Restaurant Chains Curb European Growth After Russian Invasion

Elgin IL

18 March, 2022

12:55 PM

Description

Press release from the Elgin Area Chamber of Commerce:: The war in Ukraine has U.S.-based restaurant chain operators rethinking property expansion plans in Russia and other parts of Europe as industry leaders Yum Brands and McDonald's join the list of iconic global companies shutting Russia-based operations in response to the invasion. Restaurant expansions are not only now more complicated for Yum Brands — the parent of Taco Bell, KFC and Pizza Hut — and other companies in Russia, but in countries including Poland and Hungary that are close to the western front of the Ukraine war, said Los Angeles restaurant development consultant Jerry Prendergast. "No one is interested in opening in Russia or anywhere in Eastern Europe at the moment," said Prendergast, principal at Prendergast & Associates, relaying comments he's heard from colleagues who handle international restaurant clients. "It's too dangerous, too unstable." As of March 15, a total of 380 companies in multiple industries had announced their withdrawal from Russia, either by halting new investments or at least temporarily closing operations, according to a list compiled by Yale University researcher Jeffrey Sonnenfeld. In addition to McDonald's and Yum Brands, the restaurant chain shutdown list includes Starbucks, Papa John's and two major suppliers to the industry, PepsiCo and Coca-Cola. Several restaurant companies, mostly with locally franchised operations, remain operating in Russia, including Burger King and Subway. The war's effects could be felt well into the decade, said Darren Tristano, CEO of consulting firm FoodserviceResults in Chicago. "There are already numerous challenges in the supply chain, government regulation and the possibility of global pandemics," Tristano told CoStar News. "Uncertainty of war and economic sanctions will only make things worse for years to come for these operators to stay in business and succeed." Multiple Business Challenges Restaurant companies doing business in Europe were already facing staffing struggles, food cost inflation and supply chain disruptions caused by lingering effects of the pandemic well before the Russian invasion of Ukraine, Prendergast said. And for restaurant companies that were slowing their expansion ambitions because of the coronavirus fallout, he said, the war in Ukraine has injected a political element that could further limit location growth. For the most part, closings so far involve company-owned locations of the major chains in Russia, including 850 restaurants for McDonald's and 70 for Yum Brands' KFC. The bulk of the approximately 1,000 KFCs in Russia, operated by a regional franchisee, were still operating as of March 15, though about 50 franchisee-operated Pizza Hut locations were in the process of being shut. "Yum Brands is suspending operations of KFC company-owned restaurants in Russia and finalizing an agreement to suspend all Pizza Hut restaurant operations in Russia, in partnership with its master franchisee," according to a statement issued this month by Louisville, Kentucky-based Yum. "This action builds on our decision to suspend all investment and restaurant development in Russia and redirect all profits from operations in Russia to humanitarian efforts." The moves came after Yum Brands officials identified Russia last month as one of three key markets for future global location growth. The company and its franchisees now operate more than 53,000 restaurants in 155 countries, after opening a company record of more than 4,100 locations worldwide during 2021. "At KFC, the brand delivered a record development year, led by significant contributions from China, India and Russia," Chief Financial Officer Chris Turner said during Yum Brands' fourth-quarter earnings call with analysts in February. There are now nearly 27,000 KFCs operating worldwide. The company also released numbers showing the region that includes Russia, Central and Western Europe accounted for 8% of KFC's global sales of $8.6 billion for the fourth quarter and of $31.4 billion for 2021. At the same time, sales growth in that region was among the KFC division's highest — up 33% in the fourth quarter and 35% for the full year, with regional dollar figures not disclosed by Yum Brands. In contrast, U.S. KFC sales represent 17% of the brand's total sales, but domestic sales grew at a much slower rate of 4% for the quarter and 7% for the year. Source: www.CoStar.com This press release was produced by the Elgin Area Chamber of Commerce. The views expressed here are the author's own.