Burger King sells its stake in its joint venture in Russia

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Burger King is selling its stake in its joint venture in Russia, the company announced on Thursday, as it withdraws support for its 800 locations in the country following its invasion of Ukraine.

The burger chain, owned by Toronto-based Restaurant Brands International, said in a letter to employees that it was “working around the clock to do all the right things” in its operations in Russia.

This includes selling its stake in a joint venture with Alexander Kolobov, which manages day-to-day operations, Investment Capital Ukraine and VTB Capital, one of Russia’s largest banks. Burger King owns 15% of the joint venture and has put it up for sale. David Shear, RBI’s international president, said in the letter that selling the interest will take time.

“Although we would like to do this immediately, it is clear that it will take some time to do so based on our existing joint venture agreement,” Shear wrote.

He also said the company asked the operator of the restaurants in Russia to suspend operations, but “he refused to do so”.

The company has instead suspended corporate market support, including operations, marketing, supply chain, new investment approvals and expansion. Burger King also plans to redirect company profits to the UN refugee agency.

But Shear also noted the challenges the restaurant faces exiting the market, challenges echoed by many other franchise brands. Burger King does not directly own the restaurants, but instead sells the right to use the brand to investors or franchisees. And the franchisees are the ones who employ and pay the workers.

The company often uses joint venture partnerships and holds an equity stake in them as part of its efforts to encourage rapid growth. But he will sell that stake in his Russian business, although the value of that stake has likely fallen due to lack of corporate support.

Critics have pushed Western brands to pull out of the market, but it’s complicated when it comes to a franchise. “There are no legal clauses that allow us to unilaterally modify the contract or allow one of the partners to simply withdraw or cancel the entire agreement,” Shear wrote. “No serious investor in any industry in the world would agree to a long-term business relationship with flimsy termination clauses.”

Any attempt to enforce the contract “would ultimately require the support of Russian authorities on the ground and we know that is hardly going to happen any time soon,” Shear wrote. “That’s also why you can see other brands in Russia with similar structures continuing to operate in the market.”

“Would we want to immediately suspend all Burger King operations in Russia? Yes,” he added. “Are we in a position to impose a suspension of operations today? No.”

Burger King’s operator in Russia is not alone in refusing to close stores. Papa Johns’ operator there, PJ Western, kept its 190 locations open even as the brand pledged to withdraw support from the market, prompting a backlash.

They are part of the myriad challenges American brands are facing in response to Russia’s invasion of Ukraine, which led to massive economic sanctions on the country and a setback in Western business there.

McDonald’s helped spark a wave of restaurant businesses leaving the country when it announced it would close its 850 stores there. Since then, however, the Russian government has said it will eliminate trademark protection for companies from “hostile countries,” including the United States.

Since then, trademark applications have reportedly been filed in Russia mimicking a number of American brands, including McDonald’s and Starbucks. Under Law 360, claims have been filed for “McDuck”, which McDonald’s is often referred to in Russia, a Latin-alphabet version of Starbucks, and “Uncle Vanya” with the McDonald’s logo turned on its side.

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