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Burger King remains open in Russia despite its owner, Restaurant Brands International (RBI), pledging to withdraw over a year ago. RBI, which holds a 15% stake in the Russian franchise, stated that it has no new exit plan updates.
This development comes as Western companies face mounting pressure to sever ties with Russia amid the ongoing conflict in Ukraine, Wionews noted. Critics have accused RBI of bolstering Putin's regime by maintaining its stake in the Russian business.
RBI Cites Complicated Franchise Agreement as Obstacle
RBI, one of the largest fast-food restaurant companies worldwide, has cited the complex nature of its franchise agreement as a challenge in executing its exit strategy. The joint venture, involving three other partners, operates approximately 800 Burger King restaurants in Russia, according to BBC.
David Shear, RBI's president, revealed in March 2022 that the company had initiated the process to divest its 15% ownership stake. However, he acknowledged that this would take time. Some researchers argue that using franchise agreements as an excuse is a convenient smokescreen, given that other companies like Starbucks have managed to terminate their agreements and exit the country.
In response to inquiries, an RBI spokesperson emphasized that the company has refused new investment and supply chain support while claiming no profits from Burger King in Russia since early 2022.
RBI's stance contrasts with its competitor, McDonald's, which has successfully exited the country by owning most of its restaurants. Similarly, KFC's parent company, Yum! Brands have sold over 100 establishments to a local operator in Russia, leading to their rebranding as Rostic's.
Complex Ownership Structure Hinders Decision-Making
RBI's 15% stake in the Russian franchise restricts its ability to dictate terms to fellow shareholders, making it challenging to compel the closure of Burger King branches. Legal experts, like David Bond from law firm Fieldfisher, explain that franchised brands are reluctant to walk away from agreements due to potential consequences such as breach of contract lawsuits and reputational damage.
However, if RBI insists, no legal barriers prevent the franchise arrangement's termination, although it may not result in the complete cessation of the Burger King brand in Russia. Bond noted that most "de-brands" in the country, such as McDonald's, had been achieved through agreed sales with local businesspeople "willing to de-brand in return for the discounted purchase price."
Photo: Aashish Singh/Unsplash
