RUSSIA SEIZES Ownership & Control of Major BRANDS - Burger King, MacDonalds, KFC, Subway, M&S, Ibis

Added: 2026-05-12

[00:00:03]Hi, welcome back to Joe Blogs. This video is another update on the situation with regards to Russia's invasion of Ukraine. In this series of videos, I'm looking at the financial implications of everything that's going on. And in today's video, I want to talk about some brands that have now been taken over by Russia. So as we've seen the conflict unfold, firstly we saw a whole range of sanctions that were introduced by the governments of the Western world against Russia. And these sanctions were designed to hurt the Russian economy and to stop the supply of money going into Russia to support the war effort. So the main focus that we saw was the closure of the Swift payment system. So a lot of companies in Russia that are seen as being sensitive are now blocked from using that payment system. But in addition to the official sanctions, we've also seen a commercial reaction from a variety of businesses. And today we've seen over 400 companies announced that either they are withdrawing from Russia if they have facilities in Russia or that they're ceasing all future business with Russian counterparts.

[00:01:11]Now in response to that, the Russian authorities have announced a new fast-track bankruptcy program whereby they can seize the assets of any companies that are announcing that they are leaving to make sure that those businesses carry on trading. And essentially what will happen is those businesses will be nationalized. They'll become Russian property. So the Russians are trying to protect their own economy and to prevent a collapse of their supply chains. But in today's video, I want to talk about some big brands that are attempting to leave Russia, that have tried to close all of their operations, but have been unable to do so. And those operations are now being run by somebody else using their brand name. So this is quite damaging to these brands. This could potentially have global implications for them. And there's nothing they can do about it.

[00:02:01]And the reason that they've lost control of their brand is that they have issued franchise agreements in Russia. So in this video, I'll give you a brief overview of what a franchise agreement is, how that structure works.

[00:02:14]I'll then talk about the businesses that are being impacted by this and who have lost control of their own brands in Russia.

[00:02:21]We'll have a look at the legal implications of all of this and what risks there are for both the franchisee and the franchisors. And then [clears throat] finally, I'll wrap up with my summary as to what I think the likely implications of all of this are and what the eventual outcome will be.

[00:02:34]So before we get into all of that, if I could ask you as usual to give me a thumbs up at some point during this video if you're enjoying the content.

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[00:02:59]The response to the Russian invasion of Ukraine from business has been overwhelmingly negative. Most companies have come out and made statements that they don't agree with what Russia are doing and that they now want to either withdraw from Russia or close down all of their business relations. And Yale School of Management have put together a comprehensive list of what major companies have decided to do. And this list has been split into five different categories. Withdrawal represents an entirely clean break with companies completely halting all of their engagement with Russia. Suspension means that companies are keeping their options open for a return once everything returns to an element of normality. So the companies have temporarily cut back their operations, but could fire things up in the future. Scaling back refers to companies that have reduced their level of activity. Buying time is classified as companies who are postponing future planned investments, development, and marketing, but are continuing substantial business operations. And digging in is their classification for companies who are defying all demands for an exit or reduction of activities.

[00:04:08]To date, 166 companies have announced that they are either exiting their Russian operations or completely stopping all business relations. Not surprisingly, the largest category is suspension. And these are companies that have currently stopped all of their operations, but have not stipulated that they are completely exiting from Russia and may consider going back at some point in the future. 28 companies have scaled back their operations. So these are businesses that are still operating to some extent in Russia. 54 companies are buying time. So they've announced that they won't be making any new investments or new developments, but they are carrying on trading in Russia right now. And 33 companies are carrying on as normal as if nothing has happened.

[00:04:52]So that's the comprehensive list of companies provided by Yale. However, I wanted to add an additional category to that list. And these are the companies that have announced that they are exiting from Russia and they intended to close down all of their operations, but have been unable to do so. And the reason that they've been unable to do so is that they have franchise agreements in Russia and therefore there's a legal contract in place which allows somebody else to utilize their brand within Russia.

[00:05:23]The traditional concept of a business assumes that everything is 100% owned.

