McDonald’s pulls out of Iceland

by on July 14, 2013 at 3:12 am in Economics, Food and Drink | Permalink

McDonald’s is to close its business in Iceland because the country’s financial crisis has made it too expensive to operate its franchise.

The fast food giant said its three outlets in the country would shut – and that it had no plans to return.

Besides the economy, McDonald’s blamed the “unique operational complexity” of doing business in an isolated nation with a population of just 300,000.

Iceland’s first McDonald’s restaurant opened in 1993.

Here is more.  Most of all, it is more expensive to import inputs (oddly, the story does not mention capital controls).  The restaurants will be reconfigured and in their new identity they will source Icelandic products much more.

Here is a brief update on the economy of Iceland, including a discussion of Iceland’s significant fiscal consolidation.  By the way, the country has seen two years running on negative growth in health spending.

Here is an article on how much immigrants are starting to contribute to the economy of Iceland.  I bought a mineral water from a “Cafe Haiti” in Reykjavik and I believe it was not there the last time I visited, nineteen years ago.

I enjoyed the new Samsung ad for Iceland.

Eirik E. B July 14, 2013 at 3:28 am

First of, as an Icelander I have thoroughly enjoyed your last posts about Iceland, so please don’t stop.
Secondly, that McDonalds pulled out happened in 2009: “Page last updated at 00:00 GMT, Tuesday, 27 October 2009″ (from the BBC article)
Thirdly, if you have not: rent a car, drive to Hveragerdi, drive throught the town and 3 km northwards to a parking field by a small farm. From there, you hike 3-4 km. along the stream “Klambragil”. Before you know it you’ll be bathing in a hot river. Yes, the river is hot.

Best regards,
Eirik.

PS: You might enjoy a look at the university library. From the outside it is slightly inspired by medieval castles with windows formed as arrow slits and a moat surrounding the building. I think it is to keep students inside of the library, more or less as a prison. That is at least my experience.

Rahul July 14, 2013 at 4:06 am

“For a kilo of onion, imported from Germany, I’m paying the equivalent of a bottle of good whisky,”

Is that gross exaggeration? I find that very hard to imagine.

Eirik E. B July 14, 2013 at 8:35 pm

Hi, if the question was meant for me:

A few assumptions/condition for the statement:
1) McDonalds have the worlds most ineffective onion production process in the world located in Germany and transport the onion in a nitrogen cooled non-recyclable aluminium container by space.
2) The Whiskey buyer does/did certainly not buy his whiskey at the Liqour Store in Iceland. (The taxes/VAT are almost rivaling Norway)
3) This was at the crest of the financial crisis where the Krona hit rock bottom making imports costly (overnight the Krona weakened by over 50% – for a nation wholly dependent on imports that’s an extensive and dramatic change)
4) The quoted has a severe bad taste in Whiskey – i.e. famous grouse is his kind of good whiskey

Note that on the whole; I would expect it to be a bit of an over-statement, but the article should more or less relay the relevant true and correct information coming from my perspective.

PS: Sorry for any spelling mistakes or unclear/bad choice of words, English is my third language.

Rahul July 15, 2013 at 12:41 am

Thanks. So just have MCD source onions locally, and problem solved, eh.

prior_approval July 14, 2013 at 12:31 pm

And this web site being the way it is, there was this observation from Oct. 26, 2009 concerning this situation – ‘Is it silly for me to say I find this story just a wee bit scary?’

I think the answer is pretty obvious – we are living in 2013, after all, and Prof. Cowen is currently in Iceland – and honestly, I do not think he is particularly anxious about finding a Big Mac and fries.

http://marginalrevolution.com/marginalrevolution/2009/10/exit-decisions.html

It is these little revelaing glimpses that make me such a disloyal reader.

Claude Emer July 14, 2013 at 3:54 am

“Luxembourg is at the top of the list, but immigrants increase the GDP by around 2 percent there. However immigrants are 42% of the population in Luxembourg, compared to 11% in Iceland. Germany is at the bottom of the list, but immigrants in Germany decrease the GDP by 1.13 percent according to OECD.”

42%, wow.

Peter Schaeffer July 14, 2013 at 5:05 pm

CE,

Luxembourg is basically a big city, surrounded by suburbs that happen to be in different countries (France, Germany, Belgium). For example, according to “Greater Region of Luxembourg” 132,000 commuters enter Luxembourg each day. That’s a lot given that the population is only 531,000.

