Phantom hope for the return of foreign brands

The first US-Russian talks since the invasion of Ukraine were greeted in Russia not by talk of the end of the war, but by the country’s potential return to the global economic order. Russian officials and propagandists began to interpret the possibility of normal relations between Moscow and Washington as a chance for the swift return of Western brands that left in the wake of the invasion. 

• The sudden exodus of many foreign brands from Russia after the invasion of Ukraine came as a real shock to tens of millions of Russians. The foreign companies that arrived in the 1990s and 2000s played a huge role in shaping Russia’s consumer market, which was almost non-existent in the aftermath of the USSR. For example, in the early 90s, many people in Russia were still boiling white linens and half the country’s children had tooth decay. The niche for household cleaning products was filled by P&G. And McDonald’s, on the scene since the late Soviet era, became the key reference for fast food. Mars, Snickers and Twix chocolate bars were nationwide symbols of the era.
• Since 2022 dozens of consumer brands, banks, automakers and IT companies have left Russia. Russians also lost access to Visa and Mastercard services, including when they travel abroad — one of the most painful blows. So it’s hardly surprising that rumors of an apparent swift return for Western brands spread fast. In particular, they were fuelled by Kirill Dmitriyev, head of the Russian Direct Investment Fund and a participant in the talks with the Americans, who said that US companies might soon be back in Russia.
• Propaganda was quick to write about the imminent return of departed brands. Pro-Kremlin Telegram channels actively reported (1,2) on the possible reopening of stores operated by departed clothing brands like Zara, Bershka, Pull&Bear, Stradivarius and Uniqlo. Many media sources quoted the “forecast” of pro-government political analyst and PR man Vadim Siprov about companies like PepsiCo, Coca-Cola, Apple and McDonald's coming back to Russia — all apparently due to the normalization of US-Russian relations. Anatoly Aksakov, head of State Duma’s committee on the financial market, said that soon Russians would again be able to use Visa and Mastercard freely, because they had “lost a big market” and wanted to return. In reality, in 2021 Russia contributed just 4% of the payment systems’ profits.
• Not one company that left the Russian market has spoken about a return. Renault boss Luca de Meo was the only boss to speak publicly about the idea, and then only vaguely, saying there was a chance of the company returning, but it wasn’t great. Other companies, those still in Russia, went the other way — saying they hoped a peace deal would make it easier for them to finally quit Russia. The head of Italy’s Unicredit (along with Austria’s Raiffeisen this is one of two major banks that have so far remained in Russia) said that a settlement would help Unicredit depart quicker. In such a case, the bank has a better chance of achieving the market price for its Russian assets.
• Even though 18% of foreign companies that sold up and left Russia secured options to buy back their stocks or shares and return after sanctions might ease, this does not mean that a return is inevitable, Russian experts say. The ongoing sanctions regime creates many obstacles for the work of foreign companies. In addition, after the exodus of foreign brands the Russian market restructured and many Russian companies took over vacant niches which they will not wish to give up. For example, Russian manufacturers of soft drinks have already spoken against the possible return of Coca-Cola or Pepsi.

Why the world should care

The authorities themselves don’t seem all that excited about the return of departed companies. Deputy PM Denis Manturov, who was previously responsible for trade and industry, said that in the case of auto-manufacturers, their return will not be as simple as their departure. As for foreign retailers, they would be obliged to open stores in Crimea and the occupied “new territories.” It’s unlikely anyone would agree to this, since it would open the way to direct sanctions, at least from Europe. 

There’s no doubt that the authorities would generally seek to frustrate the return of departed brands, even though the consumer market would clearly benefit from them coming back. At first glance, this seems absurd, but there would be nothing new in the Kremlin taking decisions that run counter to the interests of the general public, especially when it comes to foreign business. In 2014, Russia imposed a food embargo and banned imports from countries that imposed sanctions against it. While this stimulated import substitution, it also triggered a significant rise in food prices.