Burger King cannot suspend operations at 800 locations in Russia because of a legal agreement with its main franchisee partner.
The brand’s parent company, Restaurant Brands International (RBI), announced last week that it would suspend supply chain, operational and marketing support for any of its chains in Russia because of the nation’s ongoing military conflict with Ukraine.
On March 10, RBI released a statement saying there were no corporate Burger King Restaurants in Russia and that all operations were franchised and managed by a local “master franchisee.”
“Burger King has suspended all of its corporate support for the Russian market, including operations, marketing and supply chain in addition to refusing approvals for investment and expansion,” RBI said.
Alexander Kolobov, the main Russian Burger King franchisee, has worked with the company for more than a decade through a joint venture partnership. He refused RBI’s request to suspend the operation of his Burger King locations, which number over 800 in total.
David Shear, the president of RBI, told employees in an open letter that the company had been “been working around the clock to do all the right things.”
He noted that in addition to its partnership with Kolobov, RBI also had a joint venture partnership with Investment Capital Ukraine and VTB Capital. RBI owns a minority stake (15%) and none of the partners own a majority share.
VTB Capital is part of VTB Bank, the second-largest bank in Russia. Shear said that they are complying with all western sanctions issued against the bank.
“Ukrainian President Volodymyr Zelenskyy is stepping up the country’s pleas to pressure companies to exit Russia,” reports News4 Jax. “In an address to Congress Wednesday, he asked lawmakers to press U.S. businesses still operating in Russia to leave, saying the Russian market is ‘flooded with our blood.'”
“Make sure that the Russians do not receive a single penny that they use to destroy our people in Ukraine,” Zelenskyy said.
Because of the joint venture agreement, RBI can not immediately suspend operation at its Russia locations as McDonald’s did earlier this month.
“We contacted the main operator of the business and demanded the suspension of Burger King restaurant operations in Russia,” Shear wrote in the March 17 letter. “He has refused to do so.”
Shear said the terms of the contract include “commitments to long-term investments” that do not allow for RBI to “unilaterally change the contract” or “simply walk and or overturn the entire agreement.”
The executive also said the company would need support from Russian authorities to enforce termination of the contract which “will not practically happen anytime soon.”
“Would we like to suspend all Burger King operations immediately in Russia? Yes,” Shear wrote. “Are we able to enforce a suspension of operations today? No.”
Marks & Spencer and hotel group Accor and Marriot are facing similar challenging regarding franchise agreements and are prevented from quickly severing ties with Russia, per The Guardian.
RBI plans to redirect all profits from Russian Burger King locations to United Nations’ refugee agency (UNHCR). The company has already donated $1 million to the agency and distributed $2 million worth of free Burger King meal coupons to NGOs that are working with Ukrainian refugees.
