Thursday, September 29, 2022

Iconic U.S. brands Coca-Cola, Pepsi, McDonald’s and Starbucks suspend business in Russia

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PepsiCo, Coca-Cola, McDonald‘s and Starbucks each said Tuesday they are suspending business in Russia after that country’s invasion of Ukraine, a symbolic move by four iconic U.S. brands.

Pepsi has sold it products in Russia for more than six decades, even when the company had to trade its soda concentrate for Stolichnaya vodka and warships. McDonald’s opened its first location beyond the Iron Curtain in Moscow, just months before the Soviet Union collapsed.

In recent days, Pepsi, Coke, McDonald’s and Starbucks have drawn criticism for continuing to operate in Russia while other U.S. companies announced suspensions and paused sales.

Yale Professor Jeffrey Sonnenfeld compiled and made public a list of U.S. companies that have withdrawn from Russia following President Vladimir Putin’s invasion — and those that hadn’t. Until Tuesday afternoon, Coke was among the most recognizable names on the spreadsheet.

“Our hearts are with the people who are enduring unconscionable effects from these tragic events in Ukraine,” Coke said in a brief statement Tuesday afternoon. “We will continue to monitor and assess the situation as circumstances evolve.”

Russia represents one of the few regions worldwide where Coke’s rival PepsiCo has a larger presence. In a regulatory filing, Coke said its business in Ukraine and Russia contributed about 1% to 2% of its consolidated net operating revenue and operating income in 2021.

Pepsi, on the other hand, generates roughly 4% of its annual revenue in Russia, though it is not halting all business in the country. The company said it will keep selling some essential products, like baby formula, milk and baby food.

It said it will suspend Russian sales of its Pepsi-Cola, 7UP and Mirinda brands, along with capital investments and all advertising and promotional activities.

“As a food and beverage company, now more than ever we must stay true to the humanitarian aspect of our business,” Pepsi CEO Ramon Laguarta wrote in a memo to employees viewed by CNBC.

The Wall Street Journal reported earlier on Tuesday that Pepsi was weighing different options for its Russian business, including writing off its value. Economic sanctions have greatly complicated the process of offloading Russian assets.

Since the Russian invasion of Crimea in 2014, many U.S. companies have looked to reduce their exposure in both Russia and Ukraine. Some restaurant chains, like McDonald’s, have sold off some of their company-owned locations to local franchisees.

McDonald’s announced Tuesday all 850 of its Russian restaurants would temporarily close. Until then, the fast food chain had stayed silent on the war, drawing stronger criticism than the handful of restaurant companies that condemned the invasion but kept their locations open.

About 84% of McDonald’s Russian locations are owned by the company, while the rest are operated by franchisees. Owning more of its restaurants means greater revenue for the company, but greater risk in times of turmoil or economic downturn.

Starbucks went a step further than McDonald’s, saying it would suspend all Russian business activity, including shipment of its products. Starbucks CEO Kevin Johnson condemned the attacks in a letter on Friday.

Of the two restaurant companies, McDonald’s has a larger presence in the country and receives a higher percentage of its global revenue from those sales.



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