How McDonald’s Won Russia—and Then Lost It All

McDonald's flagship restaurant in Moscow was recently renovated. The first store in Russia and the world's busiest for many years, the store opened in a busy square in 1990 when the soviets were still in power. The flagship was modernized in 2020 to commemorate its 30th anniversary.

According to the designers the new look was supposed to be neutral. The red and yellow accents were replaced by concrete, steel and wood. The new facade was designed to blend McDonald's and Moscow into "a single space" visually, with a two-story wall of mirrored glass.

Construction was finished in February just in time for Russia to invade Ukraine. After suspending operations in Russia, McDonald's sold all of its assets there to Alexander Govor, a mining magnate. Big Specials are served under a vaguely familiar orangy M at the new Vkusno.

McDonald's has a long history of going native in foreign markets. It came to Russia and pitched itself as something new for people living under communism. The ads said, "If you can't go to America, come to Mcdonald's" McDonald's was able to expand quickly in Russia without changing its approach. The company became a target in the mid-2010s when nationalism surged under President Putin.

It paid off for a while. McDonald's grew from 500 stores to over 800. The first restaurant in eastern Siberia was added during the Pandemic. Mc autos set traffic flow records McDonald's was classified as a "backbone enterprise" by the Kremlin in March 2020 in order to qualify for government aid. McDonald's bought 4% of Russia's potatoes and 2% of its cheese, according to a study published by the Higher School of Economics. It paid about $1 billion in taxes over the course of four years. Russia accounted for the same share of McDonald's global revenue as MakDak by the year 2022.

It was then, Ukranian. There were no Apple Stores in Russia. Sales were stopped by Nike Inc. Security gates were removed from storefronts at the half-abandoned malls. McDonald's paused operations on March 8. It said the situation was extremely challenging and raised a lot of considerations. One more week of Big Macs was given to Russians. The lines have not been seen since the early 1990's. One person posted a photo of a fridge filled with at least 50 hamburgers. Luka Safronov-Zatravkin, a bear-sized pianist and social-media provocateur, handcuffed himself to the doors and yelled, "Closing down is an act of hostility!" as five policemen tried to detach him.

In the US, shareholders began pressuring the company to pull out for good after the #boycottMcDonalds trended on social media. On May 16th, Chris Kempczinski released a letter in which he noted that his predecessor, Fred Turner, had one value above others. We are selling our portfolio for the first time in our history. The McDonald's name will no longer be carried by them. The Golden Arches won't be in Russia anymore.

The decision may have reflected McDonald's struggle to accept the end of an era. The company's 32 years in Russia didn't just symbolize the values it claimed to stand for. The success story of capitalism was represented by them.

I went to the Mcdonald's to meet Khamzat. Before becoming CEO of McDonald's Russia, he was the first manager. Four entrances make up the restaurant. I had to go back and forth between the full restaurant and six dining areas with 900 seats to find the correct one.

The Big Mac has earned Russians' respect because they love the message that it is served by Russians. I said mine tasted better than the Americans. The lettuce, the beef, and the bread are all Russian. He pointed out that it wasn't always so when the store opened.

McDonald's expected 5,000 visitors on opening day. There were six times that showed up. With armed militia standing by in case of riots, people inched along under ominous winter skies to buy a Big Mac for just over six dollars. They were unsure how to eat one, so they rolled it into a tube. George Cohon, founder of McDonald's Canada and now McDonald's Russia, popped champagne in a Grand Kremlin Palace ballroom, the first time representatives of a western company had been allowed in. Turner remained at the restaurant as it was being prepared. The man was smoking cigarettes at the table in the back.

The son of two grocers and a fresh graduate of Toronto's Institute of Hamburgerology gave a quote to reporters on the first day. My perestroika can now be touched by me. I can enjoy my food. Big Mac is a type of food.

The culture shift began from there. Friendly service and hot, high-quality food were some of the things that McDonald's brought to the table. He said that soviets were not used to smiling. Golden Arches lifers were many of the original team members.

