Exiting Russia is a challenge for franchise companies like Dunkin’

In the wake of Russia’s invasion of Ukraine, a growing number of U.S. companies are announcing their exits from Russia — including Massachusetts’ own Dunkin’.

Dunkin’ will no longer be investing in its Russian stores, but a spokesman says its roughly 20 currently operating storefronts are “all owned and operated by a local, independent franchise owner.” When it comes to independent franchises in Russia, a company’s hands may be tied. So while the company’s announcement means they won’t be investing in new outlets, for now, Russia can still run on Dunkin’.

Multinational companies are scrambling to leave the country to meet standards of corporate responsibility and protect their reputations. But moves by companies that have independent franchises in Russia are largely “symbolic” at this point, according to Jeff Sonnenfeld, senior associate dean of the Yale School of Management. Franchise agreements typically mean the parent companies have surrendered a lot of control.

“It’s hard with the franchise agreements that they [Dunkin’] and Marriott and Starbucks and Burger King have had,” Sonnenfeld said. “They control the branding and the marketing, but they don't control any of the operations or any of the ownership, any of the staffing.”

Sonnenfeld said several companies in the casual dining sector were exploring how to get around the problem by buying out their local franchisees. But he called it “a very expensive thing to do.”

Dunkin’ did not give further comment on its decision.

According to a recent poll of consumers in the United States, United Kingdom and Canada, most consumers want companies to pull out of Russia and speak out against the invasion of Ukraine. But it’s not yet clear how far consumers are willing to go if they have to make personal sacrifices — a conundrum that’s already playing out with skyrocketing gas prices.

It’s largely “uncharted territory,” according to Ab Igram, executive director of the Tariq Farid Franchising Institute at Babson College. While some companies may already include language around “government events” or “acts of war” in their franchise agreements, the current situation may spur more companies to focus on it.

“I think it will probably cause pause and you know they’ll look at it and say, ‘Hey, are we structured correctly? Should our new documents have it?’” Igram said. “Are our documents tight enough around new store development?’”

Independent franchises were once considered a better way for U.S. companies to expand globally. But operating in a country that’s waging war on a neighboring country isn’t exactly great for your brand.

“We considered it a virtue to get past the ugly American imperialism of everything being driven from some mother company like a colonial power,” Sonnenfeld said. “Only now that gets read differently because you surrendered control in ways we didn't realize would become problematic.”