Why McDonald’s Failed in Iceland (2024)

BUSINESS BLUNDERS

I have seen McDonald’s outlets around the world and there’s one thing common in all of them — they’re always filled with customers.

Here in New Zealand, I still remember the night when my friend and I went to a nearby McDonald’s at 2 a.m. to grab some food. I couldn’t believe we had to wait in line past midnight on a Wednesday night.

According to research, McDonald’s has over 37,000 outlets in around 120 countries. With a brand value of approximately $126 billion, the fast-food chain is expanding and opening hundreds of new outlets every year.

But this success didn’t quite work out in Iceland. In 2009, McDonald’s decided to shut down all its outlets in the Nordic country.

Why did McDonald’s leave Iceland? Let’s find out.

McDonald’s was received with a very warm welcome by Icelanders when it opened its first outlet in 1993. The buzz was so intense that even the prime minister at that time, David Oddsson, went in to get a burger.

The news went viral. People waited in queues for days to get a taste of this foreign fast-food restaurant. And why wouldn’t they? Even their prime minister was enjoying it.

The entry of McDonald’s into Iceland also signified that the country is no longer an isolated, nationalistic region. Both the government and the people wanted to open their arms to the global market.

But after some time, people got used to McDonald’s. Also, several Burger King and KFC outlets opened up in Iceland to get their slice of the pie. Now, McDonald’s was just another fast-food chain for Icelanders, and the initial enthusiasm was gone.

During the great recession of 2008, many countries were adversely affected and businesses were trying hard to stay afloat. McDonald’s in Iceland was about to succumb to this unprecedented economic turmoil.

Iceland’s economic crisis was more severe compared to other countries. The stock market itself, along with the country’s three biggest banks, collapsed.

A vast majority of local businesses were on the verge of bankruptcy and people were really mad at the situation. This might have made the decision-makers at McDonald’s plan their exit strategy as well.

During the economic crisis, the value of Icelandic króna, the official currency of the country, dropped horrendously.

As you can probably guess, Iceland’s geography is not favourable to growing every ingredient in a McDonald’s burger, and the country had to rely on imported goods.

Germany used to fill this gap by providing Iceland with the food ingredients that were required to produce McDonald’s menu items in the country. But due to the massive currency value difference, import cost went high.

McDonald’s couldn’t maintain its desired profit margin in Iceland. They increased the prices, and in fact, customers still kept visiting them — but the profit was still pretty low.

Jon Gardar Ogmundsson, a key figure in the Icelandic McDonald’s scene at that time, said, “It just makes no sense. For a kilo of onion, imported from Germany, I’m paying the equivalent of a bottle of good whiskey.”

Kudos to Jon for using the “onion and whiskey” analogy. Now we understand how messed up the profit margins were.

Indeed, the world was going through tough times in 2008, financially speaking. But companies that were good with finance management survived.

The few companies that had a relatively easy transition were the ones that resorted to traditional means of borrowing money — this may include borrowing from affluent local lenders instead of relying on banks.

McDonald’s probably just relied on the banks for financial assistance — the ones that went bankrupt themselves and weren’t in a position to lend any money, for obvious reasons.

We often like articles about how some company made $10 million or how a product sold over 100,000 units. But studying failure in business is just as important as studying success.

McDonald’s, one of the most epic brands in the world, failed in Iceland due to external circ*mstances and internal management problems (up to some extent). It’s a similar case, though not identical to what happened with Starbucks in Australia.

The key is to learn from failure and not repeat the same mistakes that other businesses have made.