Russia Declares Open Season on American Brands

For Russians hoping to enjoy a Big Mac, America’s Favorite Fries, and wash down their meal with a Jack Daniels, the news is not good. In a thinly-veiled effort to retaliate against the United States for its Ukraine-related sanctions, Russian regulators are now targeting iconic American brands. This goes beyond the transparent, retaliatory sanctions Russia already adopted against imports of certain agricultural products. Instead, the most recent measures fall into the ‘asymmetrical’ variety, of which Russia is so fond.

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Here’s what has been done so far:

  • McDonald’s – Rospotrebnadzor closed 4 Moscow restaurants of McDonald’s, including its legendary Pushkin Square location (the first McDonald’s ever in Russia). Today, the Russian authorities announced that they were widening the probe into McDonald’s, with new inspections scheduled in the Sverdlovsk region. This follows an earlier investigation by Rosselkhoznadzor into the level of antibiotics found in meat used by McDonald’s. It all started in April when, after McDonald’s closed its locations in Crimea, professional clown and Russian Duma Deputy Vladimir Zhirinovsky (LDPR) demanded retaliatory actions against the fast food chain (although apparently Crimeans were about to dump McDonald’s first anyway).
  • Bourbon – Russian authorities have also targeted U.S. manufacturers of bourbon, including Kentucky Gentleman, Jack Daniels, and Jim Beam (never mind that the Jim Beam brand is owned by Japan-based Suntory Holdings).  Kentucky Gentleman imports were banned earlier this month due to alleged pthalate contents in its bourbon; Jim Beam was ordered removed from shelves after Rospotrebnadzor found that its bottles supposedly did not meet the required labeling standards; and Jack Daniels was targeted by Rospotrebnadzor after the regulator found “chemical substances not common to whiskey” in its Tennessee Honey Liqueur (honey, perhaps?).

Western companies should expect such ‘asymmetric’ efforts by the Russian authorities to increase. Indeed, you can expect a number of ‘copycat’ inspections after the Moscow branches of regulators like Rospotrebnadzor take action, such as in the McDonald’s case. Obviously, the targeting strategy is aimed at iconic American brands for which Russia represents an important market. Russia has long been a growing source of revenue for McDonald’s, and it has escalated its expansion into that country, most recently with the first master franchise agreement with Rosinter. Similarly, Beam has been making inroads into Russia, where whiskey consumption has been growing exponentially among traditional vodka drinkers.

The whole idea behind this approach to hurting U.S. companies is not only to retaliate for the sanctions, but also to promote ideas that U.S. products are tainted or defective in the public mind.

So who will be next on Russia’s list? Here are some guesses:

  • Coca-Cola – Coke – perhaps the most iconic American consumer brand – has been pushing deeper into the Russian market in recent years, adapting to Russian preferences for juice and kvass over soda (Pepsico has a greater share of the juice market). In 2010, Coca-Cola acquired Nidan, a Russian juice-maker. But this year, they shuttered two Russian factories due to declining demand. Thus, targeting Coca-Cola is appealing from a symbolic and economic nationalism point of view (i.e., ‘bring our jobs back’).
  • Automakers – nothing is more American than cars, and both GM and Ford have established manufacturing presences in Russia over the past decade. Specifically, the plants in Russia conduct final assembly tasks of parts shipped from all over the world. Unlike consumer products that are sold within Russia, however, the authorities cannot ban sales of cars meant for export to Europe. Thus, the measures taken against automakers would probably involve slowing down customs clearance times of parts coming into the factory, which could devastate their ability to fill orders from dealers in the EU. My only hesitation here is whether Russia would be willing to target its own non-oil exports just to hurt U.S. companies – thus, it will be a test of how committed they are to this path.
  • Tech Companies – Putin already announced that Russia was going to eliminate its use of IBM and Microsoft in government offices. And they could take the same ‘slowdown’ approach to imports as they do with car makers. But I’m thinking more about Google (YouTube), Facebook, and Twitter. Not only are these companies the face of modern American business, they’ve also been used as platforms for anti-regime messages. Personally, I think Russia would rather siphon off all the data these companies generate within its borders than ban them completely. But that doesn’t mean they won’t harass them generally with dawn raids and the like. More likely, I could see the Russian authorities using the vague terms of its new extremism law to selectively target U.S. tech companies for content hosted on their sites.
  • Airlines – Russia has threatened to withdraw overflight rights to airlines based in countries that have adopted sanctions, but this seems a bit extreme for Russia. Again, Russia will most likely pursue a more passive-aggressive strategy that will be unofficial and thus unattributable to any one decision maker. One example I recall: United Airlines used to have a direct flight from DC to Domodedovo, but eliminated the route once Domodedovo started price gauging United on the cost of fuel. I could see Russian airports initiating the same tactic, and also causing delays through ‘safety’ inspections and withholding takeoff clearance.
  • American Films – non-Russophiles may not know it, but Russia actually has its own little film industry, carved from the remnants of the epic era of Soviet cinema. Caps on foreign films have been floated in the past.  But again I could see the extremism law being used to target American movies on a case-by-case basis, particularly in the case of blockbusters competing with local work.
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