“I will never eat at Burger King again.”
My friend called me out of the blue, and this was the first thing he said when I answered. I was puzzled, but curious. “Why, what’s wrong with Burger King?” I asked.
“They are still operating in Russia! Hundreds of locations. Everybody is leaving, even McDonald’s. But BK is still selling Whoppers. That’s not cool. I’m done with these guys.”
Because of my work in franchising , I hear from many people with questions, ideas, and in this case, opinions on all things franchising. They are often based on misunderstandings about the facts or how franchises are structured. That was certainly the case here. My friend was totally misinformed and spreading bad information.
It is always a challenge for companies to navigate an integrated political and social environment. They are expected to placate a consumer base while operating within a set of principles, often having to make difficult decisions that impact operations and shape public opinion.
Burger King ‘s parent company, Restaurant Brands International (RBI), in fact, wants to get out of Russia. They would love to close all 800 stores. The problem is that the restaurants are not really theirs. Not quite, anyway. As a multinational franchise organization, Burger King has different business arrangements in a multitude of global markets. In the case of Russia, their 15% stake in the operation does not give them the power to cease operations unilaterally. RBI President David Shear explained his dilemma in an open letter to employees:
“We have three joint venture partners in Russia that are controlled by Alexander Kolobov, who has extensive restaurant experience and is responsible for the daily operations and supervision of the 800 restaurants in Russia; Investment Capital Ukraine – one of the largest investment companies in Ukraine; and VTB Capital. VTB Capital, as a subsidiary of one of Russia’s largest banks, has partnered with several other Western companies in Russia, including other big QSR brands. We own a minority interest (15%) in the joint venture and neither partner has a majority interest.”
He goes on to explain that while they demanded that the main operator of the Russian locations suspend all Burger King restaurant operations, he has refused to do so. It has a written agreement (and most likely the Russian government) to back it.
“In RBI’s case, it only owns 15% of the joint venture and therefore going out of business in the Russian market will require more than RBI’s vote to do so,” explains Amanda Dempsey, attorney at PA franchises. Saxton & Stum, based business law firm. “It appears that some of RBI’s joint venture partners in its Russian operations are Russian citizens and businessmen. Whether they agree or disagree with Russia’s attacks on Ukraine, they may not agree that operations in Russia are better off. Without enough votes, an immediate closing of the business cannot happen.”
The subway is in a similar situation. Its 450 branded restaurants located in Russia are owned by franchisees. None are corporate-owned, meaning the American brand leadership cannot physically prevent Russian franchisees from operating.
Papa John ‘s has an international master franchisee (an American) licensed to franchise and oversee 190 restaurants in Russia. They also asked him to close his stores and he has refused. Defending his position to the New York Times he said, “The best thing I can do as an individual is show compassion for people, my employees, franchisees, and customers without judging them by the politicians in power.”
Dempsey elaborates on Papa John’s limited authority in this situation: “Because the master franchisee brings such a high level of market expertise to the relationship and sometimes invests a significant amount of capital, international franchise agreements master that are negotiated do not allow the franchisor to unilaterally terminate the relationship, except in extreme situations.”
Papa John’s International has temporarily ceased its corporate operations in the region. Still, many on social media are calling for a boycott of the entire Papa John’s system.
McDonald ‘s is also a franchise, but all of its restaurants in Russia are owned by the company. That means they can turn off the lights and close whenever they want. Restaurants are yours to do as you please. If the operation were a joint venture, licensed to a master franchisee or franchised to independent operators, it would not be so easy. Burger King, Subway and Papa John’s are also free to close the stores they wholly own, but have less control over those they have franchised or licensed. Simply put, the stores in Russia are not theirs and they have no way to close them.
But try to explain it to my friend. Like much of the public, he is confused by the franchise business model. See a brand, a company. He holds the franchisor responsible for everything that is done under the brand name by independent owners. He just wants Restaurant Brands International to stop selling Whoppers in Russia. He wants McDonald’s Corporation to pay individual restaurant employees more. Basically, he wants corporate entities to dictate to independent owners and operators what they can and cannot do, regardless of what their agreements allow them to do. That’s just not how a franchise is structured, but people like my friend want it to be and make judgments accordingly.
In most cases, these international franchise associations work well. They enable brands to expand rapidly and provide products, services and business opportunities on a global scale. However, by allowing others around the world to operate under their name and likeness with considerable autonomy, they will occasionally have to deal with how international impact perceptions of the larger brand.
To that end, Burger King is doing everything it can get out of the Russian market and support Ukraine. As they work through the disposition process, they are handing over the profits they make from their Russian company to the United Nations refugee agency (UNHCR). They are also donating $2 million in free food coupons to NGOs that support Ukrainian refugees. Subway is also redirecting Russian profits to humanitarian efforts and providing meals to Ukrainian refugees. Papa John’s refuses to accept royalties from the Russian locations.
But those efforts don’t stop critics of these brands from suggesting they’re greedy and amoral. Social media is full of unfounded criticism and calls for boycotts, some from influential and widely followed public figures. (I don’t want to give this misinformation any more power by sharing the examples, but they’re not hard to find.) Even the established media is running misleading headlines about these companies still operating in Russia. Your articles might explain why for those who take the time to read them, but for the masses who spend less time reading and more time scrolling, those headlines may be giving the wrong impression about what’s really going on.
I was an independent franchisee for 10 years. We serve our customers, create jobs and support local charities. Our corporate office took a 5% royalty on our sales. If someone decided to boycott my store because of something going on at the corporate level, I got 95% of the punishment. That would not allow me to influence our corporate partners to do things differently; I would just go into desperation mode to find a way to do payroll and keep the doors open. We once suffered a temporary boycott based entirely on misinformation. I actually supported the boycotters’ cause, but this time they messed up and ended up hurting one of their own.
If you support Burger King pulling out of Russia, boycotting your neighborhood location won’t help. If anything, supporting a local Burger King makes it financially easier for RBI to divest. It is also useful for local owners who have nothing to do with the geopolitical environment and who may be supporting the same causes as you.
Corporations are not the only ones that must demonstrate social responsibility. Anyone who participates in the conversation is equally responsible for their words and actions, especially when disseminating information. That means digging deeper than just reading tweets and headlines and educating yourself on the facts before making a judgment. In this case, that means understanding the difference between what a franchise should do and what it can do.