The horrors of the war in Ukraine have reverberated around the world, inspiring many people here in the U.S. to take any action they can to support the Ukrainian people. For some, that’s meant boycotting American brands such as Burger King, Subway and Papa Johns, which are still operating in Russia. These protests are unfair and misguided.
Many supporting the Ukrainian cause don’t understand the franchise business model and these brands’ inability to close Russian locations, even if they want to. Unlike McDonald’s, which wholly owns all the Russian stores it’s shuttered, Burger King, Subway and Papa Johns have other business arrangements that prevent them from unilaterally ceasing operations.
Burger King has only a 15% stake in its Russian joint venture. David Shear, president of parent company Restaurant Brands International, explained the predicament 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 day-to-day operations and oversight of the 800 restaurants in Russia; Investment Capital Ukraine — one of Ukraine’s largest investment firms; and VTB Capital. VTB Capital, as an affiliate of one of Russia’s biggest banks, has partnered with several other western companies in Russia, including other large QSR brands. We own a minority stake (15%) in the joint venture and none of the partners has a majority share.”
He goes on to say that Kolobov has refused to discontinue operations.
Subway’s 450 Russian locations are individually owned and operated by franchisees. The home office in the U.S. can discontinue support, but they can’t physically force the locations to close.
Papa Johns’ 190 locations in Russia have been franchised out by an American master franchisee in the region. He, too, insists on remaining open to support his franchisees, despite requests from Papa Johns International to close. “The best thing I can do as an individual is show compassion for the people, my employees, franchisees and customers without judging them because of the politicians in power,” he told the New York Times. He’s been vilified on social media. But consider the complicated circumstances he must be in overseeing a large franchise network on Russian soil. It’s not just social media watching his moves.
My point is that global franchise brands have complex business arrangements in each region that impact what they can and can’t do. Their current activities in Russia may be less a reflection of their principles and more of their contracts.
Under normal conditions, international franchise partnerships function smoothly. Regional entities understand the culture and know the local market. They’re positioned well to help brands grow globally. But the autonomy they’re given to operate under the company branding comes with risk, especially when there’s an international crisis. Regional partners may be unwilling or unable to operate as requested by the home office.
Burger King, Subway and Papa Johns are actually working to disengage from the Russian market. Burger King and Subway are redirecting all proceeds from those interests to humanitarian efforts and donating food to Ukrainian refugees. Papa Johns is refusing to take royalties from its Russian stores.
These moves are going unnoticed by many who are calling for boycotts. This includes influential politicians and public figures, many who make time to scroll through misleading headlines but not to read the articles explaining what’s actually happening. They judge, share and repost without compassion or understanding the many parties that make up a franchise system. They only see one brand and will target any business bearing its name.
Once during my tenure as a franchisee, a false rumor about our corporate brand circulated around the web, leading to negative Yelp reviews of my specific locations. They called for a boycott of my stores. Even if their allegations were founded, the 5 % royalty I paid to the franchisor did not give me much influence over their behavior. Rather, 95% of the boycott would hurt me, the local member of the community. I was actually aligned with the protesters philosophically. But by targeting me over a false rumor, they were hurting one of their own.
In my presentations to franchisees, I often talk about the importance of community involvement. Franchise restaurants, now more than ever, must be active in their local neighborhoods. Customers need to know the faces behind the business, to humanize the restaurant and not just see it as a corporate outpost. They need to think of the restaurant as “Larry’s Burger King.” But that can only happen if Larry is out in the community, meeting people, sponsoring teams and supporting causes. Even if the restaurant is corporately owned, if management positions the business as an active member of the community, it’ll build goodwill that may provide cushioning when headlines at the national level aren’t favorable.
The franchise industry could do a better job advocating for itself and helping the public understand the business model. But everyone has a role to play to promote a just world. As much as franchise brands should be expected to practice conscious capitalism, government, the media and everyone with a smartphone should be expected to be informed before spreading information.
Scott Greenberg is a speaker, writer and business coach and the author of The Wealthy Franchisee: Game-Changing Steps to Becoming a Thriving Franchise Superstar. Find more information at www.scottgreenberg.com.