The owner of fast food restaurant Burger King has claimed that its independent operator in Russia is “refusing” to allow it to close its restaurants within the country.
Burger King, which is owned by Restaurant Brands International (RBI) and has around 800 fully franchised outlets in Russia, announced on March 10 that it had decided to suspend all corporate support within the country in the wake of Moscow’s invasion of Ukraine.
However, RBI president David Shear said in an open letter to employees that the operator of its stores in Russia is refusing to allow it to do so.
“We suspended all corporate support for the Russian market, including operations, marketing, and supply chain support in addition to refusing approvals for new investment and expansion,” Shear said.
“We contacted the main operator of the business and demanded the suspension of Burger King restaurant operations in Russia. He has refused to do so.”
Shear cited the company’s “complicated legal process” with its overseas partners as the reason for it being unable to shut down its Russian corporate support.
Burger King entered the Russian market ten years ago through a joint venture partnership, an approach it, like many other resturants, has utilized in numerous other global markets.
The joint venture partnership is with businessman Alexander Kolobov, who controls day-to-day operations, asset management firm Investment Capital Ukraine, and Russia’s state-owned VTB Bank—which has been hit by Western sanctions.
But because RBI only owns a minority 15 percent stake in the joint venture, and none of the partners has a majority share, it can’t unilaterally close all locations.
“When master franchise agreements and joint ventures are formed, there are extensive commitments to long-term investments and accountabilities to grow the business together,” Shear explained. “There are no legal clauses that allow us to unilaterally change the contract or allow any one of the partners to simply walk away or overturn the entire agreement. No serious investor in any industry in the world would agree to a long-term business relationship with flimsy termination clauses.”
Shear added that “any current attempt to enforce our contract would ultimately require the support of Russian authorities on the ground and we know that will not practically happen anytime soon.”
The Epoch Times has contacted Alexander Kolobov for comment.
Elsewhere in his letter to employees, Shear said the company has begun the process of disposing of its 15 percent ownership stake in the business, although this process, he said, could take some time based on the terms of the joint venture agreement.
The company also added that it is redirecting any profits it received from its business in Russia, including its ownership stake to humanitarian efforts in Ukraine via the United Nations’ refugee agency (UNHCR), and has already donated $1 million as part of that commitment.
It has also worked with franchisees in over 25 countries to provide $2 million worth of free meal coupons for Burger King restaurants to NGOs supporting Ukrainian refugees fleeing the country.
Burger King is among a number of American fast-food outlets to announce it is pulling the plug on operations in Russia, including rival restaurant McDonald’s which has around 850 locations in Russia, the majority of which are owned by the company.
While this means that McDonald’s likely will not face the same issues regarding its franchisees refusing to comply with the suspension, it also means that the company will suffer heavy losses by cutting its operations there.