The world’s been on a frenetic merry-go-round for the past months and the prospect for the rest of the year is rather bleak. While war is still raging in Ukraine and world’s largest graine supplies are stuck in Ukrainian ports ahead of this year’s harvest, global recession is looming ever closer on an already bleak horizon. Across the pond, Roe vs Wade was overturned, meaning that states have a clear path at banning guns… My bad, I forgot we’re talking about the US after all. States have a clear path at banning abortion. Yeah, that sounds more like it, USA! But, for once, I would like to keep clear of all the sordid news that have pestered us this year and tell you a story about McDonald’s and Communism.
The war in Ukraine has abruptly altered the world with millions of people having already fled and the death toll of civilians mounting by the day. Irrespective of the war’s outcome, a new Iron Curtain is grinding into place. The question simply remains: where? In particular, will the curtain fall to the east of Ukraine, or the west? But that only time will tell. Now, the story I am going to tell you today is about McDonald’s. If you’re wondering how a story about McDonald’s could also be about Communism, the reason is this: over 35 years of thawing of geopolitical tensions between the West and East can be illustrated wonderfully through the presence of McDonald’s in the Russian market and of its famous Big Macs. The story itself is not new, you might well have read about it in FT or the likes, but it’s a story worth telling in more detail. So, if the prospect of reading an article about Big Macs makes your mouth water, go ahead and order it now, we should be done well in time for when the delivery arrives!
Any student who took an Econ 101 class or ever had a subscription to The Economist, must be familiar with the magazine’s Big Mac index, a purchasing power parity metric. An unrelated yet ironic piece of information given the subject of this article, is that the metric indicated that the rouble was the most undervalued currency in early February 2022. And right it was, for the few people that bought rubles at that point went on to make a lofty profit, the currency being the best performing one in 2022 (this was written before the alleged Russian default on foreign debt). In this article, the Big Mac will be used as (pseudo-)means to an end yet again. Nonetheless, its use will have less to do with Economics and more with market sentiment and poetry, while still retaining its quantifiability, but we’ll cross this bridge when we get to it.
The story begins in the late 20th century when West and East were still separated by the Iron Curtain. It was the year of 1988 when McDonald’s got its approval from the Communist party to open shop in the Soviet Union. This took place after 14 years of negotiations. Who would have thought that getting a McDonald’s in your country was so difficult? But the first McDonald's was immense, boasting approximately 900 seats in total, and for a good reason as at that time theRussians were hungry. In a literal sense. For those unfamiliar with Communism, it was not uncommon for stores to run out of food, quite the opposite really. Many USSR dwellers lacked most of the products deemed common in the Western world (i.e., meat, fruits, sodas, hygiene products, etc.).
Two years after the end of the negotiations, McDonald's opened its first store in Russia, in Moscow’s Pushkinskaya Square. It was a mammoth opening day for the first McDonald’s in the Soviet Union, which also happened to be the very first fast-food in the USSR. More than five thousand people queued for the grand opening, many of whom had to wait for more than six hours in line. That day, the McDonald's in Pushkin Square set a world record, having served more than 30 thousand visitors, despite the cost of a burger being several times bigger than the daily income of many Muscovites.
These days it's close to impossible to conceive that thousands of people would be willing to stand out in the cold for hours on end just for a Big Mac. But given the context, i.e., the Cold War and the economic conditions in the USSR, eating American fast-food offered a tasty glimpse of what life was like on the other side of the Iron Curtain. As such, it is rather understandable how a fast-food chain ended up becoming a true symbol of Capitalism and thus how that grand opening became part of a greater scheme of things that marked the transition from a communist Soviet Union under former Soviet leader Mikhail Gorbachev’s restructuring policy.
Now, that store in Pushkin Square was something! For starters, it was placed such that the statue of the famous Russian poet was overlooking the fast-food restaurant and could witness the first fast-food “feast in the time of plague” (the name of one of his plays). By the way, landing a job at a Soviet MacDonald’s was no easy undertaking, for the workers were the crème de la crème of Soviet youth, i.e., bilingual students from prestigious universities. Imagine the competition for Goldman Sachs or Morgan Stanley’s Sales & Trading summer internships, but now it's the 90s USSR and all were competing to be a McDonald's waiter. Maybe that’s too far stretched, but their spring week programs seem like perfectly decent means of comparison. And funny enough, one requirement for these savvy recruits was the ability to smile for hours on end, making the McDonald's a stark contrast to a typical Soviet restaurant, which was known for its dismissive, unsmiling, and cold-mannered employees. Ironically, the Soviet people seemed to have been so accustomed to the rude waiters that when they were faced with the polite manners and beaming faces of the McDonald's staff, they were completely shocked. In fact, the customers felt so uneasy that the employees were asked to smile less!
But above all, the store in Pushkin Square was the centre of many controversies. While shortages of necessities were common in URSS, McDonald's never ran out of food. Their secret was a private manufacturing plant within URSS, and government-granted ingredient imports. While this can indeed create the illusion of efficiency, the business was far from being cost-effective. Despite the huge prices (the average meal at McDonald's cost more than a half day’s wages), the Soviet McDonald's operated at a loss. How ironic, the only capitalist establishment in the early 90s URSS, it was charging the customers an arm and a leg and was still losing money!
