcdonald's headquarters in Chicago and sat down with the ceo of chris, kempinski chris, you've said this decision to exit Russia was a very complicated one. What made it so complicated? I think for us the complication was both the size of our business. We have a very large business in Russia 850 restaurants, whole supply chain that that's connected to that. But also the fact that we have 62,000 employees in Russia and thinking through both what's good for the business, but also how do we make sure that we're taking care of our people and doing that at the scale that we're talking about. How do you just make sure that the restaurants are secure that you understand where your people are, Is everybody safe? So for the first few days it was working through all the operational elements of, you know, now a very different situation in Ukraine. The arrival of that first McDonald's in 1990 that symbolized the opening of Russia. The opening of Russia to the outside world, which was full of optimism. People were excited about it. The departure of Mcdonald's symbolizes just the opposite the closing to the outside world was in a way which is again finding to say about the fast food, but that's it, you know, that's true. It was the standard of quality. It was also the man of communication smiles again, something unknown to many. It was one of the symbols of the United States. It was famous when it opened. Everybody knew the story. McDonald's arrived in Russia in Moscow in 1990 and this was global news at the time, 30,000 people were served on that first day, the Soviet Union had been very closed and now it was opening to the west and nothing symbolized the West America in particular. Nothing symbolized it more than McDonald's did. They were astounded at how clean the place was. They were astounded by how friendly the people the employees were. This was the opposite of everything they had come to know in restaurants cautious before. People didn't really know much. All they knew was from the magazines and newspapers and propaganda. But with the beginning of the eighties, there was more and more curiosity and openness. You know, american fashion, american movies, american music, people were really very open towards that. Mcdonald's was part of that, you know, american experience that people were very much willing to enjoy setting up a Mcdonald's restaurant in the soviet union of 1990 was a huge undertaking because none of the infrastructure that any normal Mcdonald's relies on none of that was there. They didn't have the potatoes needed for making the french fries, they had to import seeds and they had to import experts from the Netherlands who taught farmers how to raise these potatoes, they brought in, other people who taught the ranchers how to raise the beef for the hamburgers. Everything had to be created a new. Ultimately, the Mcdonald's decision on this, which didn't come until the middle of May, was that they were going to exit Russia. They had to think about whether it would even be legal for them to operate because of us sanctions on Russia. But those sanctions restricted what Mcdonald's could do in Russia, there were sanctions that were imposed on one of the banks in Russia's far bank. For us, the challenge with that was they process about 90% of our payroll. So the 62,000 employees that I was talking about are getting processed largely through checking and savings accounts that they have a Spar bank. So how are you going to then be able to pay those employees? And in many cases, our restaurants are not in the big cities like Moscow and ST Petersburg, they might be in more of a smaller community where there may only be one bank in town. And so for us, that's just one example where when those sanctions went in place and not being able to pay our people, it becomes pretty challenging to run a business, they sold the whole operation to one of their franchises and he had to agree as part of the sale that he would employ those employees for at least two years. The suppliers would also be taken care of. However, Mcdonald's did not transfer to the buyer any of its intellectual property. That means its trademark, its name, the golden arches. It means the recipes, the menu. None of those things went to the new buyer. Cranes came in and took down the golden arches in the Mcdonald's names. The menus had to be done all over again. No more coca cola. The new name, by the way translates as tasty and that's it. I gather it is not legal now for the successor company that is running the restaurants that used to be Mcdonald's restaurants to use menu items or trademarks or anything else. But the question I want to ask you is, what about the special sauce on the Big Mac? Because that's crucial. Is that a secret? The special sauce is a secret. Will not be able to get the special sauce. I won't be able to tell you about the special sauce. Now, others have tried to replicate the special sauce, but but none have succeeded. So unfortunately for our Russian customers, they will no longer get to enjoy the special sauce in Russia. Let's hope things will change and they will come back. Besides, either businesses, it was a very good opportunity for them. So it's kind of a not win win. It's it's a situation for all sides. A lot of people around the world wonder if Mcdonald's could ever come back to Russia. I would say it's so difficult at this point to to know how the situation evolves. So certainly I would hope that at some point, maybe the situation and the conditions on the ground would allow us to reconsider that and go back in. But it's a dynamic situation. I think there's so many things that need to play out. It's impossible to know at this juncture.