Stay or go? Western consumer brands wrestle with Russian dilemma

Vladimir Putin’s invasion of Ukraine has led to an exodus of well-known western brands from Russia, but not every company has joined the rush.

As Apple has suspended sales and BP hurriedly announced its exit over the past two weeks, those multinationals that manufacture products that Russians rely on for daily life, from food through baby formula to personal care items, have wrestled with the decision on whether to stay.

Besides supplying staples since the fall of the Soviet Union, these companies, including US soft drinks group PepsiCo and UK household goods maker Unilever, typically have significant manufacturing operations in Russia and employ thousands of local staff.

“You’re damned if you do [pull out] and you’re damned if you don’t,” said advertising veteran Sir Martin Sorrell, who now runs digital marketing company S4 Capital, referring to the quandary facing the companies.

Some consumers in the west want brands to leave, Sorrell said. “You see the atrocities that are being committed, and obviously it’s going to stir tremendous emotions in people, quite rightly.” But companies continuing to supply basic goods were doing so in large part “because they don’t want the population to suffer more than they’re suffering already”.

In an apparent domino effect, several global companies announced withdrawals from Russia on Tuesday and Wednesday. Those included PepsiCo and Unilever but the halt to their operations was only partial. PepsiCo, for example, which employs 20,000 people in Russia, is suspending sales of global drinks brands including its namesake cola, but maintaining sales of foods and local brands, including from its large dairy operation.

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Christopher Rossbach, managing partner at fund manager J Stern & Co, said: “Companies should make a distinction between what are essential goods like basic foods or infant nutrition, and more discretionary ones. It’s a difficult line to draw.”

Some consumer multinationals, such as Dettol maker Reckitt Benckiser and supplements group Herbalife, continue to operate in Russia. Supermarket operators such as France’s Auchan and Germany’s Metro have also opted to stay, an approach that contrasts with some other retailers such as Inditex, parent company of fashion chain Zara, which has shuttered stores but retained its 9,000 staff.

Yet companies such as French dairy manufacturer Danone, the world’s largest food manufacturer Nestlé, confectionery and pet foodmaker Mars, and US-listed tobacco group Philip Morris have taken measures such as freezing new investment into the country but continuing to sell there, or halting sales of international brands while continuing to make and sell local products. Coca-Cola has said it is “suspending” its Russian business without giving specifics.

Danish brewer Carlsberg, which owns Russia’s largest brewery Baltika and has 8,400 employees, or about 20 per cent of its global workforce, there, initially halted investment and exports but then went further a few days later by vowing not to produce or sell its flagship Carlsberg brand in Russia. It said it would review “a full range of strategic options” for its Russian business.

Since the invasion on February 24, more than 300 companies have halted Russian operations, according to Jeffrey Sonnenfeld, a Yale School of Management professor — far exceeding the 200 big companies that quit South Africa over apartheid in the 1980s.

Sonnenfeld argues all western companies should quit Russia to help fuel discontent against Putin. “The whole point of these economic blockades is to bring the economy to a standstill and create distress,” he said.

 

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