Western brands still hold sway in Russia, even if copycats are taking their place

·5 min read
Western brands still hold sway in Russia, even if copycats are taking their place

The food is familiar, the brand less so.

Yet the Vkusno & tochka outlet in Moscow's Pushkin Square serves up burgers, just like during its golden arches days, according to reports from its opening.

It's not a McDonald's anymore because the burger giant left the Russian market in the wake of Moscow's invasion of Ukraine, ending a three-decades-long run that began in 1990.

"They were this big sort of symbol of the Soviet Union opening up to the West," said Kristy Ironside, an economic historian at McGill University, who is working on a book about the fast food company's experience in the Russian market.

WATCH | A Western business exodus from Russia begins:

Prior to going through what McDonald's called a "de-Arching process" in Russia, the chain had built a network of more than 800 stores and employed more than 60,000 people there.

How long its made-in-Russia replacement will last is unknown, but it's not the only brand clone vying to take advantage of a Western competition vacuum.

Amid public and political pressures, more than 1,000 foreign companies have halted operations in Russia to varying degrees since the start of the Ukraine war, according to a database maintained by Yale University researchers.

Evgenia Novozhenina/Reuters
Evgenia Novozhenina/Reuters

But Russia's tensions with the West have not diminished consumers' appetites for foreign products and services — as evidenced by some of the copycat businesses that have sprung up in the wake of their departure.

"Many of these Western brands represented a defiant position against the Russian product, against the Soviet era of repression," said Jeffrey Sonnenfeld, a Yale University management professor who has been chronicling the actions foreign companies have taken in reaction to the Ukraine war.

"So, buying the local good, it's going to be inferior and it doesn't give any of the brand cachet."

A familiar look

In addition to the not-quite-McDonald's restaurants, there's a newly launched takeout coffee provider and soon-to-be-sold soft drink that have made headlines for their similarities with prominent Western brand names. More big-name brand imitators may be emerging.

Natalia Kolesnikova/AFP/Getty Images
Natalia Kolesnikova/AFP/Getty Images

In the case of the Stars Coffee, the logo shares overlap with Starbucks'  — though the Russian venture's co-owner told Reuters "apart from the circle, you won't find anything in common" between them.

No matter its branding, Sonnenfeld said the people buying coffee there won't be getting the same product.

"It is a cheap, diluted knock-off that's not going to fool anybody — especially a Russian consumer," he said.

Copycat efforts and brand encroachments may be general concerns for Western companies at all times, but Sonnenfeld said what's occurring in Russia may be harmful to the country's long-term business interests.

"If they show no regard for intellectual property, nobody is ever going to go back in," he said.

A short-term remedy

Sergei Guriev, an economics professor and provost at Sciences Po in Paris, said these efforts show that Russia's economy can make adjustments and carry on, at least for now.

"While it's not easy to substitute Western technology, quality, managerial practices and business models, in the short run, you can copy them and ... produce a substitute," Guriev told CBC News, via an audio message.

Alexander Nemenov/AFP/Getty Images
Alexander Nemenov/AFP/Getty Images

"It's not surprising this is happening. How good these substitutes are — well, they're not great, but they're viable in the short run."

Olga Kamenchuk, a research associate professor at Northwestern University's Institute for Policy Research, said polling conducted by the Levada Center in 50 Russian regions in May suggests people there aren't particularly concerned about the effects of Western brands exiting the country.

"The majority of Russians, I have to say, they don't care that much," Kamenchuk said in a telephone interview.

More limited polling by Levada, conducted on the streets of Moscow in June, found residents who were worried about the issue put Ikea, McDonald's and Zara at the top of the list of brands they were most concerned to see leaving.

Kirill Kudryavtsev/AFP/Getty Images
Kirill Kudryavtsev/AFP/Getty Images

Kamenchuk said for many Russians, the goods sold at Ikea were "a bit expensive," despite the perception of it being a relatively affordable consumer brand in North America.

The effect of these brands' exit from Russia may vary widely for individuals, depending on their circumstances.

"Some Russian people don't notice; for some Russian people, it's a disaster," said Guriev.

Guinness beer and Nespresso coffee capsules are two examples of consumer products that Reuters reports are no longer to be found on store shelves. Some Russians say key staples, including some medicines, are becoming harder to get, the news agency reported.

The broader impact

Since the start of the war in Ukraine, Yale's Sonnenfeld, along with colleagues and students, have built a detailed list of companies that have curtailed their operations in Russia.

Dmitri Lovetsky/The Associated Press
Dmitri Lovetsky/The Associated Press

They say these companies' combined investment in Russia "represents the lion's share of all accumulated, active foreign investment in Russia since the fall of the Soviet Union."

Sonnenfeld said most of these companies did not do a significant fraction of their global business within Russia and that mutes the pain of lost investments there.

"This did not have much consequence for the firms in terms of their top line," he said.

Referring to the figures compiled at Yale, Guriev said the investments these companies have made in "factories, shops, warehouses" are staying put.

Similarly, investments made in the people who worked for these businesses, in terms of training and skills development, is staying in Russia if the employees don't leave.

"The most important impact [of the exit of foreign companies] is not that you cannot produce hamburgers in Russia," said Guriev. Instead, he said, the biggest problem for Russia's overall development is the lack of access to Western resources including capital, supplies and technology.