He’s American, He Oversees Papa John’s in Russia and He’s Staying

Last week, though, as pressure intensified for food companies and restaurants to take a stance against Russia’s invasion of Ukraine, many announced they were pausing operations or temporarily closing restaurants in Russia. For McDonald’s, the decision to temporarily shut all restaurants, while difficult for a company that has operated in the region for 30 years, was logistically easier since it owns 84 percent of the 847 McDonald’s locations in Russia. (All 847 are closing and McDonald’s told investors last week that it would spend $50 million a month on leases, employee salaries and other expenses.)

For other fast-food chains, though, the move to suspend operational support is more symbolic than literal largely because of the franchising model.

For instance, Restaurant Brands International said it was “suspending support” for the Russian market, but did not detail what that would mean for the 800 Burger Kings in Russia that are owned by franchisees. Media reports in 2019 said 550 Burger King restaurants in Russia were owned by an investment-based consortium led by the investment arm of the Russian state-owned VTB Bank. VTB’s website in Russia could not be accessed. In a statement, Restaurant Brands International said: “We cannot speak on behalf of our franchisees. Regarding the business in Russia, we can confirm that we are in full compliance with all applicable sanctions.”

Likewise, last week Yum Brands said it was shutting down the 70 company-owned KFC restaurants in Russia and completing an agreement to close 50 franchise-owned Pizza Hut restaurants, but it was unclear whether the remaining 900-plus KFC restaurants in Russia that are owned by franchisees would remain open. In 2018, Russian media reported that VTB bank was part of an investment consortium that had acquired 180 KFC restaurants. Yum Brands did not respond to an email seeking comment.

Politics aside, the reluctance among the Russian-based franchisees to close their doors has much to do with the fact that they, not the parent corporation, have invested money and taken on significant financial risks in operating the stores. While the parent company may provide advertising dollars and strategy, and other support, the franchise owner is responsible for rent and electricity, construction costs to meet corporate standards, franchise fees or royalties, employee wages, and the food.

So while temporarily closing restaurants in Russia may have little impact on the overall revenues or profits of big companies like Papa John’s or Yum Brands, it could mean financial ruin for these smaller operators.

“These are Russian-owned businesses, owned primarily by Russians or Russian institutions, that don’t share our beliefs or requirements,” said Michael Seid, the founder of MSA Worldwide, a global franchise advisory firm. “The Russian franchisee has debt, has to pay the employees. They’re going to do what is in their best interest and it will all get sorted out later.”