[00:05:28]So if you decide to open a burger restaurant, you'll find location for your restaurant, you'll buy all of the equipment, you'll hire in some staff, you buy in some stock, and then you start cooking burgers and selling them to the general public. And you own 100% of your business. If you then decide that you want to open another burger restaurant, you then have to find another location, you have to pay for that location. So either you buy it or you sign a long-term lease, which is expensive. You then have to buy more equipment, so you're having to pay for all of that. Then you have to find some more staff and pay for those, and then you have to buy more stock. And you have to pay for all of those things before you start trading. So there's a really big capital requirement if you want to expand your burger restaurant from one to two. Now if you wanted to expand your burger restaurant from one store to a thousand stores, that would involve a huge amount of capital and would be really expensive. And it's very difficult for businesses to be able to afford that. Unless you can find somebody to give you all of the money to be able to fund it, it's virtually impossible. But if you could find a way for getting somebody else to pay for that second store, but still make some profit from it, that would be the perfect scenario for you because you'd be able to open up hundreds of stores without needing to pay out all of the capital required. And that's essentially what a franchise operation is.

[00:06:53]Franchising is a concept whereby you establish a brand and a particular look and a particular supply chain for your business. And then you sell that concept to other people who want a ready-made business. So carrying on with our burger restaurant example, if we think about McDonald's, McDonald's has a very specific look. You know a McDonald's when you drive past it. It has the golden arches on the front, but the stores generally have the same sort of look. And inside when you step into a store, it looks very similar. So it might have a slightly different design depending on where you are, but the counter looks the same, the equipment that's used for cooking all of the food is the same, the tables and the layouts and the menus and the ordering system are all consistent across all of the different branches. So that is the McDonald's brand. That's what it's all about. And the food is obviously the same wherever you go. So when you order a Big Mac, you know what it tastes like wherever you are in the world. And that's because McDonald's is focused on making sure that the McDonald's experience is the same wherever you go.

[00:07:58]So the benefit of having a very prescriptive brand is that you can then sell that as a concept to a franchisee.

[00:08:06]So if I'm an entrepreneur and I want to open a burger restaurant, I have the choice of either opening up a brand new concept, thinking up a brand name, how I'm going to market the business, all of the issues around starting up a company.

[00:08:18]Or I could go to McDonald's and sign up to be one of their franchisees. And if I do that, I know that I've already got a ready-made brand, I've got all of the marketing which is done centrally by McDonald's. So I'm benefiting from their corporate power. I don't have to worry about the supply chain because they will provide me with all of the equipment and all of the food and all of the logistics and the support that comes with being part of a large corporate. I don't have to worry about staff training and health and safety and all of the issues that you have when you start a business from scratch. Everything is ready-made for you. All I need to do is find a location that I think is suitable for McDonald's restaurants, approach the company, and then sign my franchise agreement. And under that franchise agreement, I will pay McDonald's an upfront fee to secure the franchise for a certain period of time in that location. And in exchange for that, McDonald's will provide me with all of the fit out for my store, all of the equipment that I need for cooking all of the burgers, and a supply agreement to provide me with all of the food that I need to be able to cook a McDonald's burger exactly as it should be. Now in exchange for that, I will have certain terms and conditions that I will need to meet in terms of making sure I meet all of the health and safety and legal requirements for running a burger restaurant and that I hit certain volumes and I'm performing well. So the reason that franchises have become very popular is that from the corporate point of view, it's a really great way of expanding your brand and network without having to pay out the full amount of capital for every single store because you've got a franchisee who will find that location and then they will pay for it to be fitted out, they will pay McDonald's to come and do all of the fit out, and they will cover all of the costs of running that store. So, it's a low-cost way of expanding your brand all across the country and all across the world. McDonald's will also take a percentage of the profits from that store, so it's a profitable enterprise.

[00:10:12]From the franchisee's perspective, it's very attractive because you're getting an established brand name day one. You don't have to worry about building up your reputation because it's already there. Everybody knows McDonald's. You know that you'll get a lot of custom.

[00:10:26]It's very popular, and therefore you should hit high levels of turnover and high levels of profitability, even though you're having to pay some of that profit to McDonald's. Overall, it should be more profitable than running your own store from scratch. You also don't need to worry about the supply chain and where you're going to source your burger from and making payments and negotiating with hundreds of different suppliers.

