Burger King Worldwide Not Ready to Jump Into the Fire

Crimea may represent a tasty target market in the future, but not just yet.

Apr 14, 2014 at 5:45PM


Burger King Moscow. Source: Wikimedia Commons.

Hold on, not so fast! Burger King Worldwide (NYSE:BKW) is not jumping into the void in Crimea created by its rival's temporary exit from the increasingly volatile country. After initial reports quoted the CEO of the burger joint's Russian division saying Burger King was "planning to introduce our services in Crimea," though no timetable was given, corporate headquarters pulled back sharply on the reins and said there are no plans whatsoever to do that.

As the Ukraine situation devolves into chaos following the president's ouster and Russia's rolling of troops into Crimea, McDonald's (NYSE:MCD) announced that it was closing its three Crimean restaurants because it was unable to reliably get supplies for them from Kiev. Although the situation is seen as a temporary one, the fact that its Crimean employees have been offered positions at other nearby restaurants suggests that it doesn't think it will be resolved any time soon. At least one Russian politician is suggesting that McDonald's ought to be booted out of Russia altogether because of the move.

As I've recounted, Russia is a key growth market for McDonald's, and with around 400 restaurants it is one of the few European markets seeing growth amid a worldwide slump in sales. And though the Russian politician's comments were not necessarily seen as credible, protestors have since shown up at several restaurants in the country  and one local pol is using the situation to press for healthier food as an alternative to fast food.

Russia's a market of growing importance for Burger King, too. Although the burger chain had just 174 stores there as of Dec. 31, both it and Turkey are considered two of its fastest-growing markets, and it opened 88 stores in Russia in 2013. It was one of the integral reasons the company achieved 2.4% comparable-sales growth in the region.

The Moscow Times reports that Burger King has operated under a franchise model since 2010, when the first restaurant was opened, with the state-owned VTB bank paying $50 million two years later for a nearly 50% stake in the franchisee. But VTB sold a portion of its investment to a financial investor in 2013, reducing its position in the franchise to 36.6%.

A Burger King spokesman told National Public Radio that the proposal to open stores in Crimea was simply "a non-committal, off-the-cuff statement" by the Russian franchisee that was offered up as fact. The spokesman said that neither it, "nor any of its franchisees, have plans to open Burger King restaurants in Crimea."

Moving into a market as a competitor exits can be a smart move if conditions are ripe. It may make sense later on for Burger King Worldwide to move into Crimea and capitalize on the rift its rival caused by pulling out. Yet with the region still in tumult, any talk now about doing so is simply jumping the gun and risking the wrath of politicians, too.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's and owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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