McDonald’s Corporation (MCD) Will Stall Russian Expansion On Weak Ruble

Mc Donalds (MCD)

McDonald’s Corporation (NYSE:MCD)’s operations in Russia will be heavily impacted by the falling ruble, which shed about 50 percent of its value since early 2014. The currency’s steep decline have catalyzed inflation, hurting consumers as much as it is causing a rise in the costs of expansion. The ruble has suffered both from the low oil prices and economic sanctions on Russia over Ukraine, and Russia is now in a recession, its first since 2009. McDonald’s Russian chief executive Khamzat Khasbulatov said that the company will open fewer restaurants in Russia this year because of these factors, according to Reuters.

The previous year, McDonald’s Corporation (NYSE:MCD) opened 73 new stores in Russia, but only 50 new stores is slated to be opened this year, although an amount of 6 billion rubles ($87 million) has been allocated by the company for capital expenditures, the same amount as last year. “Given the current conditions of doing business in Russia … we are pleased that the investment resources we have been allocated remained at last year’s level,” Khasbulatov said in interview with Reuters. According to Khasbulatov, money allocated for new restaurants as well as the modernization of existing ones are distributed in the ratio of 50/50 or 60/40.

Mc Donalds (MCD)McDonald’s Corporation (NYSE:MCD) has grappled with government investigations in Russia last year on issues of food safety. The government has put under the lens about half of McDonald’s 450 Russian stores, although such investigations were regarded by observers as an effort to retaliate against Western sanctions on the country. The inspections led to closures of about 12 stores, including the one located in Moscow’s Pushkin square, which is considered as the world’s busiest fast-food restaurant. According to Khasbulatov, “the closure of the largest restaurant” affected the fast-food giant’s business, and he added that the effect was sensitive.

Khasbulatov says that the closures were taken by McDonald’s Corporation (NYSE:MCD), which has been operating in Russia for the past 25 years, as an opportunity to rehabilitate the restaurants. Although the stores have since re-opened, all has to still catch up with their pre-closure sales volumes. Khasbulatov expects growth rate for same-store sales to be 0 percent for 2015 because of inflation and the expected tendency to eat out less, although he expects newly opened branches to help rev up sales for the year.

This article has been written by Nonito Guntan.

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