Fast-forward several decades and war rages on in Europe once more. The “humanitarian crisis caused by the war in Ukraine” and the company’s commitment to their corporate values meant that the Arches could no longer shine in Russia. McDonald’s was one of many multinational companies (i.e., Starbucks, Coca-Cola, PepsiCo) that exited the Russian market. During the closing of the first ever McDonald’s in Moscow, the scenes in the Pushkin square echoed the huge queues of 1990 when the chain first arrived in the country. Such scenes repeated throughout the country in early March as McDonald’s announced the (first temporary, then permanent) closing of its more than 800 Russian restaurants. But instead of enthusiasm for a grand opening of the first ever fast-food restaurant in Russia, people were now in dismay and disbelief of losing their beloved American fast-food. And this is not to say that all Russians love the food per se, for while the food had become extremely affordable, it was still widely seen as second to all local dishes. I reckon that the reason behind such queues was merely the idea of freedom of choice, even when choosing something so banal as what to eat. If we are to assume that many Russians did not support the war, then it’s not surprising that many Russians felt bitter about having to deal with consequences of a war not chosen by them. It goes without saying that said consequences pale in comparison to the horror being dealt to Ukraine.
A sceptic might wonder if this story is not overlooking the obvious, namely that this might simply have been some many hungry and McDonald’s-craving Russians merely queuing for delicious fast-food. Nothing more, nothing less. I wish I could prove this was not all about hamburgers and cheap fast-food meals, for I don’t want you to take my word for granted, but if I were to put it to a test, the conclusion would still be divided. Say that a different fast-food chain that is known to offer the same or a very similar menu as McDonald’s were to open in Russia. Then, on the opening of such a chain, we’d expect more or less the same number of people queuing in front of the restaurants closed in March, right? Well, most of the McDonald’s stores have been sold and rebranded as “Vkusno & tochka” and while they agreed that recipes will change, more often than not, this has not been the case with numerous customers agreeing that the “new” products have the same taste and flavour as the patented McDonald's products. Vkusno & tochka features superficial changes limited to signs, logos, and uniforms. So, the first rebranded store opened – drum rolls – on Russia Day (June 12, 2022). How very patriotic of them! And in terms of customers, several dozen people did indeed queue outside what was formerly McDonald's flagship restaurant in Pushkin Square, but the crowd size was nowhere near the turnout of its March closing, let alone that of the grand opening of the original McDonald's. So far no sign of significant interest in rebranded burgers, right? Nonetheless, the 15 stores that opened on June 12 went on to sell a record number of paddies! So, it might well just be about the food after all! And the truth is, both versions can be and are true, but they are truths of different generations. While for the younger generations, it could well just be about trying a new, cheaper fast-food; McDonald’s exit couldn’t have affected anyone more than the very ones that took part in the chain’s 1990 opening, for whom the fast-food store represented hope and optimism for a freer and better country.
Despite the rebranded chain’s awesome start to life, I cannot help but wonder what is going to happen to Vkusno & tochka when its stock of (around 80%) foreign ingredients is depleted? Big Macs and McFlurrys are already unavailable, mind you. What about when they run out of Coca-Cola drinks? Will they start serving White Russians instead? Kompots maybe? Or they’ll just nationalise those Coca-Cola factories and continue producing it, maybe even throw a ridiculous name in the mix? As appealing as that would sound to Putin, out of the only two people that actually know the recipe (probably incorrect pop culture gossip, the actual number of people privy to the recipe isn’t public knowledge), I doubt either will be keen on sharing it with any copycat Russian company. So, better start planning those 20% ingredient hamburgers! Maybe throw in a kompot and sell some Russian original happy meals! I would not want to be in the shoes of whoever gets the job of advertising such a happy meal, i.e., “20% tasty, 80% local”, “20% taste, 200% price” or “At least it’s local”? As if to help me prove my point, while editing this article Vkusno & tochka just announced that they’ve run out of fries, which won’t be available until next autumn! So, maybe “No food, but it’s fast” could work its magic as their new company media slogan. Apropos the Big Mac index-based arbitrage strategies, it might not be too long till we see Vkusno & tochka have a through at it, namely buying McDonald’s products from neighbouring countries and reselling them in their own stores.
Ultimately, a massive symbolic importance can be attributed to the symmetry of McDonald’s 30+ years presence in Russia. First, McDonald’s came to the Soviet Union and implicitly signalled to the world that the country had opened to the world and confirmed that the Cold War tensions were indeed thawing. Now, the company left Russia proving that the country is no longer a safe place for business, a country that is closing itself off from the world as it’s waging war on its neighbouring country. In other words, Russia is becoming increasingly isolated due to international sanctions and only time will tell how many Russians will abandon their country in pursuit of the more open world they knew, and how many will choose allegiance to the state.