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October 26, 2009

McDonald's to Iceland: Drop Dead!
You know things are bad in your country when:
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.

Ah, well. But the really interesting bit is referenced above and repeated below by Ogmundsson to Bloomberg's Valdimarsson (okay, I'm just quoting him so I get to type those names...):

"Our competitors all use domestic meat and lettuce and so on, while we are flying in these materials, which is extremely expensive," Ogmundsson said.

Apparently, locally sourcing their meat and vegetables isn't an option -- instead they'll just close their doors. The obvious thing to say is that Icelandic meat is literally too good for McDonald's. They needed to fly in the cheap stuff from abroad -- and with currencies markets against them, the economics went to hell. That's a surprisingly fragile and inflexible supply chain. Granted Iceland is an extreme example, but it's still fascinating that McDonald's couldn't adapt.

h/t Free Exchange

Photo by Phil Dragash used under a CC license

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