Big brands leave Russia, taking a stance despite sales hit

Executives for all three companies described agonizing debate over departing, citing in part an obligation to feed and employ citizens where they do business. (PepsiCo will continue to sell essentials such as baby food.) But experts contacted by Ad Age are praising the response. They said brands more than ever have to be prepared to weigh in on conflicts they may not involve them directly and use their financial might to effect change in ways they once might not have. The Russian invasion of Ukraine, to many, represents an attack on Western democracy.

McDonald’s, which temporarily closed nearly 850 restaurants in Russia, will feel a pinch of about $50 million for every month without operations there, its chief financial officer, Kevin Ozan, said during a presentation for investors on Wednesday, a day after the world's largest restaurant company announced its plans. Coca-Cola’s lost business could reach as much as $64 million a month as it puts the brakes on a Russian beverage business that accounted for up to $773 million in sales last year, or about 2% of its worldwide total, according to 2021 financial filings. PepsiCo, which makes and sells beverages and snacks in Russia and was one of the first Western brands to establish a significant operation there, is missing out on around $250 million monthly in operating revenue from the shutdown, based on last year’s figures. PepsiCo has sold there since the early 1960s, according to reports.

“I had clients like law firms, and service companies with contracts in Saudi Arabia asking me, 'should we withdraw?' And my counsel to nearly all of them was no,” Grabowski said. “Nobody is going to remember in two or three weeks who stayed and who left, but the clients that are watching you will see you’re cutting and running. So the answer for many clients was stay the course, and it proved to be the right one.”

Bill Daddi, president of Daddi Communications, said the moment calls for resolute action but cautioned there was danger in brands that would leverage those positions.

“When brands take sides on contentious issues there’s the concern that you’ve got two sides of the story in the marketplace and it’s a difficult path to navigate because brands with large-scale appeal, like McDonald’s, can’t afford to alienate a segment of their audience,” Daddi said. “Ukraine is a unique instance, with such broad-scale support to take an active stance—not just making statements, but taking actions. So it’s a situation where brands don’t have much of an option.”

Having taken action, Daddi expects big brands now to “let their statements speak for themselves,” or risk giving consumers the indication that they’d be obligated to weigh in on additional crises, big and small. Domestic situations, like the social justice movement of 2020, did capture brand attention with efforts now underway to recruit more diverse senior leadership, and devote more attention to the environmental impacts of their businesses. But these moves arguably come with the potential to drive better results and appeal to investors in a way that revenue losses from pulling out of a country do not.

Tim Calkins, a marketing professor at Northwestern University said brands are “nervous” about setting other precedents—like only operating in places where they are in agreement with the policies and leadership. “It’s impossible to predict what’s going to happen; tomorrow the whole story could be different,” he said. “So you can’t make a rash decision. You need to preserve your flexibility and not close the door forever.”

McDonald's announcement to temporarily shut down its restaurants in Russia came as the brand faced pressure from investors, rating agencies and consumers to respond to Russia’s invasion of Ukraine. McDonald's has operated in Russia since 1990.