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Fast-food chain wants to close Russian outlets but can’t

Burger King won’t be able to join the exodus of Western corporations pulling out of Russia to make a public statement about the Ukraine crisis. The fast-food giant said its local partners want to keep its 800 restaurants open, and legal agreements don’t allow the chain to shut them down unilaterally.

“Would we like to suspend all Burger King operations immediately in Russia? Yes. Are we able to enforce a suspension of operations today? No,” David Shear, president of Burger King’s parent company, Restaurant Brands International (RBI), told employees in a letter on Thursday.

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Multinational corporations in the West have faced increasing public pressure, including boycott threats, to punish Moscow over its military offensive in Ukraine by shutting down their businesses in Russia. Burger King’s chief rival, McDonald’s, announced the closing of its Russian outlets last week. That same day, several other big names – including Coca-Cola, PepsiCo and Starbucks – followed suit.

However, the joint-venture and franchise agreements through which Burger King entered the Russian market 10 years ago don’t allow any of the partners to walk away against the wishes of the others. Alexander Kolobov, the partner who operates Burger King outlets in Russia, has refused to close the restaurants, Shear said. RBI owns a 15% stake in the venture.

For the franchisor to force a suspension of operations, it would need assistance from the Russian government, “and we know that will not practically happen anytime soon,” Shear said.

The executive explained that Burger King’s legal agreements with partners and franchisees require long-term commitments from both parties. “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.”

RBI is seeking to sell its ownership interest in the Russian joint venture, but Shear said that process will take time. In the meantime, the company has suspended all corporate backing for the Russian Burger King outlets, including marketing and supply-chain support. New investments in the business have been suspended, and any profits will be given to the UN Refugee Agency.

Burger King isn’t alone in facing barriers to quitting the Russian market. For instance, pizza chain Papa John’s said last week that it was ceasing all corporate operations in Russia, but its 190 outlets in the country weren’t shut down. The restaurants are owned by franchisees and will continue to operate.

For those companies that can suspend their Russian businesses, caving to public pressure carries some risk. Moscow’s ruling political party, United Russia, has proposed nationalizing the production of corporate defectors, saying, “This is an extreme measure, but we will not tolerate stabs in the back, and we will protect our people.”

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