Coke, Pepsi, McDonald's join exodus out of Russia

Coca-Cola, PepsiCo, McDonald's and Starbucks—ubiquitous global brands and symbols of U.S. corporate might—all announced Tuesday they were temporarily suspending their business in Russia in response to the country's invasion of Ukraine.

"Our values mean we cannot ignore the needless human suffering unfolding in Ukraine," McDonald's President and CEO Chris Kempczinski said in an open letter to employees.

The Chicago-based burger giant said it would temporarily close 850 stores, but continue paying its 62,000 employees in Russia "who have poured their heart and soul into our McDonald's brand."

Kempczinski said it's impossible to know when the company would be able to reopen its stores.

"The situation is extraordinarily challenging for a global brand like ours, and there are many considerations," Kempczinski wrote in the letter. McDonald's works with hundreds of Russian suppliers, for example, and serves millions of customers each day.

Coca-Cola Co. announced it was suspending its business in Russia, but it offered few details. Coke's partner, Switzerland-based Coca-Cola Hellenic Bottling Co., owns 10 bottling plants in Russia, which is its largest market. Coke has a 21% stake in Coca-Cola Hellenic Bottling Co.

Pepsi announced it would suspend sales of beverages in Russia and also suspend any capital investments and promotional activities. But, the company said it would continue to produce milk, baby formula and baby food, in part to continue supporting its 20,000 Russian employees and the 40,000 Russian agricultural workers who are part of its supply chain.

"Now more than ever we must stay true to the humanitarian aspect of our business," PepsiCo CEO Ramon Laguarta said in an email to employees.

Last Friday, Starbucks said it was donating profits from its 130 Russian stores—owned and operated by Kuwait-based franchisee Alshaya Group—to humanitarian relief efforts in Ukraine. But on Tuesday, the company changed course and said it would temporarily close those stores. Alshaya Group will continue to pay Starbucks' 2,000 Russian employees, Starbucks president and CEO Kevin Johnson said in an open letter to employees.

"Through this dynamic situation, we will continue to make decisions that are true to our mission and values and communicate with transparency," Johnson wrote.

McDonald's is among those to take the biggest financial hit. Unlike Starbucks and other fast food companies whose Russian locations are owned by franchisees, McDonald's owns 84% of its Russian stores. McDonald's has also temporarily closed 108 restaurants it owns in Ukraine and continues to pay those employees.

In a recent regulatory filing, McDonald's said its restaurants in Russia and Ukraine contribute 9% of its annual revenue, or around US$2 billion last year.

Some of the companies have a long history operating in Russia. PepsiCo entered the Russian market in the early 1960s, at the height of the Cold War, and helped to create common ground between the U.S. and the Soviet Union.

Later, McDonald's was one of the first U.S. fast food companies to open a store in Russia, a sign that the Cold War had thawed. On Jan. 31, 1990, thousands of Russians lined up before dawn to try hamburgers—many for the first time—at the first McDonald's in Moscow. By the end of the day, 30,000 meals had been rung up on 27 cash registers, an opening-day record for the company.

But since the Ukraine invasion last month, many corporations have ceased operations in Russia in protest. Among them is consumer goods conglomerate Unilever, which on Tuesday said it had suspended all imports and exports of its products into and out of Russia, and that it would not invest any further capital into the country. 

Pressure had been mounting on companies that remained in the country. Hashtags to boycott companies like McDonald's, Coca-Cola and PepsiCo quickly emerged on social media.

Last week, New York State Comptroller Thomas DiNapoli—a trustee of the state's pension fund, which is a McDonald's investor—sent letters to McDonald's, PepsiCo and eight other companies urging them to consider pausing their operations in Russia.

"Companies doing business in Russia need to seriously consider whether it's worth the risk. As investors, we want assurances that our holdings are not in harms way," DiNapoli said Tuesday in a statement. "I commend the companies that are taking the right steps and suspending their operations in Russia."

In his letter, Kempczinski cited influential former McDonald's Chairman and CEO Fred Turner, whose mantra was, "Do the right thing."

"There are countless examples over the years of McDonald's Corp. living up to Fred's simple ideal. Today is one of those days," Kempczinski said.