February 2, 2015 / 3:08 PM / in 3 years

McDonald's to slow Russia expansion due to fall in ruble

MOSCOW (Reuters) - McDonald’s Corp. (MCD.N) will open fewer new restaurants in Russia this year than last because a fall in the ruble has increased expansion costs and is hurting consumers, its Russian chief executive Khamzat Khasbulatov told Reuters.

A customer holds balloons outside a McDonald's restaurant on the day of its reopening in central Moscow November 19, 2014. REUTERS/Sergei Karpukhin

The ruble, hit by a drop in oil prices and Western sanctions over Ukraine, has fallen more than 50 percent since early 2014, fuelling inflation. Russia now faces its first recession since 2009.

McDonald’s will open at least 50 new restaurants in Russia compared to 73 last year, having earmarked 6 billion rubles ($87 million) for capital expenditures, the same amount as in 2014, Khasbulatov said in an interview.

“There is a major currency component in new openings. Given the current conditions of doing business in Russia ... we are pleased that the investment resources we have been allocated remained at last year’s level,” he said on Saturday.

The U.S. fast-food chain, which has been operating in Russia for 25 years, was hit by a string of snap inspections by a state regulator last year, which were widely seen as retaliation for the West’s sanctions against Moscow over its role in the Ukraine crisis.

Those inspections led to temporary closures of 12 restaurants, including the world’s busiest on the Pushkin square in Moscow.

Khasbulatov said the company had taken advantage of some of the closures to modernize the restaurants. All have reopened but their sales have yet to catch up with pre-closure levels.

The unexpected scrutiny had not led McDonald’s to changing its attitude towards the market, Khasbulatov said.

“New restaurants must meet our profitability expectations. (Fewer openings) is only a question of having a healthy business,” he said.

He added same-store sales growth could fall to zero in 2015 because of high inflation and an expected decline in spending on eating out, but new openings should help grow overall sales.

($1 = 69.0825 rubles)

Editing by Raissa Kasolowsky

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