[00:10:48]You just have one supplier, which is the main franchise business.

[00:10:54]Expanding into countries that have different languages and cultures is always a challenge for Western businesses, and quite often they will need local partners who are able to integrate the business into that society. When deciding upon overseas expansion, a business always has the choice of opening company-owned stores and operations or franchising the concept out to local operators. And it's the franchise model that is now causing a major problem in Russia. We have heard from a variety of brands who have announced that they want to close down their entire Russian operations, but they've found that they've been unable to do so because the franchisees in the country want to continue trading. If you think about the situation of being a Russian franchisee, you currently have a business that you've invested quite a lot of money into. You have a lot of staff, you have a lot of customers, and you're making profit. Now, these individuals are not soldiers, they're not representing Russia in Ukraine.

[00:11:51]These are business people who live in Russia who are making an everyday living. So, they've had no influence or control about what's going on in Ukraine, but all of a sudden, they've been advised by the franchise that they have to close down all of their stores.

[00:12:06]So, the reaction of this from all of the franchisees has been fairly negative.

[00:12:10]None of these franchisees want to close their stores, to lose custom, to lose profit, and to lose all of their staff.

[00:12:16]So, even though they've been instructed to close their operations down, none of these businesses have done so, and they are now continuing to trade. And this is a really interesting area because what we are seeing is some major international brands carrying on as usual in Russia, which obviously sending a very negative message about that brand to the rest of the world. The parent companies are now realizing that by putting franchises into Russia, they have lost control of their brand completely. And this is now proving highly embarrassing for a lot of multinational companies.

[00:12:51]So, let's have a look at who's been affected and how many units they have in Russia. Burger King is the most affected of all brands internationally. There are almost a thousand Burger King restaurants in Russia, but only 15% of those are company-owned. So, the vast majority, over 800 stores, are franchises. Now, all of those franchises are owned by one individual, Alexander Kolobov. Burger King is owned by Restaurant Brands International and demanded that all of these franchise operations be closed immediately.

[00:13:22]Kolobov refused to do so, and there is no war clause in the franchise agreement that enables Burger King to be able to pull out of Russia based on what's happening in Ukraine. As a result, over 800 Burger King restaurants are still open and trading as usual. Subway has 446 franchise locations in Russia that are all still operating. Papa John's has 186 sites. McDonald's owns the majority of its 847 stores, but 135 of them are owned by franchisees and are still open for business. It's a similar situation for KFC and Pizza Hut. They have over a thousand stores. The vast majority of them are company-owned, but there are over a hundred of them owned by franchisees and still trading. Marks & Spencer, the UK retailer, has 48 stores, all of which are owned by franchisees, and all of which are continuing to trade. Accor Hotels, which owns the brands Ibis and Novotel, have 57 franchise hotels in Russia, and Marriott also have 28 hotels that are owned by franchisees.

[00:14:30]Now, the legal situation relating to these franchises is quite complicated because the master company that owns the brand in all of these businesses has signed a legally binding agreement to allow that brand to be used overseas subject to certain terms and conditions being met. The franchisees in Russia have not actually breached the terms of any of these contracts. There is no war closing that enables the top company to withdraw the brand in the event of Russia declaring war on anybody. So, there isn't really a reason for the top company to be able to force the franchisee to stop trading. In the majority of situations that we've talked about, Russia represents a relatively small part of the global business for most Western companies. It's only really the major oil companies where it's had a huge impact because there have been some huge joint ventures with a lot of infrastructure spend. But for the majority of companies, it's maybe one or two percent of their global sales are represented from Russia. So, that's relatively manageable for most businesses to be able to cope with that drop in profitability. But if you're a company that owns 800 Burger King restaurants in Russia, and that is your only business, and everybody who works for that company, that's their main form of employment, so that's their livelihood. It's a big ask for that company to shut down its entire operations because Burger King has now decided it doesn't want you to use its brand because you haven't breached any of your terms and conditions, and essentially you're going to be 100% out of business. You don't have any other global income that you can look to. You can't offset all the income from the rest of the world against the loss of your Russian business if 100% of your business is in Russia. So, you can see the conundrum for the franchisees.

