Russian Court Upholds Ban on McDonald's' Moscow Outlets - Analyst Blog


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McDonald's Corp. 's ( MCD ) troubles with the Russian authorities continue. Reportedly, the Russian courts upheld the temporary closure of the company's three outlets in Moscow per the orders of Russian consumer-safety agency, Rospotrebnadzor, on account of multiple violations of sanitary rules. However, McDonald's reportedly announced that it would appeal against the court ruling that ordered a minimum 90-day shutdown of these Moscow restaurants.

Earlier this month, three Moscow restaurants were closed after unplanned inspections by Rospotrebnadzor. The closings include McDonald's' first Russian outlet - the largest in the country - near Pushkin Square. The other two were located at Moscow's Manezh Square and Prospect Mira, according to Reuters.

In fact, Rospotrebnadzor has downed shutters on a total of six McDonald's outlets in Russia this month.

Some analysts believe that these closures come in the wake of intense tension between Moscow and Washington. They are of the opinion that restrictions imposed by the U.S. on Russia that hit the nation's largest oil producer, Rosneft, and other energy, financial and defense firms could have prompted these inspections by Russia.

In fact, it was apparent from last month's lawsuit that McDonald's was under heightened scrutiny by the Russian state. In July, the Russian consumer protection agency filed a lawsuit against the restaurateur in a Moscow court stating that its food items contain more fat and carbohydrates than the permissible standards in Russia. (Read more: Will Russia & China Issues Weigh on McDonald's Sales?) A hearing for this lawsuit was scheduled for Aug 13 which has now been postponed until Sep 11.

Meanwhile, earlier this month, Russia 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.

We note that McDonald's has been facing a number of food-safety issues for quite some time now. In July, Shanghai Husi Food Co., a supplier of meat for McDonald's, was accused of reusing meat that had fallen on the factory floor and mixing fresh and expired meat. This incident enraged the food regulators, but the company reportedly apologized and announced a change in meat suppliers.

We believe that this latest setback could adversely affect McDonald's' international sales especially when constrained consumer spending due to a sluggishly recovering U.S. economy is affecting comparable sales in the country.

McDonald's has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include BJ's Restaurants, Inc. ( BJRI ), Chipotle Mexican Grill, Inc. ( CMG ) and Jamba, Inc. ( JMBA ). All these stocks sport a Zacks Rank #1 (Strong Buy).

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