Just when you thought the global financial crisis was subsiding, with returns to growth in most leading economies, including the US, Europe, China, etc., we have a counter-indicator. The Financial Times reports today that McDonald’s is closing its three outlets in Iceland, citing the difficult economic environment:
Iceland edged further towards the margins of the global economy on Monday whenMcDonald’s announced the closure of its three restaurants in the crisis-hit country and said that it had no plans to return.
The move will see Iceland, one of the world’s wealthiest nations per capita until the collapse of its banking sector last year, join Albania, Armenia and Bosnia and Herzegovina in a small band of European countries without a McDonald’s.
The FT gives some background on why the environment for selling Big Macs in Iceland is so difficult:
McDonald’s blamed the closures on the “very challenging economic climate” and the “unique operational complexity” of doing business in an island nation of just 300,000 people on the edge of the Arctic Circle. Most ingredients used by McDonald’s in Iceland are imported from Germany – leading to a doubling in costs as the krona has collapsed while the euro has strengthened.
The FT cites the Big Mac index, a purchasing power parity index for comparing the valuations of currencies based on the comparative price of a single, uniform basket of goods, in this case a Big Mac, drink, and fries (as I recall). The Economist dreamed it up as whimsy many years ago, but it has proved oddly robust at least for certain comparisons:
Magnus Ogmundsson, managing director of Lyst, the McDonald’s franchise holder in Iceland, said that price rises of at least 20 per cent were needed to produce an acceptable profit. That would have pushed the price of a Big Mac burger well above the $5.75 it costs to buy one in Switzerland, home to the world’s most expensive McDonald’s, according to the Big Mac index.
Luckily, the local franchise owner is taking over the stores and plans to retool the menu using locally produced meat and ingredients, and rebranding under the eco-cool concept of local food production.
Strick says:
Are we sure it was climate change (The Little Ice Age) that drove Iceland’s Viking cousins out of Greenland and not rogue banking?
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October 27, 2009, 8:41 amMCM says:
I think he’s rebranding under the capitalism-cool concept of not paying a premium for goods priced in euros while collecting krona from his customers.
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October 27, 2009, 8:53 amTamerlane says:
The Saga of Burnt Mickey D?
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October 27, 2009, 8:59 amMatt says:
using locally produced meat
So, he’s going to be offering rotten shark burgers?
I hope they’ll hurry and become part of a Dell supply chain, or else pop international relations types will be predicting them to become prime targets for a war soon.
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October 27, 2009, 9:08 amPubliusFL says:
Just the burger. Otherwise, Switzerland at $5.75 would be cheaper than many places in the U.S., despite being “home to the world’s most expensive McDonald’s.” Haven’t bought a “value meal” recently, have you? ;)
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October 27, 2009, 10:20 amTeh Anonymous says:
Interesting. I just started reading Meltdown Iceland, and one of the things the author mentions is that “the old delicacies, such as ram’s testicles, flattened sheep’s heads, and grilled whale were returning to the dining table in the absence of white truffles flown in from Copenhagen.” Can you imagine getting a whaleburger at a McDonald’s?
(Though I am not a blogger I should probably disclose that I won an ARC of the book from the publisher in a giveaway. I haven’t read enough of the book to say whether it’s good or not; this should not be taken as a positive or negative recommendation.)
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October 27, 2009, 10:27 amjstar says:
As an aside, just because McDonalds Corp can’t make fast food work in those countries doesn’t mean it can’t be done (and with a fair approximation of the American fast food experience). I recall from my time in Bosnia, dining at Pizza Hot and getting coffee at Starboys (green mermaid logo and all). I’d be surprised if there wasn’t a MacDonnie’s somewhere in Sarajevo.
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October 27, 2009, 11:45 amjcm says:
They were forced to buy the ingredients in Germany . Why?
Now, the USA can go to war with Iceland. And remember what happened the last time the mouse roared
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October 27, 2009, 11:51 amSplunge says:
Oh dem golden udders
Oh dem golden udders
Golden udders I’se gwine to suck
But now dem krona’s come unstuck
Happy Meal’s one whole sawbuck!
Old Ogmundsson’s a-plumb gone glum
I can haz no cheeseburgin’ bun
So guess it’s back to old Reykj’k fare
Grill’d quarter pound o’ polar bear
French-fried narhwal blubber rings
Dum de dum de doo dah ding
An’ other noisome briny t’ings
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October 27, 2009, 12:36 pmzuch says:
... but you’d think that Fillet’O’Fishes would come cheaper.
Cheers,
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October 27, 2009, 1:04 pmSean O'Hara says:
Great, now the US can invade Iceland.