The beginning of it all was with Cohon. He ran Mcdonald's Canada since the 1960s. He was obsessed with the potential of the Soviet Union as a market after escaping the 1906 pogroms in Ukraine. He said in his memoir that they eat meat, bread, potatoes, and milk. We sold meat, bread, potatoes, and milk of the highest standards.

The Summer Olympics in Montreal asked Mcdonald's to lend a bus to the Soviets. After taking his captive passengers to a nearby franchise, Cohon began looking for a food service contract for the next Summer Games in Moscow. I wondered why it couldn't be Mcdonald's. In an interview, Cohon says

A formal proposal cost the company millions of dollars. Cohon was invited to come to Moscow by the Communist Party to sign a contract. He was shown to a hotel room overlooking the KGB headquarters. The Central Committee came back to him and apologized.

The view at a very high level was that the Soviet Union couldn't provide its own food services and that the world would know about it. He says the later decision by many nations to boycott the Games may have been the best deal he ever made. Cohon says that McDonald's would have felt pressured to join the boycott.

McDonald's was trying to get Big Macs to burger-less Soviets for the next 10 years. It wasn't unusual for Cohon to be summoned to Moscow. When executives boarded the plane, they were told that discussions would resume at a later date. They would make a toast to the general secretary. Go back to the airport.

The McDonald's offer was a joint venture between the state and Mcdonald's, with the soviets taking a majority of the profits. The company was willing to accept it.

The restaurant was to be located in the old food hall on the square. It wasn't possible to convert sales to US dollars. The soviet government was on the verge of collapsing. Cohon says the simple things became logistical headaches. You can take French fries. Russia had been the world's leading potato producer for most of the 20th century, but the Russian varieties were considered too small and waxy to be used in Mcdonald's fries. The company had to import 80% of the things it needed.

The production chain had to be built from the beginning. The McComplex was built on the outskirts of Moscow and cost $50 million to build. There were people who could bake sesame buns, grind hamburger beef, make ice cream, and make pies. embassies, hotels and other restaurants began buying McComplex products over time.

According to the Associated Press, the Pushkin Square location was so popular in its early years that the line for Lenin's Tomb was as long as four to one. Boris Yeltsin tasted his first Big Mac after taking a tour of a second Mcdonald's. I asked Khasbulatov if he wanted to eat the whole thing. Yeltsin wanted Mcdonald's to open more stores. He said to go to the Urals. You should go to Siberia.

The plan was to strategically expand, not all at one time. Logistical of shipping products had to be economical. The first McDonald's outside of the city was opened in St.Petersburg in 1996. Prior to the turn of the millennium, the chain had 50 stores in six cities, including Nizhny Novgorod and Kazan. Russia opened its 100th location in 2006 in Yeltsin.

McDonald's began to dominate its competitors as it began to open. Pizza Hut had started negotiating with the Soviets to open as many as 100 locations, but by 1998 it had only four stores, two of which closed during the ruble crisis. Russians found the food unpalatably spicy when it was first offered at taco bell. After opening a store in 1994 that had its highest sales by volume in the world, the business was quickly seized by Russia's Tambov Gang. One of Pizza Hut's ruble-crisis closings was a combination Pizza Hut-KFC location. After a fight with rogue franchisees who sold liquor and off-menu meat pies, the donut shop left in 1999. After failing again in 2003 they finally bought a local competitor and put a sign on the sign.

Domestic competitors didn't fare much better. Russian Bistro was opened in 1995 by the mayor of Moscow and the Russian government. The Ministry of Internal Affairs accused it of misappropriating over a million dollars and its assets were put up for auction.

Where other fast-food businesses failed, Mcdonald's thrived. I asked Dellos if he owned Mu-Mu, a chain of restaurants located in a mansion across from the Golden Arches. It wasn't a question of taste for McDonald's to succeed in 1990. He said that it was not a question at all. Communism made a huge mistake when they closed the doors. The United States was a dream because of them. The United States was a paradise for most of the Soviets. Dellos gestured towards the square. Can you imagine a piece of that paradise?

