Burger King wanted to withdraw from Russia more than a year ago. But the chain’s more than 800 Russian fast-food restaurants are still open.
More than 18 months ago, the fast-food chain Burger King was one of many Western companies that announced the end of their Russian business because of the war of aggression against Ukraine. At the beginning of March 2022, David Shear, CEO of Burger King parent company Restaurant Brands International (RBI), said they wanted to withdraw from Russia.
However, nothing has happened so far. A spokesman for RBI now told the British BBC when asked that there was “no new information” about the withdrawal from Russia. In the country, 800 restaurants belong to the Canadian parent company RBI.
Joint venture without majority shareholding
As early as March 2022, David Shear pointed out that a withdrawal for RBI and its subsidiary Burger King from Russia would not be immediately enforceable. If you look at the company structure, this is hardly surprising. Because Burger King operates franchise restaurants in Russia: This means that Burger King (as a “franchisor”) does not operate its fast-food restaurants itself, but has them managed by another company (the “franchisee”).
Burger King’s franchise restaurants in Russia are operated by a joint venture partnership. In addition to RBI, three other partners are involved in the joint venture – and none of these three partners has a majority stake. RBI itself only owns a minority share of 15 percent.
In addition to RBI, Russian businessman Alexander Kobolov also has a 30 percent stake in the joint venture. This makes him the main operator of the chain. Shear said last year that he had asked Knoblov to stop working in Russia. Kolobov, in turn, told the BBC, that he did not have the authority to stop Burger King’s operations in Russia and that any closure would have to be approved by all of the company’s investors. His share was “always well under control.”
Starbucks managed to retreat more quickly
RBI also justifies its ongoing business activities in Russia with its minority stake of 15 percent. “There are no legal clauses that allow us to unilaterally change the contract or allow one of the partners to simply walk away or overturn the entire agreement,” emphasized CEO Shear. “Any current attempt to enforce our contract would ultimately require the support of the Russian authorities on the ground, and we know that this is unlikely to happen in the foreseeable future.”
However, it is controversial whether franchise agreements actually make withdrawal more difficult. Steven Tian, part of a research team at Yale University, criticized the BBC, that using franchise agreements as an “excuse” was a “convenient cover” for RBI. He also pointed to the example of Starbucks: The US company had managed to terminate its business in the country and exit.
No profits from business in Russia?
After all: Burger King’s parent company is also reducing its business activities in Russia. The RBI spokesman announced that the company would not make any new investments in Russia and would not provide support for the supply chain of Russian restaurants. In addition, no profits have been made from Russian restaurants since the beginning of 2022.