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Winnipeg Free Press - PRINT EDITION

Big Mac a victim of Iceland's crisis

McDonald's sites become unviable

By: Gudjon Helgason and Jane Wardell

Posted: 10/27/2009 1:00 AM | Comments: 0 (including replies)

The krona’s collapse and subsequent rising costs have claimed Reykjavic’s three McDonald’s outlets as casualties. (TANIA FUENTEZ / THE ASSOCIATED PRESS ARCHIVES)

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 gives in to falling profits caused by the collapse in the Icelandic 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, told The Associated Press by telephone on Monday.

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

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

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

That would have made the Icelandic version of the burger the most expensive in the world, a title currently held jointly by Switzerland and Norway where it costs $5.75, according to The Economist magazine's 2009 Big Mac index.

The decision to shutter the Icelandic franchise was taken in agreement with McDonald's Inc., Ogmundsson said, after a review of several months.

McDonald's, the world's largest chain of hamburger fast-food restaurants, arrived in Reykjavik 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. Oddsson went on to become governor of the country's central bank, Sedlabanki, a position that he was forced out of by lawmakers earlier this year after a public outcry about his inability to prevent the financial crisis.

Lyst plans to reopen the stores under a new brand name, Metro, using locally sourced materials and produce, and retain the franchise's current 90-strong staff.

Ogmundsson said it was unlikely that Lyst would ever seek to regain the McDonald's franchise with Iceland still struggling to get back on its feet after the credit crisis crippled its overweight banking system, damaging the rest of its economy, last October.

"I don't think anything will happen that will change the situation in any significant way in the next few years," Ogmundsson said.

-- The Associated Press

Republished from the Winnipeg Free Press print edition October 27, 2009 B7

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