Burger King store in Saint Petersburg, Russia. Maxim Konstantinov/SOPA Images/LightRocket via Getty Images.
Burger King’s parent company president David Shire said the chain wants to close 800 of its locations in Russia.
The franchise agreement with Burger King means it doesn’t have unilateral control.
Papa John’s has the same problem: a fraudulent franchisee refuses to close.
Burger King’s parent company, Restaurant Brands International, wants to close hundreds of its locations in Russia but can’t, President David Scheer told his staff on Thursday.
“Would we like to immediately suspend all Burger King operations in Russia? Yes. Can we achieve a suspension of operations today? No,” Shire wrote, thanks to a “complicated lawsuit.”
The company previously announced plans to suspend corporate support for Russian offices in the wake of the country’s attack on Ukraine, including halting further financial investment, marketing and supply chain.
However, it is not so easy to close real restaurants. Like many fast food chains, Burger King not only owns most of its restaurants, but also uses franchise agreements. When Burger King came to Russia 15 years ago, it partnered with Russian companies. Now RBI owns only 15% of the shares of the Russian business, so it cannot unilaterally close all branches.
Shear says that trying to enforce the contract and get out of it entirely will require cooperation from the Russian authorities, which is “virtually not going to happen anytime soon.”
McDonald’s became the first major US fast food restaurant chain to leave Russia on March 8, and several other major chains quickly followed suit. McDonald’s was more likely to close all of its Russian locations because 84% of them were company-owned and run. This means that in the vast majority of Russian establishments, McDonald’s did not have to deal with franchisees who could not comply with the rules. This level of ownership is unusually high—worldwide, 93% of McDonald’s locations are owned by franchisees.
The story goes on
Papa John’s is facing a similar problem for a franchisee who doesn’t want to close. Christopher Wynn, an American from Colorado, owns a company that operates 190 Papa Johns stores in Russia, The New York Times reports. He does not plan to stop the work of his restaurants, despite the fact that Papa Johns International has suspended operations in Russia. He even plans to open 20 to 40 more outlets if the Russian government doesn’t retaliate against American brands.
Franchise agreements are the norm in fast food and can be beneficial to companies by shielding them from liability in many cases, but they can also put some important decisions out of their hands, as Burger King and Papa John’s are seeing in Russia today.
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