McDonald’s to slow Russia expansion due to fall in rouble
(Reuters) – McDonald’s Corp. (MCD.N) will open fewer new restaurants in Russia this year than last because a fall in the rouble has increased expansion costs and is hurting consumers, its Russian chief executive Khamzat Khasbulatov told Reuters.
The rouble, hit by a drop in oil prices and Western sanctions over Ukraine, has fallen more than 50 percent since early 2014, fuelling inflation. Russia now faces its first recession since 2009.
McDonald’s will open at least 50 new restaurants in Russia compared to 73 last year, having earmarked 6 billion rubles ($87 million) for capital expenditures, the same amount as in 2014, Khasbulatov said in an interview.
“There is a major currency component in new openings. Given the current conditions of doing business in Russia … we are pleased that the investment resources we have been allocated remained at last year’s level,” he said on Saturday.
The U.S. fast-food chain, which has been operating in Russia for 25 years, was hit by a string of snap inspections by a state regulator last year, which were widely seen as retaliation for the West’s sanctions against Moscow over its role in the Ukraine crisis.
Those inspections led to temporary closures of 12 restaurants, including the world’s busiest on the Pushkin square in Moscow.
Khasbulatov said the company had taken advantage of some of the closures to modernize the restaurants. All have reopened but their sales have yet to catch up with pre-closure levels.
The unexpected scrutiny had not led McDonald’s to changing its attitude towards the market, Khasbulatov said.
“New restaurants must meet our profitability expectations. (Fewer openings) is only a question of having a healthy business,” he said.
He added same-store sales growth could fall to zero in 2015 because of high inflation and an expected decline in spending on eating out, but new openings should help grow overall sales.
TORONTO – Bye-bye borscht. Hello Big Mak.
Thus was the lead on a Toronto Sun story back on Feb. 1, 1990, when the very first McDonald’s Restaurants Canada dining experience debuted in what was then the Soviet Union.
That day, Soviets — 27,000 of them–lining up for hours for their very first bite of pure capitalism under the shiny new Golden Arches sign just off Pushkin Square, near Gorky St.
The spanking new restaurant could seat 700 and prices were about twice that of a quick lunch by Moscow standards at that time — a Big “Mak” was selling for 3.75 rubles, a little steep considering the average Soviet wage was 230 rubles, or about $400 a month.
It was 25 years ago, but it might as well have been yesterday for George Cohon, founder and CEO of McDonald’s Canada.
“Twenty-five years ago I had the great pleasure and honour of bringing the world’s most-admired and iconic brand to the people of Russia,” Cohon said recently, reflecting on those heady days full of fast food, drama and intrigue.
“Since that time I have watched with amazement the growth of the McDonald’s brand, our people and our guests with more than three billion served since we opened in Pushkin Square.”
McDonald’s outlets in Russia number in the hundreds since that famous day.
“I’m particularly proud of the people story behind the first opening, both from Canada and Russia, learning from each other and working as one team,” added Cohon, who later wrote about his adventures in an autobiography, entitledTo Russia With Fries.
“In those early days, customers lined up for two hours on a daily basis to get into the restaurant,” said Sharon Ramalho, senior vice-president for McDonald’s Canada, who spent 10 years in Russia starting in 1991 as part of the core team of McDonald’s Canada employees to train McDonald’s Russia crew.
The Moscow-McDonald’s initiative was a joint venture between McDonald’s of Canada and Moscow city council, a plan first envisioned when Cohon met Soviet officials at the ’76 Summer Olympics in Montreal.
Cohon’s worked for years to build on what was basically a pipe dream into the reality of a food outlet that grew into a successful chain — at a time when such business ventures were greeted with suspicion and concern.
“This is a story about cooperation between nations,” Cohon said to then Toronto Sun columnist Mark Bonokoski.
“And it is also a story about the Soviet who saw a sign outside reading ‘Rubles Only’ — and who said to me, ‘This is my restaurant.’ ”
Cohon himself screwed in the brass plaque outside the eatery. The opening drew many VIPs from around the world, including many of Cohon’s friends and business associates who paid their way to witness the marriage of capitalism amid communism.
Among the Canadians was the late Doug Creighton, founder of the Toronto Sun. The paper was involved in the initiative, eagerly covering the ground-breaking event from all angles with such headlines as “Soviets Ready For Big Mac” and “MCBolshoi And Fries!” and “A Real Ruble Rouser.”
Cohon had a pay-it-forward caveat to the trip — “to be a friend of Cohon’s on this occasion cost $5,000 a couple — money donated to the Soviet Children’s Fund, a charity which elected Cohon its first non-Soviet member on its board of directors,” read the news story of that day.
Cohon was committed to raising money to assist orphaned and handicapped children across the Soviet Union.
“I never doubted that the Russian people would welcome Big Macs and fries, but I was truly moved by how they embraced the spirit of giving back through Ronald McDonald House Charities,” Cohon said.
Today, with McDonald’s everywhere, the idea of opening a location in what was once considered home to the Cold War may not raise too many eyebrows.
But the idea that Cohon had a vision which took years to achieve bears testament to the man’s legacy of knowing exactly how to make dreams come true.
“I remember this event clearly … there are very few people in our country who could have pulled off something like (opening in the Soviet Union),” said Paul Godfrey, president and CEO of Postmedia, and a friend of Cohon.
“George was during that time, in some ways, a pioneer in breaking grounds and he’s still actively involved,” Godfrey said. “He’s a Canadian by choice and he’s made great contributions to this country. He knows how to get things done.”