Yahoo Finance Why Burger King locations are still open in Russia
Burger King's parent company says it has tried to suspend operations of its 800 locations in Russia in the wake of the country's invasion of Ukraine, but the local Russian operator has refused to comply.
Restaurant Brands International (QSR)(QSR.TO) president David Shear wrote an open letter to employees released Thursday detailing why Burger King is still operating in the Russian market. Some of the world's most-recognized companies, including brands like McDonald's and Starbucks, have suspended operations in Russia over Moscow's invasion of Ukraine.
But Burger King has been unable to do so, RBI says.
The company operates in Russia through a joint-venture partnership controlled by Russian businessman Alexander Kolobov, who is responsible for day-to-day operations; Investment Capital Ukraine, a Ukrainian investment firm; and VTB Capital, an affiliate of one of Russia's biggest banks that has been sanctioned by many countries around the world, including Canada. RBI owns a 15 per cent stake in the joint-venture partnership.
RBI, which also operates the Tim Hortons and Popeyes brands, says it is in the process of disposing its ownership stake but that it will take time to do so "based on the terms of our existing joint-venture agreement."
In the meantime, Shear says RBI contacted Kolobov and demanded the suspension of Burger King's operations in Russia.
"He has refused to do so," Shear wrote in the letter to employees.
Burger King has been operating in Russia over the last 10 years through the joint-venture partnership, the same model the chain employs in 15 other international markets. The company operates 800 locations in Russia, all overseen by Kolobov, who RBI says has "extensive restaurant experience."
RBI has taken steps pertaining to its Russian operations in recent weeks. First, the company announced it would redirect its earnings from its franchised locations in Russia towards humanitarian efforts supporting Ukrainian refugees. A day later, the Toronto-based chain went a step further and suspended all corporate support to the Russian market, meaning Burger King in Russia would no longer receive support for operations, marketing and the supply chain.
In his open letter, Shear says when such joint ventures are formed, the master franchise agreements include extensive commitments to long-term investments to ensure the business grows. That has made it difficult for RBI to cut ties in Russia.
"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. No serious investor in any industry in the world would agree to a long-term business relationship with flimsy termination clauses," Shear said.
"This is exactly why we say it's a complicated legal process when we are asked why we can't just unilaterally shut down the business."
Shear says any attempt to enforce the company's joint-venture contract would require support from Russian authorities on the ground, something that "will not practically happen anytime soon."
"Would we like to suspend all Burger King operations immediately in Russia? Yes. Are we able to enforce a suspension of operations today? No."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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