The Republic of Iceland now joins Bosnia, Albania, and Herzegovina as one of the only European countries without a McDonald’s restaurant. The move by McDonald’s to cease the operations of all three of its restaurants in the financially struggling country is anticipated to be permanent as the company cites economic reasons as well as Iceland’s small and isolated population of 300,000.
Iceland’s economy was one of the hardest hit by the global economic recession out of all developed countries and it’s financial system is still in shambles amid an aid package of $10 billion from the International Monetary Fund. If a trade-dependent company such as McDonald’s continues to operate in a country like Iceland, with a declining currency and financial infrastructure, then it will be operating at a loss. Thus, its choice was a logical one.
However, given that Iceland is among the top ten most productive countries in the world, according to nominal GDP per capita and purchasing power parity, while having a population of only 300,000, I am not convinced that McDonald’s decision was beneficial for the company in the long run. Sales of McDonald’s products in Iceland were not in a decline, but the company’s import costs were diminishing its profits, so I can infer that demand is still present and increasing. If this is the case, then McDonald’s absence in the country is a positive to domestic restaurant owners that do not greatly rely on international trade. If an Icelandic restaurant is able to focus on the niche market of fast-food American style nourishment and be successful, then it would be able to franchise within the country and profit from the country’s disposable income and loyalty. So, if McDonald’s ever were to return to the country in the future, it wouldn’t be an overwhelming competitor due to customer loyalty. A perfect example of this is in the Philippines in regards to the JollyBee restaurants and the McDonald’s restaurants there.
A better decision by McDonald’s would have been to prolong its operational losses as the economy recovers or to establish a partner/separate brand that would be able to financially flourish in Iceland. McDonald’s has outright abandoned its loyal customers in Iceland due to short-term economic reasons; this is a clear message to its global customer base.