The vast majority of the immigrants in Luxembourg come from elsewhere in Europe. See “Demographics of Luxembourg”. Quote

“The foreign population resident in Luxembourg currently numbers over 170,700, corresponding to 38% of the total population (compared to 17% in the 1960s). These immigrants are overwhelmingly nationals of EU countries (accounting for over 90%), by far the greater part of whom originally come from Portugal, Italy and the two neighbouring countries, France and Belgium. For some years, there has also been a big increase in the number of immigrants and asylum seekers from the countries of Eastern Europe, and especially the new republics to have emerged from the former Yugoslavia (Bosnia and Herzegovina, Serbia and Montenegro). These immigrants include a considerable proportion of young people. Immigrants (especially asylum seekers) have a strong impact on the birth rate, accounting for nearly 50% of births in Luxembourg.

A more detailed breakdown by nationality shows that the Portuguese community is still the largest group, accounting for more than a third of the foreign population. The Italian population has been stable for the past ten years at approximatively 20 000. Some 47.000 foreigners come from bordering countries (France, Belgium and Germany).”

Marian Kechlibar July 14, 2013 at 5:40 am

Several weeks of open borders would probably mean an irreversible end of Iceland as distinct cultural and linguistic unit. This is emphatically NOT worth any putative growth in GDP. Not anymore than cutting down the Amazon rainforest to substitute with lucrative farming (though I think the parallel is lost on many of the liberal and libertarian intellectuals).

I am not sure whether Americans in general realize just how vulnerable are small ethnic and cultural groups to mass immigration. Even though they have the example of Native Americans in front of their own eyes.

freethinker July 14, 2013 at 9:08 am

What matters is whether the immigrants adopt Western values or cling on to their own culture which kept their nations in penury. If they integrate, immigration is no problem. By the way, I am not a white American. I am an Indian living in India but IO shudder at the thought of immigrants from my country diluting America’s cultural foundations which made it great

anon July 14, 2013 at 9:21 am

I am an Indian living in India but IO shudder at the thought of immigrants from my country diluting America’s cultural foundations which made it great

I hope this is sarcasm.

Marian Kechlibar July 14, 2013 at 4:49 pm

Why so?

A lot of people emigrate out of their home countries precisely because they are fed up with the prevailing social norms and mores there.

As an example, think of an Egyptian liberal who really hates the Islamist Salafists. Do you think that he would support mass immigration of his own mortal enemies, just because they happen to share the same ethnic ancestry?

Race does not trump everything.

Peter Schaeffer July 14, 2013 at 5:21 pm

All,

“Here is an article on how much immigrants are starting to contribute to the economy of Iceland”

What the article shows is astonishing illiteracy and innumeracy. If immigrants are really 42% of the population of Luxembourg and only add 2% to GDP, then they are the least productive immigrants on earth. According to Statistics Iceland and other sources, immigrants peaked at 8% of the population in 2008 and have declined since then.

Of course, what Iceland really shows is that a nation can thrive and prosper with very low levels of immigration. Finland provides another similar data point. The standard mythology is that, without immigrants, a nation is doomed to poverty, backwardness, and stagnation. Iceland proves otherwise, Open Borders propaganda notwithstanding.

Claudia July 14, 2013 at 6:37 pm

Peter and All,

I would recommend the OECD report itself — which primarily looked at the net fiscal impact of immigrants: http://www.oecd.org/els/mig/imo2013.htm (Don’t miss the nifty interactive graphics at the bottom.) And here’s the editorial summary that covers the main findings [pdf]: http://www.oecd.org/els/mig/editorial.pdf The GDP effects are not stressed as particularly large, though the report explains the variation (depends on various immigrant characteristics).

Please, keep in mind that current market-valued contribution (GDP) of immigrants does not capture the PDV of their future market contributions or the social value of meeting our moral obligations to humanity. What a nation “can do” is not always the same thing as what it “should do.” Of course, that desired course is a matter of (heated) debate, but don’t expect the economics to resolve it.

Cliff July 15, 2013 at 12:16 am

Moral obligations to humanity!? My God! Is our moral obligation to destroy modern civilization by undermining its ancient cultural underpinnings through mass immigration? Just look at what has happened to Sweden. Does anyone seriously doubt where it would be in a few years if the open borders nuts had their way?

dearieme July 14, 2013 at 5:52 am

Puffinburgers!

anon July 14, 2013 at 9:32 am
Bill July 14, 2013 at 9:42 am

Icelandic Bankerburgers!

All bun, no meat.

Andrew' July 14, 2013 at 9:45 am

This paves the way for a war with Iceland if Snowden gets there!

