The wealthy franchisee: the problem of fast food boycotts

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The horrors of the war in Ukraine have reverberated around the world, inspiring many here in the United States to take every action possible to support the people of Ukraine. For some, that means boycotting American brands such as Burger King, Subway and Papa Johns, which still operate in Russia. These protests are unjust and wrong.

Many supporters of the Ukrainian cause don’t understand the franchise business model and the inability of these brands to shut down Russian sites, even if they want to. Unlike McDonald’s, which owns 100% of all closed Russian stores, Burger King, Subway and Papa Johns have other trade agreements that prevent them from unilaterally going out of business.

Burger King only has a 15% stake in its Russian joint venture. David Shear, president of parent company Restaurant Brands International, explained the situation in an open letter to employees:

“We have three joint venture partners in Russia who are controlled by Alexander Kolobov, who has extensive restaurant experience and is responsible for day-to-day operations and oversight of all 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 major QSR brands. We hold a minority stake (15%) in the joint venture and none of the partners has a majority share.

He goes on to say that Kolobov refused to stop operations.

Subway’s 450 Russian locations are individually owned and operated by franchisees. US Headquarters can discontinue support, but they cannot physically force the sites to shut down.

All 190 Papa Johns locations in Russia have been franchised by an American master franchisee in the region. He, too, insists on staying open to support his franchisees, despite demands from Papa Johns International to close. “The best thing I can do as an individual is to show compassion to people, my employees, my franchisees and my customers without judging them because of the politicians in power,” he told the New York Times. He was reviled on social media. But consider the complicated circumstances he must find himself in overseeing a vast network of franchises on Russian soil. It’s not just social media monitoring his movements.

What I mean is that global franchise brands have complex business agreements in each region that impact what they can and cannot do. Their current activities in Russia perhaps reflect less their principles than their contracts.

Under normal conditions, international franchise partnerships work smoothly. Regional entities understand the culture and know the local market. They are well positioned to help brands grow globally. But the autonomy given to them to operate under the company’s brand carries risks, especially in the event of an international crisis. Regional Partners may be unwilling or unable to operate as requested by Head Office.

Burger King, Subway and Papa Johns are currently working to exit the Russian market. Burger King and Subway redirect all profits from these interests to humanitarian efforts and donate food to Ukrainian refugees. Papa Johns refuses to collect royalties from its Russian stores.

These moves go unnoticed by many of those calling for a boycott. This includes influential politicians and public figures, many of whom take the time to skim misleading headlines, but not to read articles explaining what is really going on. They judge, share and repost without compassion or understanding of the many parts that make up a franchise system. They only see one brand and will target any business with its name.

Once during my tenure as a franchisee, a false rumor about our corporate brand circulated the web, resulting in negative reviews on Yelp from my specific locations. They called for a boycott of my stores. Even if their allegations were true, the 5% royalty I paid the franchisor did not give me much influence over their behavior. On the contrary, 95% of the boycott would hurt me, the local member of the community. I was actually philosophically aligned with the protesters. But by targeting me because of a false rumor, they were hurting one of their own.

In my presentations to franchisees, I often talk about the importance of community engagement. More than ever, franchised restaurants need to be active in their neighborhood. Customers need to know the faces behind the business, to humanize the restaurant and not just see it as a corporate outpost. They must think of the restaurant as “Larry’s Burger King”. But that can only happen if Larry is in the community, meeting people, sponsoring teams and supporting causes. Even if the restaurant is owned by a company, if management positions the business as an active member of the community, it will create goodwill that can provide cushion when national headlines are not favourable.

The franchise industry could do a better job of standing up for themselves and helping the public understand the business model. But everyone has a role to play in promoting a just world. As much as franchise brands should be expected to practice conscious capitalism, the government, the media, and anyone with a smartphone should be educated before they release information.

AUTHORS BIOGRAPHY

Scott Greenberg is a speaker, writer and business coach and the author of The Wealthy Franchisee: Breakthrough Steps to Becoming a Flourishing Franchise Superstar. More information at www.scottgreenberg.com.

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