A Roof over the Arches: McDonald’s revise their business development strategy in Russia Reviewed by Momizat on . [caption id="attachment_5493" align="alignnone" width="615"] The world`s largest fast-food company has operated in the country since 1990 when it opened its fir [caption id="attachment_5493" align="alignnone" width="615"] The world`s largest fast-food company has operated in the country since 1990 when it opened its fir Rating: 0

A Roof over the Arches: McDonald’s revise their business development strategy in Russia

The world`s largest fast-food company has operated in the country since 1990 when it opened its first outlet not too far away from the Kremlin. It currently employs more than 40,000 people and caters to about 1 mln customers at its 517 outlets.

The world`s largest fast-food company has operated in the country since 1990 when it opened its first outlet not too far away from the Kremlin. It currently employs more than 40,000 people and caters to about 1 mln customers at its 517 outlets.

Despite an onslaught of (allegedly biased) food safety audits, McDonald’s plan to open 20 new restaurants in Russia in the “nearest future,” according to recent news reports. The outlets will be opened in western Siberia.

The world`s largest fast-food company has operated in the country since 1990 when it opened its first outlet not too far away from the Kremlin. It currently employs more than 40,000 people and caters to about 1 mln customers at its 517 outlets.

In 2014, the company experienced difficulties as the deteriorating Russian economy impacted upon its customer base. This was compounded by the Russian reaction to EU and US sanctions leveled against the country in the wake of the Ukrainian conflict.

A key problem for Russia has been its distinct inability to cultivate a business lobby in the USA, as opposed to the EU. The level of business and trade interaction between the US and Russia pales into insignificance when compared with that between Russia and the EU. Thus when sanctions were imposed, the Russian government was left struggling to find appropriate means to respond to the USA.

However, the Chicago based McDonald’s found itself to subject to an extensive investigation into its food safety standards – a course of action not unfamiliar to certain EU countries and former members of the Soviet Union i.e. Georgia, Moldova, have been accustomed to experience when the Russian authorities wish to play hardball.

McDonald’s was forced to temporarily close about 40 percent of its food outlets. While the outlets have reopened, the company has been the subject of about 100 court cases arising from the food safety investigation, compared with ten cases in the previous seven years.

Another recent investigation led to the closure of one of its Moscow outlets for 30 days, which is still waiting to reopen.

The deal announced represents an interesting departure for McDonald’s. Typically, the company has preferred to owner-manage the Russian outlets itself rather than opting for a franchise operation. The company has pursued a franchise with a Russian entity, Rosinter, which has also developed  international brands such as Costa Coffee and T.G.I. Friday’s in Russia, as well as the Russian brands, Planet Sushi and Il Patio. However, Rosinter is franchisee for just two outlets.

The franchisee under the new agreement is an entity called Inrusinvest, a major real estate developer, operating in the Kemerovo and Novosibirsk regions as well as the Altai Krai and Altai Republic, owned by Alexander Govor.

Interestingly, Govor was the shareholder and joint owner, together with Roman Abramovich`s Evraz, of a Russian coal mine run by OAO Yuzhkuzbassugo. In 2007, thirty-nine mineworkers were killed in a methane gas explosion that took place. Two attempts to shut the Yubileinaya mine in early 2007 were rejected by the local Novokuznetsk courts.

In order to consolidate  its interest after the accident, Evraz is believed to have bought out Govor and his partners for USD 871 mln.

Inrusinvest will also take over McDonald’s six outlets in Novosibirsk, which would presumably contribute an element of the cash flows required to meet the overall planned investment of about RUR 3 bln (or USD 44 mln) for the new outlets.

The first McDonald’s restaurant will be opened in September in the Kemerovo region city of Novokuznetsk.

Photo courtesy of Zac allan/Wikimedia Commons.

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