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Burger King says Russia operator 'refused' to shutter restaurants

NEW YORK (Reuters) -Burger King’s parent company said on Thursday it has not been able to close its 800 restaurants in Russia because its independent operator there “refused” to do so.

FILE PHOTO: Women walk outside a Burger King restaurant in Moscow, Russia, September 15, 2015. REUTERS/Maxim Zmeyev/File Photo

Restaurant Brands International Inc said that to enforce its contracts with the partner, Alexander Kolobov, it would need the help of the Russian government, but “we know that will not practically happen anytime soon,” according to a letter to employees from David Shear, president, international, of the company.

Kolobov said in a statement to Reuters that he does not have the authority or power to decide whether to suspend restaurant operations.

Shear’s long letter and Kolobov’s response highlight the many complications bedeviling some American fast-food brands as they try to halt operations in Russia following Moscow’s invasion of Ukraine.

It also exposes what can become a point of weakness in international franchising, which is how most American restaurant brands expand overseas: the relationships with their independent operators.

On March 8, Starbucks Corp and a wave of other companies followed McDonald’s Corp in saying they would suspend or limit operations in Russia.

Like Burger King, Starbucks does not own or operate its more than 100 cafes there.

But unlike Burger King, it had a willing partner - Kuwait-based Alshaya Group - that immediately agreed to shut its Starbucks’ locations in Russia and support its 2,000 employees.

Restaurant Brands entered Russia a decade ago through a joint venture partnership with three entities: Kolobov, who controls day-to-day operations, private equity and asset management firm Investment Capital Ukraine, and Russia’s state-owned VTB Bank, which has been hit by Western sanctions.

Restaurant Brands has started the process to dispose of its 15% ownership stake in the joint venture. It wants to do so immediately, Shear said, but it will take “some time” based on the terms of the agreement.

There are “no legal clauses that allow us to unilaterally change the contract or allow any one of the partners to simply walk away or overturn the entire agreement,” Shear wrote.

“Would we like to suspend all Burger King operations immediately in Russia? Yes. Are we able to enforce a suspension of operations today?” he wrote. “No.”

Kolobov said he has never had control of operations since the joint venture formed in 2012. He controls 30% of the partnership and said the decision to suspend operations “must be taken by all shareholders considering the impact it may have” on approximately 25,000 employees.

Reporting by Hilary Russ in New York; Additional reporting by Praveen Paramasivam in Bengaluru; Editing by Devika Syamnath, Leslie Adler and Jonathan Oatis

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