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October 27, 2009, 1:21 pmzuch says:
Teh Anonymous says:
While taking a taxi around Delhi, India, I noticed a Mickey Dee’s sign. As the Muslims don’t eat port, and the Hindus venerate cows, I had to wonder what they were serving. I asked the driver, “Do they serve lamburgers at McDonalds?” The reply was “yes”. Mickey Dee’s adjusts their cuisine to the local tastes and customs in many places. In Singapore, they served SamuraiBurgers [dunno why; that would seem to be Japanese, but then Singapore is a multicultural society]. Burger King, not to be outdone, was serving BulgogiBurgers in Korea.....
Cheers,
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October 27, 2009, 1:38 pmEinhverfr says:
it ought to be a good time to travel to Iceland.
As long as we don’t extend the “War on Terror” to include that country like the UK did ;-) (it was under anti-terrorism legislation they seized assets from Icelandic banks following the collapse.)
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October 27, 2009, 2:31 pmKoru says:
That would be McDonald’s policy and their terms forcing him to do that. If he could simply have switched to buying local ingredients staying in business would have been as viable for him as it is for KFC, Burger King, Pizza Hut, Subways and several other American franchises still doing great in Iceland. He couldn’t, and McDonald’s has far more stringent rules about suppliers than the other franchises. One of the side effects of their ‘same quality everywhere’ policy. If McDonald’s had had more flexible rules and allowed local ingredients to be used they’d probably still be in business in Iceland same as all the other American chains. Those franchises import some things, such as sauces and other things that are unique to them, but they are not forced to import nearly as much as Lyst was forced to. As is, importing just about everything other than the Coke and water to a country with a weak currency, from a country with a currency that is very strong, well that’s just an idiotic way to do business for the franchise holder. Especially when his customers can get cheaper and better burgers made with the cheap local stuff from other places — such as say Burger King.
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October 27, 2009, 5:07 pmsubpatre says:
Food prices in Iceland in the late 80s were closer to $3 US for a cup of coffee, and about $7 for a sandwich and fries. Oh, and there were two 12-inch incredibly delicious pizzas for $63; over $100 in today’s dollar.
Food was very expensive. When asked where they —local people— ate out, the answer was invariably “We don’t”.
So now McDonalds is leaving, but they apparently leave a legacy or knowledge of how to produce food at lower prices. Good.
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October 27, 2009, 5:24 pmMark Field says:
I believe it was real estate fraud.
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October 27, 2009, 8:01 pmMichael Jennings says:
I was in Iceland a couple of months ago, and one thing I noticed was that many international retail businesses that are ubiquitous in Europe are absent from the Icelandic market. (Some are not absent. The Spanish fashion retailer Zara is present. The Swedish fashion retailer H&M is absent). This was the case even before the financial crisis. The reason for this is that Iceland is a tiny market (four hundred thousand people) and is very remote. The supply chain issues in operating there are tricky, and the potential profit is small. The same thing happens in Iceland that happens in other markets where familiar retailers choose not to operate — a local business fills the nice by producing a similar product that can adapt to local quirks by changing the product in ways that large companies trying to provide a uniform product cannot.
McDonald’s want to control their supply chain very tightly to provide product uniformity. The Icelandic market is not big enough to be worth the trouble of building a local supply chain to McDonald’s specifications — this is a market that supports only three stores — so they insist that their local franchisee purchases everything from a foreign McDonald’s distributor that does have a company approved supply chain, in this case the one in Germany. The Icelandic krona goes kaput, the local franchisee has costs in Euro and revenues in Kroner, and there goes his profits. The problem then is not that substitute ingredients cannot be found, but that substitute ingredients *approved by McDonald’s* cannot be found. If Iceland were a larger market, a local supply chain would exist or McDonald’s would now create one. However, the market is so tiny that they don’t care. The local franchisee therefore buys his products locally and operates a similar business. Iceland keeps its burgers and fries outlets, but they are no longer branded as McDonald’s.
I don’t think Burger King have outlets in Iceland — I don’t recall seeing any. KFC, Pizza Hut, and Taco Bell (all the same company) are there in a larger way than McDonald’s, and don’t look to be going anywhere. There are lots of Subway outlets, too. KFC generally do better in more economically marginal places than do McDonald’s. There are lots more KFC outlets than McDonald’s in Africa, and the success of KFC in China is well discussed in business circles. A price for this is less quality control. The product quality varies rather more from place to place than it does for McDonald’s.
Just as an observation, Iceland has a lot of sheep (and has had for a thousand years) and some cattle, so there is local lamb and beef. Pigs don’t prosper in the climate, so pork is imported. The amount of locally grown vegetables has increased dramatically in recent decades, due to the improved abilities of the country to exploit its immense resources of geothermal and hyrdro energy. There are lots of geothermally heated greenhouses.
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November 1, 2009, 3:14 pm