It seems that McDonald's Corp.’s MCD problems in Russia are far from over. Reportedly, Russian authorities have offered a loan of around 700 million ruble ($13.5 million) to help two leading filmmaker brothers start a domestic fast food chain. This food chain will rumored be a rival to Western fast-food giants like McDonald's.
Nikita Mikhalkov and his brother Andrei Konchalovsky were granted the loan after they wrote to Russian President Vladimir Putin for funding. The idea of a Russian fast-food chain comes at a time when the Russian President is seeking greater promotion for Russian-made products in response to Western sanctions.
The chain of cafes and catering facilities would be named "Eat at Home" and feature Russian products. However, specific menu items that would be available were not specified. While according to the brothers, the fast food company would provide alternatives to Western fast-food chains, Putin stated that this would promote local Russian products, at a time when the Western countries are imposing restrictions on various local Russian companies.
Political tension between the Russian and U.S. governments has intensified in the recent times. According to most analysts, U.S. restrictions imposed on Russia that hit its largest oil producer, Rosneft, and other energy, financial and defense firms could have prompted the country’s consumer-safety agency – Rospotrebnadzor – to inspect and shut down many of McDonald’s’ Russian restaurants. These restaurants were shuttered allegedly citing multiple violations of sanitary rules.
Meanwhile, in Sep 2014, Russia reportedly banned all meat, fish, dairy, fruit and vegetable imports from the U.S., the European Union, Norway, Canada and Australia for a year in response to the sanctions imposed by these countries over Ukraine. However, some of these restrictions were eased later.
In our view, this latest development could adversely affect McDonald’s’ international sales, particularly when the company’s comps are declining.
McDonald’s’ currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Darden Restaurants, Inc. DRI, Cracker Barrel Old Country Store, Inc. CBRL and Sonic Corp. SONC. All these stocks carry a Zacks Rank #1 (Strong Buy).
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