New York (CNN Business) – McDonald’s leaving Russia costs it a lot of money and food.
The company announced last month that it would temporarily close its branches in Russia due to Invasion of Ukraine, as well as closed restaurants in Ukraine. The closings represented a $127 million loss for McDonald’s in the previous quarter.
McDonald’s said in March that it would continue to pay its 62,000 employees in Russia, despite shutting down its operations in the country. McDonald’s also supports its Ukraine employees, CEO Chris Kempinski added during a call with analysts Thursday: “In both countries, we’ve continued to pay employees and provide additional support.”
These personnel costs, plus payments for rent and supplies, cost the company $27 million.
Another $100 million is for food and other items that he will have to dispose of.
“The financial results include … $100 million in inventory costs in the company’s supply chain that are likely to be canceled due to the temporary closure of restaurants,” the company said in a statement.
Kempzinski said the company will provide an update on its plans for the region at the end of the second quarter.
McDonald’s said it will likely have to dispose of unused inventory in Russia.
At the end of last year, there were 847 McDonald’s restaurants in Russia, according to an investor filing. Together with another 108 in Ukraine, they accounted for 9% of the company’s revenue in 2021.
The closures affected McDonald’s net income, which fell 28% in the three months ended March 31.
Elsewhere, McDonald’s sales grew.
Worldwide, sales at restaurants open for at least 13 months rose 11.8% in the quarter, driven by locations outside the United States. In the US, sales were up 3.5%, thanks in part to higher prices.
In the first quarter, McDonald’s prices rose 8%.
“Consumers are certainly concerned about inflation,” Chief Financial Officer Kevin Ozan said during the call. “They are concerned about energy and gasoline prices.” But he noted that higher grocery prices were “probably a small benefit”. He added that we are “watching … very closely on low-income consumers to make sure we’re still delivering the right value.”
Last year, McDonald’s raised prices by about 6%.
The publicity for the main dishes on its menu, as well as the growth of its digital business, thanks in part to Rewards ProgramMcDonald’s said, also contributed to the growth of US sales.