Geoff Olynyk July 14, 2013 at 2:25 pm

ahaha, pretty good

Peter Schaeffer July 15, 2013 at 1:41 pm

The U.S. and Iceland have maintained close military ties since the early 1940s. The last U.S. base closed in 2006. During WWII, the U.S., the UK, and Canada maintained vast military facilities in Iceland. Hvalfjordur was the big naval base in the west. There was another naval base in the east as well.

Yancey Ward July 14, 2013 at 10:51 am

Halibut McNuggets.

yo July 14, 2013 at 12:44 pm

At least the ice was probably free.

Marian Kechlibar July 14, 2013 at 4:55 pm

BTW…

Opening a cafe can’t really be called contribution to the economy. Maybe I am too demanding, but there is nothing especially innovative about opening a cafe. There are tens of millions of potential successful cafe owners out there.

The way in which a Haiti cafe is praised smacks of the legendary bigotry of low expectations.

Now importing someone like Niels Bohr, Edward Teller, or Ramanujan, that would be a big contribution, and worthy of OECD-level praise.

dan1111 July 15, 2013 at 2:23 am

Your standard for contributions to the economy is bizarre. Discovering atoms and atom bombs is great, but someone actually has to take those atoms and make them into a sandwich, or we won’t have anything to eat.

And you seem to be reading a lot into Tyler’s statement about the Haitian cafe. Is he impressed that someone from Haiti has the ability to sell mineral water, or is he just offering it as anecdotal evidence of the presence of immigrants?

Peter Schaeffer July 15, 2013 at 6:37 pm

d,

People selling sandwiches are commonplace. Nobel prizes are rare.

Peter Schaeffer July 14, 2013 at 5:39 pm

All,

Iceland is a more like the U.S. than folks might think. Check out http://www.newsoficeland.com/home/culture/item/1875-police-brutality-in-reykjavik-controversial-arrest-video. See what happens when you spit on the police.

Rahul July 15, 2013 at 1:24 pm

They also love fuel guzzling big trucks. At least they used to before the crash.

Peter Schaeffer July 15, 2013 at 6:45 pm

Rahul,

“They also love fuel guzzling big trucks. At least they used to before the crash”

Yes. When I was there, I was struck by the number of SUVs. Of course, the roads (outside of the capital) favored SUVs and Iceland’s fertility is greater than the European average (apparently).

Willitts July 14, 2013 at 11:17 pm

Population is certainly not the problem. In any American city of 300,000 there would be dozens of McDonald’s, all profitable.

As far as input costs go, McDonald’s seems to do well in Hawaii and Alaska.

Regulation is undoubtedly the culprit, but those who like the regulation probably shed no tears about the demise of a McDonald’s.

prior_approval July 15, 2013 at 3:26 am

‘In any American city of 300,000 there would be dozens of McDonald’s, all profitable.’

Except Iceland has a population of 300,000 spread over 40,000 square miles. An area a bit less than half the size of Great Britain, which has a population of 63 million.

And in the UK, there are 1200 McDonalds, according to this link – http://www.mcdonalds.co.uk/ukhome/whatmakesmcdonalds/questions/work-with-us/employee-diversity/how-many-mcdonalds-restaurants-operate-in-uk-and-worldwide.html

Which results in an average of 1 McDonalds for every 52,500 people in the UK. Want to take a wild guess how that figure looks in the Hebrides or the Highlands?

Peter Schaeffer July 15, 2013 at 1:08 pm

PA,

“Except Iceland has a population of 300,000 spread over 40,000 square miles”

No. The Reykjavík metro area has 202,341 people. That’s slightly less than 2/3rd of the entire population. One source (Trading Economics – which I don’t trust) says that Iceland is 92.2% urban and 7.8% rural. Statistic Iceland indicates that 72.6% of the population lives in towns with 10,000 or more people.

From personal experience, I can tell you that Iceland is mostly urban. The rural areas are incredibly empty. Driving the main highway around the country, I frequently saw no evidence that human civilization existed or had ever existed for hours (save for the road). No other cars, no trucks, no homes, no farms, no power lines, nothing.

There is a reason for this of course. Traditionally, more people did live in rural areas. However, Iceland’s farms aren’t competitive and have been dying for decades. The road I was on was built to promote tourism as an alternate source of employment in remote areas (it’s slowly working).

rpl July 16, 2013 at 8:38 am

As far as input costs go, McDonald’s seems to do well in Hawaii and Alaska.

Don’t you think that the collapse of the Icelandic Krona might have something to do with those soaring input costs, particularly in 2009 (when the closure actually happened)?

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