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McDonald’s Exits Kazakhstan: Beef Sourcing Issues

Another McDonald’s casualty falls due to the Russian invasion of Ukraine.

This time it’s Kazakhstan, home to 20 million citizens and the richest market in Central Asia, that is feeling the loss.  The closure is related to a supply chain issue.  McDonald’s has forbidden its stores from importing meat patties from Russia, which had provided them since the chain opened in Kazakhstan in 2016.

Video Spotlight:  

This post is based on the eurasianet article, Not lovin’ it: Russia’s war forces McDonald’s out of Kazakhstan, by Joanna Lillis, January 5, 2023; the B92 article, A country of 20 million people is left by the largest fast-food chain, by B92, January 5, 2023; and the YouTube video in the Spotlight. Image source: Rainer Lesniewski/Shutterstock

Discussion Questions:

1. What location planning decision did McDonald’s make in relation to Kazakhstan back in 2016?  What risks were involved?

Guidance: McDonald’s launched its first Kazakhstan location in 2016, with Food Solutions KZ as its local partner.  A total of 24 stores were opened by 2022, and the chain was very popular.  Though Kazakhstan was a part of the former Soviet Union and borders Russia, it has not played a part in Russia’s invasion of Ukraine. Nevertheless, the fallout has affected the Kazakh people.

When opening locations in far flung parts of the globe, McDonald’s exposes itself to a wider range of geopolitical risks which it must weigh against the potential rewards associated with expanding into new markets.  Opening locations is expensive, and abruptly closing them and exiting the country can be very costly.  In this case, the franchise was run by a Kazakh businessman who this past fall was arrested under corruption charges related to fraud in the gas sector.

2. Why wasn’t McDonald’s able to purchase meat patties elsewhere, such as locally or from European suppliers?

Guidance: There appear to be several reasons, which also tie into some key aspects of McDonald’s strategy.  Some sources suggest that local suppliers could not meet the quality, health, and safety standards required by McDonald’s.  In addition to these safety issues, McDonald’s core strategy of “consistent quality” may have played a part.  The company wants its food to taste the same no matter where in the world customers purchase it.

While the article doesn’t mention this directly, it can be difficult to obtain meat that will taste the same when it is sourced from new or multiple different suppliers.  Especially when considering the large quantities of ingredients McDonald’s typically requires to fulfill its needs, it is possible this could have been an issue.

It is interesting to note that though the Kazakhstan government has poured over a billion dollars into developing its domestic meat supply chain in recent years, the country still is experiencing problems in the area of animal husbandry.  It has gone to great lengths to partner with cattle ranchers in the U.S. to increase its internal supplies of beef, but the results of these efforts have not lived up to expectations.

In relation to European sources of supply, higher beef prices and transportation costs make this option cost prohibitive.  “Low cost/low price” is another core strategy of McDonald’s as well as a long-standing customer expectation.  McDonald’s must source its supplies in an extremely cost-effective manner in order to fulfill this fundamental part of its strategy.

Outside the United States, McDonald’s is often proportionally more expensive for its patrons than the bargain experience we as American consumers have come to expect.  However, it still offers its global customers strong value at a very competitive price relative to other local offerings.

3. What will fill the gap in Kazakhstan left by McDonald’s pullout?

Guidance: Interestingly, “It’s Tasty, Period,” the restaurant chain which was created to take over the McDonald’s restaurants that closed in Russia last year, is seeking to register its trademark in Kazakhstan with an eye towards doing the same there.

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