The invasion of Ukraine has prompted many Western brands to move away from Russia, but some of them still exist in the country and say they are unable to close them.
Marks & Spencer, Burger King and hotel groups Marriott and Accor face restrictions linked to complex franchise deals that prevent them from opting out.
The companies outsourced to Russian companies to third parties and did not own the operations that bear their names.
Together, the two companies have nearly a thousand outlets in Russia.
Marks and Spencer has 48 stores, Burger King still has 800 restaurants open, while Marriott and Accor have 28 and 57 hotels open, respectively.
The BBC has learned that the brands are bound by legal franchise agreements, making it difficult for them to remove their name from stores and malls in Russia.
And a lot of Western companies made such agreements. For example, Marks and Spencer stores have been operated by a Turkish company called VIBA, which has held the rights to sell the retailer’s products across Eastern Europe since 1999. The retail giant said it had suspended shipments of its merchandise to VIBA in response to the war.
Restaurant Brands International, owner of Burger King, told the BBC that its restaurants are run by franchisees. “The legal agreements that have been in place for a long time are not easy to change in the foreseeable future,” she added.
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Hotel groups Marriott, IHG and France’s Accor hotel chain, whose brands include Ibis and Novotel, are all believed to be operating in Russia under similar deals.
Marriott told the BBC that its hotels in Russia are owned by third parties but said it would “continue to assess the ability of these hotels to remain open”, noting that it was studying its franchise agreements.
Franchising is a business method for distributing products or services. The agreement includes the franchisor, a company that established the brand name, and a franchisor, a company that pays a fee for the right to do business under the franchisor’s name and sell his products.
Graeme Payne, a specialist in UK and international franchises at law firm Bird & Bird, told the BBC that franchising is beneficial for Western brands that want to enter markets in different countries, but do not have local knowledge, money or ability to do so.
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“As a member of the public… you can think why don’t they just close their stores? But just from a purely commercial and contractual perspective, it’s very difficult to do without some far-reaching legal consequences,” Payne said.
These consequences might have serious financial repercussions for Western companies, who might be sued by franchisees if they breach any agreement, which is often a term of 10 years or more.
Victoria Hobbs, a partner at Bird & Bird that handles concession disputes, told the BBC that if the concessionaire was found to have links to Russian President Vladimir Putin or faced sanctions, from Britain’s viewpoint the deal might be terminated.
Despite this, Hobbs said, although agreements often contain a clause that says “if the franchisor does something that damages our reputation, we can terminate it,” the problem currently in Russia is that many franchisees themselves do nothing. wrong.”
“This is a huge challenge for them because, from an English law perspective, they don’t really have the right to terminate the agreement – that’s the problem,” she added.
Even if the brand succeeds in obtaining a ruling from a British court once morest a franchise in Russia, “the Russian courts will not enforce it,” according to John Pratt, partner on the largest team of franchise lawyers specializing in Europe.
The companies are trying to do whatever they can to help in this situation and all of them declared their support for Ukraine following the Russian invasion:
- Accor, which has 57 branded hotels in Russia and employs 3,500 employees there, has halted all future hotel openings and halted services and distribution to hotels affected by the sanctions.
- Burger King redirects profits from franchising in Russia to humanitarian efforts
- Marriott Hotels & Resorts and IHG, which each have 28 hotels operating in Russia under their respective brands, have halted hotel developments and investments and closed their company, which they own and control, in Moscow.
- Marks & Spencer has pledged more than £1.5 million to support refugees and has donated 20,000 coats.
While several brands are stuck in Russia, Yum Brands, which owns Pizza Hut and KFC restaurants, said it was finalizing an agreement with its master franchisee to temporarily halt Pizza Hut operations.
Hobbs, a partner at law firm Bird & Bird, said she believed the brands were “extremely concerned” regarding any potential damage to their reputation from continuing to operate in Russia.
“Obviously they are concerned on a human and ethical level regarding what is happening, but I also think they are concerned that a number of companies are threatening a boycott,” she added.
