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Despite the proprietor of the company vowing to leave more than a year ago, Burger King is still operational as usual in Russia.
15% of the fast food franchise sector in Russia is owned by Restaurant Brands International (RBI), which informed the BBC it has “no new updates to share at this time” regarding its exit.
The company announced that it had begun the process to exit Russia in March 2022.
Western businesses have come under pressure to leave Russia ever since the conflict in Ukraine started.
By continuing to hold onto its investment in its Russian business, RBI was charged with “sustaining Putin’s regime” by critics.
One of the biggest fast food restaurant corporations in the world, RBI, has blamed its challenging franchise agreement for its challenges in trying to leave the nation.
The agreement is a joint venture for about 800 eateries with three other partners.
The president of RBI, David Shear, stated in March 2022 that the principal operator of Burger King in Russia had “refused” to close the locations after the initial strikes on Ukraine.
However, he said that it would take “some time” and that the corporation has “started the process” to sell its 15% ownership position.
When questioned by the BBC about the state of things 18 months after the pledge, a representative for the Canadian-American business said there had been no updates.
Franchise agreements being used as a “excuse” is, in the words of Yale University researcher Steven Tian, a “convenient smokescreen,” as they track what businesses have done in response to the war in Ukraine. He emphasized how companies like Starbucks had succeeded in ending their contracts in the nation and leaving.
Continuing to conduct business in Russia 18 months after Putin’s invasion of Ukraine upholds Putin’s rule, he claimed. “Saying they [RBI] want to leave but then dragging our feet is not the same as actually exiting Russia,” he remarked.
The RBI representative claimed that since early 2022, no profits had been generated from Burger King in Russia and that the company was turning down additional investments and supply chain support.
Do what is right.
RBI was urged to provide details regarding the precise steps it has made in its attempts to leave by Mark Dixon, the founder of the Moral Rating Agency, which advocates against companies doing business in Russia.
“[The company] should be prepared to breach its contract… It must be willing to take the legal risk associated with doing morally.
A commercial strategy for spreading goods or services is franchising. It involves a franchisor—a corporation that created the name of the brand—and a franchisee—a firm that pays a fee to get the right to use the brand and sell its products.
In recent decades, several Western firms have embraced it as a technique to expand into new markets abroad. Usually, the agreements are long-term.
While McDonald’s, which controlled the majority of its locations corporately, has managed to depart Russia, Burger King is still operating there.
Additionally, the parent company of KFC, Yum! Brands, sold over 100 stores in Russia to a regional manager. These restaurants were rebranded as Rostic’s in April.
In order to force its other shareholders to close Burger King locations, RBI could not just “dictate terms” to them due to its 15% interest, according to David Bond, partner at the legal firm Fieldfisher.
Additionally, he said that businesses who franchise out their brands would be reluctant to just walk away from agreements since doing so may have “dire consequences,” such as being sued for breach of contract and reputational harm.
He noted that, implications aside, there was nothing to prohibit RBI from ending the franchise agreement if it was determined to do so, albeit he added that it might not lead to the demise of the Burger King brand in Russia.
According to him, the majority of “de-brands” in the nation, including McDonald’s, were accomplished through pre-arranged deals with local entrepreneurs “willing to de-brand in exchange for the discounted purchase price.”
Who is the Russian Burger King owner?
RBI, along with these additional three parties, form the joint venture that owns the Burger King franchise in Russia:
- With a 30% ownership position in the company, entrepreneur Alexander Kobolov is in charge of managing the daily operations and management of the 800 restaurants. Burger King operations in Russia cannot be stopped, according to Mr. Kolobov, who earlier told the BBC that he lacks the “authority or power” to do so and that all of the company’s investors must agree to any shutdown. He said that his portion “has always been far below control”.
- A significant Ukrainian investment company, ICU Group, holds a 35% ownership. According to ICU Group, it has no influence over the joint venture’s activities or those in Russia and the other nations covered by the franchise agreement. According to the statement, the company was “at the final stage of exiting” the franchise arrangement under conditions set by a buyer. The business added that it had stopped investing in and managing the joint venture and had stopped receiving dividends since the war started.
- VTB Capital is a subsidiary of VTB Bank, the second-largest bank in Russia that the US, UK, and several European nations have sanctioned.