Financial Crisis Forces All McDonald's Restaurants to Close in Iceland
Tue, 27/10/2009 - 20:00 — smashdracs
Iceland’s McDonald’s Corp. restaurants will be closed at the end of the month after the collapse of the krona eroded profits at the fast-food chain, McDonald’s franchise holder Lyst ehf said.
McDonald’s in Iceland, which imports most of the ingredients it uses in its meals, will shut after costs doubled over the past year, Lyst said in an e-mailed statement today. The franchise holder said it doesn’t expect the situation to change in the short term.
“We would have to raise our prices by 20 percent to get the margin needed on our products,” Magnus Ogmundsson, Lyst chief executive officer, said in a phone interview. “That would have sent a Big Mac to 780 kronur” ($6.36), compared with the 650 kronur it costs today, he said.
The island’s currency collapsed last year following the failure of Iceland’s biggest banks. Offshore, the krona slumped as much as 80 percent against the euro, while capital restrictions this year have failed to prevent an 8.1 percent decline, making the krona the second-worst performer of the 26 emerging-market currencies tracked by Bloomberg.
“Our competitors all use domestic meat and lettuce and so on, while we are flying in these materials, which is extremely expensive,” Ogmundsson said.
The most expensive Big Macs are sold in Switzerland and Norway, where the burger costs about $5.75, according to the Economist 2009 BigMac index. The cheapest are sold in South Africa, $1.68, and China, $1.83, the index shows.
McDonald’s, the world’s largest restaurant chain, opened its first store in Iceland in 1993. The first person on the island to consume a Big Mac was then Prime Minister David Oddsson, who later became governor of the central bank before his dismissal by the current ruling coalition earlier this year. The island has three McDonald’s restaurants, all of which will be closed.
The closure sparked a wide range of responses from bloggers on the island. Pall Vilhjalmsson said he was glad the stores were closing, calling the chain a “symbol of American colonialism” and that it has “terrorized food culture all over the world.” Hreinn Omar Smarason, said he will “miss Ronald McDonald,” adding he hopes the stores will return as soon as possible.
Iceland is relying on a $2.1 billion loan from the International Monetary Fund to stay afloat after its three biggest banks collapsed having racked up debt more than 10 times the size of the economy. The central bank imposed capital restrictions at the end of last year to prevent a sell-off of the currency.