Burger King is selling its interest in its joint venture in Russia, the company said on Thursday, as it pulls support for its 800 locations in the country over its invasion of Ukraine.
The burger chain, owned by the Toronto-based Restaurant Brands International, said in a letter to employees that it has been “working around the clock to do all the right things” in its operations in Russia.
That includes selling its interest in a joint-venture partnership with Alexander Kolobov, who runs day-to-day operations, Investment Capital Ukraine and VTB Capital, one of Russia’s biggest banks. Burger King owns 15% of the joint venture and has put that up for sale. David Shear, RBI’s international president, said in the letter that selling the interest will take time.
“While we would like to do this immediately, it is clear that it will take some time to do so based upon our existing joint venture agreement,” Shear wrote.
He also said the company asked the operator of the restaurants in Russia to suspend operations, but “he has refused to do so.”
The company instead has suspended corporate support for the market, including operations, marketing, supply chain, approvals for new investment and expansion. Burger King also plans to redirect profits from the business to the United Nations refugee agency.
But Shear also noted the challenges the restaurant has in pulling out of the market, challenges echoed by many other franchise brands. Burger King does not own the restaurants directly, instead selling the right to use the brand to investors, or franchisees. And franchisees are the ones who employ and pay the workers.
The company often uses joint venture partnerships and holds an ownership interest in them as part of its effort to encourage rapid growth. But it will sell that ownership interest in its Russian venture, though the value of that interest has likely plummeted with the lack of corporate support.
Critics have pushed western brands to pull out of the market but doing so is complicated when it’s a franchise. “There are no legal clauses that allow us to unilaterally change the contract or allow any one of the partners to simply walk away or overturn the entire agreement,” Shear wrote. “No serious investor in any industry in the world would agree to a long-term business relationship with flimsy termination clauses.”
Any attempt to enforce the contract “would ultimately require the support of Russia authorities on the ground and we know that will not practically happen any time soon,” Shear wrote. “This is also why you may see other brands in Russia with similar structures continue to operate in the market.”
“Would we like to suspend all Burger King operations immediately in Russia? Yes,” he added. “Are we able to enforce a suspension of operations today? No.”
Burger King’s operator in Russia is hardly the only one refusing to shut down stores. Papa Johns’ operator there, PJ Western, has kept its 190 locations open even though the brand vowed to pull its support from the market, prompting a backlash.
They’re among the myriad challenges that U.S. brands face in response to the Russian invasion of Ukraine, which prompted massive economic sanctions on the country and a pullback of western business there.
McDonald’s helped unleash a wave of restaurant companies leaving the country when it said it would close its 850 stores there. Since then, however, the Russian government has said that it would eliminate trademark protections for companies from “unfriendly countries,” including the U.S.
Sine then, trademark applications have reportedly been filed in Russia mimicking a number of U.S. brands, including McDonald’s and Starbucks. According to Law 360, applications have been filed for “McDuck,” which McDonald’s is often referred as in Russia, a Latin alphabet version of Starbucks and “Uncle Vanya” with the McDonald’s logo turned sideways.
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