[00:16:19]They're being put out of business because of what's happening in Ukraine, and it's no fault of their own. So, there's no legal basis for closing down these franchises, but what the top company can do is stop supplying all of the goods that it provides as part of the franchise agreement. So, in the example of Burger King, if those restaurants are sourcing their burgers and buns and all of the other food items directly from the American corporate, then the American corporate could stop that supply of food, and that would then mean that those restaurants wouldn't be able to produce Burger King burgers. But if they do that, they're then likely to face large-scale litigation because it's essentially stopping the trade for all of those franchises. So, it's defaulting on its franchise agreement and therefore would be exposed to compensation claims.

[00:17:09]So, the whole situation is really quite complicated. The businesses in the Western world want to stop their brands trading in Russia. That's clear. We've seen that from most companies, but because they've handed over control and ownership of those brands in Russia to these local operators, they don't actually own that brand anymore. They've given it away in exchange for cash, and therefore they're no longer able to control what happens with that brand inside Russia.

[00:17:39]So, what's the summary and conclusion today? Well, big businesses are always very protective about their brands, and everybody wants to make sure that their brand is seen in the right light, has the right sort of flavor, and people want to associate themselves with that brand. As soon as the Russian invasion of Ukraine was announced, a lot of big corporates made public statements that they would no longer be trading with Russia, and that they would be closing their Russian operations if they had some. Now, unfortunately, the brands that we've talked about in this video have been unable to do that because they gave away control of their own brand to local franchisees in Russia. So, in the past, when they were deciding about what was the right way forward in terms of how to expand in Russia, they all decided that the easiest option was to sell the brand to a local entrepreneur and let that entrepreneur build out the network and build out the brand in Russia, and that they could sit back and take the profit from that. Now, unfortunately, that's come back to bite them because they don't own that brand, it means that they have no control over what happens in the event of a situation like this. So, whilst the rest of the corporate world has taken a step back and disassociated itself with Russia, these brands have been unable to do so and have been left in a horribly embarrassing situation. Now, they all have the option of cutting off these franchisees from a commercial perspective. They can stop all future supplies and make sure that these local operators don't actually get any of the branded goods that are for sale within those stores, but if they do that, they will be in breach of their franchise agreement, and actually they will be the ones in the wrong in this situation because the local franchisees have met all of the requirements of their terms and conditions, and it would be the top company that would be pulling the rug on them and stopping them being able to continue trading. So, they'd be then liable to huge compensation claims. Now, it'd be interesting to see what happens because all these brands will be desperate to try to close down their image and to stop business carrying on as normal. But the only way that they'd be able to do that is if the local franchisee agrees to that arrangement.

[00:19:48]And the only feasible way that they would agree to that would be for some major compensation to be paid. Now, that throws up a whole lot of other issues in terms of can large payments be made at the moment to Russia? Would these companies be happy making large payoffs into Russia right now? And what would happen with the brand going forward because the franchisee probably wouldn't want to change the name overnight because they would then be going back to a startup situation for all of these chains. So, it's a really complicated position and not something that can be fixed really quickly. So, I wanted to make this video today because we've been talking about the interconnectivity of the global economy for a long period of time and we're seeing here another piece of the jigsaw that's quite complicated.

[00:20:30]As brands grow, they always have that decision as to whether or not they should remain 100% owned or whether they should share ownership with partners or franchisees. And we've seen here that a lot of these companies decided that the franchise model was the best and easiest way to grow, but they didn't really think through all of the potential downfalls. And we've now got a worst-case scenario in Russia that you can't close down these businesses in the event that you would want to do so. Now, normally a business would only close down its operations if it was unprofitable and that would be a relatively easy decision to make because it would be the franchisee who'd be making the losses and they would be the ones who would want to hand back the brand. We've got a situation here that nobody foresaw, nobody thought about what happens in the event of war when nobody wants to deal with Russia. How do we get out of that? And the answer to that is you can't. You're locked in and your brand is up there in lights for the whole duration of this period and probably for the foreseeable future. So, hopefully you found this useful and informative today. If you've liked what I've said, then please give me a thumbs up. And if you'd like to see more videos like this, then please subscribe to the channel.