The pianist handcuffed himself to the doors of the flagship and yelled, "Closing down is an act of hostility!"

The 1998 ruble crisis was the end of the Wild Nineties in Russia. McDonald's began a multidecade push to increase its share of locallysourced ingredients from just a quarter.

By the late aughts, other chains' boards were dusting off their plans after the Russian economy rebounded. Burger King came to town. The same year, the donuts came back. It was also entered by Wendy's Co.

According to a professor at the University of California at Santa Cruz who studies food in post-Soviet Russia, the Russians looked on with a desire to domesticate fast food because they were frustrated. They spent fortunes trying to steal customers by imitating Mcdonald's. The Kremlin marketed kvass as Communist Coca-Cola. Blin! Donalt's tried to turn Russia's blini pancake into a Big Mac killer. The billionaire food baron who later became notorious for controlling the Internet Research Agency troll factory owned it. It's blin! Donalt's ceased to exist in 2012

He was more successful than anyone else. During the 1998 ruble crisis, he started a street stall that became the ubiquitous chain Teremok. The banks would lend Mcdonald's money, but not Teremok at first, according to the man. He complained to Russian media that the shortage of funds forced him to find out which authorities would pay off and which billionaires would invest in the company.

A hyper targeted competitor analysis was conducted by Goncharov. As I tried the cheese blini, chicken noodle soup and Teremok-brand kvass that he ordered for me at a north Moscow outlet, he said that he had found a Mcdonalds training manual. The restaurant management guides had been translated into Russian and contained a 3-inch binder filled with strategies. Teremok followed their instructions with care, according to Goncharov. The workers were trained to smile to disarm upset customers.

McDonald's had a public thorn in their side, as they sought to appeal to Russian patriotism. Even as he was expanding his chain to 100 locations by 2010 and more than 300 today, he blasted the rival's executives as a bunch of "bastards" and demanded regulations that benefited smaller domestic competitors such as Teremok.

McDonald's used to mostly ignore the competition. In 2010 it had hundreds of locations. The next-busiest international market had less per-store traffic than it did. The Russian government's half of the joint venture was purchased by it. It sold the most ice cream there and poured the most coffee there.

Russia took control of the peninsula from Ukraine. Western businesses began to flee after the US retaliated with severe economic sanctions. There were no operations left at General GM Co. The ExxonMobil deal was north of Siberia. Microsoft stopped selling software to Russians.

There was an increase in support for Putin and distrust of the west. Western food imports were banned by the Kremlin, including meat, seafood, fruits, vegetables, nuts, salt and some packaged goods. It was in line with a long-standing goal to boost the country's domestic agricultural sector, which had been in steep decline as per capita income increased. Russian authorities destroyed hundreds of tons of food, including French cheese, to make room for reporters.

Foreign restaurant brands began to panic. Wendy's closed all of its stores. Carl's Jr. left. The real trophy was Mcdonald's. Legislators threatened fines for purchases of Big Macs. Protesters yelled "down with American fast food!" According to records from the national consumer protection agency, about half of McDonald's stores received visits from its inspectors in the last year. If agents showed up without warning, they would issue fines of up to $12,000 for violations such as improper ingredient storage, selling fish sandwiches that were contaminated with E. coli and violating the Technical Regulations of the Customs Union. Ronald McDonald House Charities was accused of money-laundering The company denied any wrongdoing. A number of stores were temporarily closed.

McDonald's recorded its worst monthly profit decline in a decade at the end of last year. It was also announced that all locations in the east and south of the country would be closing. There was a void in the areas that were left. The McDonald's in Luhansk was seized because it was empty. TheBurger started serving Big Mags. McDaks, DonMaks, and AutoCafe had cribbed its menu wordings from the Mcdonald's website. The media reported that subtle recipe changes made the practice legal.

