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Iceland's three McDonald's are casualties of financial crisis

The tiny island nation's franchise holder will close the restaurants next weekend because of falling profits.

October 27, 2009|Associated Press

REYKJAVIK, ICELAND — The Big Mac, long a symbol of globalization, has become the latest victim of this tiny island nation's overexposure to the world financial crisis.

Iceland's three McDonald's restaurants -- all in the capital, Reykjavik -- will close next weekend as the franchise owner surrenders to falling profits caused by the collapse in Iceland's currency, the krona.

"The economic situation has just made it too expensive for us," Magnus Ogmundsson, the managing director of Lyst Hr., McDonald's franchise holder in Iceland, said Monday.

Lyst was bound by McDonald's requirement that it import all the goods required for its restaurants -- including meat, cheese and packaging -- from Germany.

Costs had doubled in the last year because of the fall in the krona currency and high import tariffs on imported goods, Ogmundsson said, making it impossible for the company to raise prices further and remain competitive with rivals that use locally produced ingredients.

A Big Mac in Reykjavik already retailed for 650 krona ($5.29). But the 20% increase needed to make a decent profit would have pushed that to 780 krona ($6.36), he said.

McDonald's Inc. agreed with the shutdown decision.

"The unique operational complexity of doing business in Iceland combined with the very challenging economic climate in the country makes it financially prohibitive to continue the business," Theresa Riley, a spokeswoman for McDonald's at its headquarters in Oak Brook, Ill., said in a statement issued by the company.

Lyst plans to reopen the stores under a new brand name, Metro, using locally sourced materials and produce and retaining the franchise's staff of about 90.

McDonald's arrived in Iceland in 1993, when the country was on an upward trajectory of wealth and expansion.

The first person to take a bite out of a Big Mac on the island was then-Prime Minister David Oddsson, who went on to become governor of the country's central bank. He was forced out that position this year after a public outcry about his inability to prevent Iceland's financial crisis.

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