After Russia warned the US it might designate Mcdonald's as a foreign agent, the company pushed back. It stated that 50,000 Russians were employed at its restaurants, 100,000 Russian jobs were supported by its supply chain and more than 1 million Russians ate there daily. The chain said that they are one of the most Russian companies there is. The Golden Arches weren't American, they were the Russian arches, according to the ever-quoted Khasbulatov.

Russian self-sufficiency, but import substitution in industries as wide-ranging as auto manufacturing, software development and agriculture hadn't generally been successful. McDonald's had been flawless in the years leading up to the annexation. In 1998, 25% of its ingredients were locallysourced. McDonald's adopted a local potato supplier in order to bring the total ingredients share to 98% Russian. It had that percentage stenciled onto the sides of delivery trucks and began airing TV ads that showed farmers harvesting crops while a voice said, "When it's about food, you choose what's close, what's native." Stores received cardboard cutouts of farmers. McDonald's has the highest percentage of local employees of any competitor in the market, according to the former CEO. Carena said it was aiming for 100% of the market to be Russian.

When other markets, such as Australia, Germany and Japan, were larger, McDonald's was more focused on Russia. He said that the Russian spends 4% of his household income on eating out. Russia's disposable income was growing, household debt was low, health care was socialized, and the market was wide. There wasn't a more appetizing fast- food market.

There was a risk in overcommitting. Carena said that they mitigated the risk by being entrenched in the area. Russian people see us as part of their daily lives.

At the time, it was correct.

In announcing McDonald's departure from Russia last year, Kempczinski wrote, "For thirty years, McDonald's in Russia embodied the very notion of glasnost." It seems impossible to imagine a country without the brand. He said that is where we are today.

McDonald's opened channels with Russians within a month of the invasion. Govor said he met with company representatives twice in May. He said he acquired McDonald's assets for a token fee that was below market price. McDonald's had previously said Russia accounted for 2% of sales, which should have put the market's annual sales at $2 billion. The majority of restaurants in Russia were company owned. Govor promised to keep Mcdonald's workers employed for at least two years.

The screens on the self-serve kiosks were often haunted at night.

The Russian media claimed that the dream of the man had come true with the sale of Mcdonald's. In October, he began an attack on his archnemesis, releasing footage of a sting operation in which he said Teremok employees had secretly filmed Mcdonald's welcoming customers. 10 locations were accused of violating the city's decree. Russia entered a new stage of life after McDonald's suspended operations. He was complaining on Facebook that he never had a dream like that. Competition should be fair. He sounded like he was thinking wistfully. He wrote that no one will take McDonald's place in Russia.

The Anti-Corruption Data Collective, a group in Washington that has investigated Russia's influence on Western companies, says Mcdonald's has reason to be proud of its accomplishments in Russia. He argues that even if it couldn't restrain the government from its worst impulses, it still provided a lot of good to the Russians. It might have been a better company for Russia than it has been for the US. He points to Apple removing an app created by allies of Putin critic Alexei Navalny the day before Russia's election, as well as Ikea executives signing off on a bribe to gain access to a St. McDonald's had a big impact on the way restaurants and other consumer oriented businesses operate.

A shiny shell reflects the humming plaza back to itself after McDonald's withdrew. A small amount of activity would be captured by Vloggers. The haunted startup screens of the self-serve kiosks were often lit up at night. The final traces of Mcdonald's were removed or reinterpreted by early June. Workers used a black marker to write their logos on packets of Ketchup.

The grand opening of Vkusno was held in 1990 redux. There was a long line. News crews were on the scene along with some of the social media stars. The number of burgers sold was four times greater than McDonald's opening day number. A man proposed to his girlfriend. The man with the Big Mac sign was taken away by security. Many of the Tochka's top brass began their careers at the McDonald's flagship in 1990.

Around the same time, Tochka began to run ads. There was a film inside the flagship. The narrator said that sometimes people seek out familiar places so they can have familiar experiences. A couple on an exciting first date are seen by viewers. The ad ended with a slogan. The taste doesn't change.

The article was supported by the UC Berkeley-11thHour Food and Farming Journalism fellowship. Russia and Iran are building a trade route that could be used to evade sanctions.