McDonald’s Beef with India Franchisee Drags Brand Down as Stores Shutter
McDonald's is cautioning consumers in India not to eat at 169 of its restaurants in northern and eastern areas of the country because of concerns about food quality and safety. The units are under the operation of a terminated franchisee who refuses to close his locations, and continues to use McDonald's trademarks, brand names and recipes.
The world's largest hamburger chain said the outlets run by Connaught Plaza Restaurants used ingredients that were not up to McDonald's standards and should be shut down. So far, 84 of the 160 restaurants were shuttered because logistics partner, Radhakrishna Foodland, discontinued services over alleged non-payment of dues, according to a Breitbart report. It also stated that McDonald's had terminated its franchise agreement with CPRL, causing several suppliers to pull out. That's when the franchisor decided to ban CPRL from using its brand name, trademarks, design and food recipes.
CPRL dismissed the claims, saying it has tried to discuss food quality and safety issues with McDonald's for years, but the franchisor refuses its offer. The franchisee said that McDonald's leaders skip CPRL's board meetings and adopted different standards for countries like India, which they view as an unacceptable double standard. The franchisee entity is led by a four-member board, comprised of Vikram Bakshi as managing director of CPRL, his wife, and two McDonald's representatives.
A report last August from Quartz India predicted that McDonald's was headed for a crisis as the long-drawn legal battle with its local joint venture partner of 22 years, Connaught Plaza Restaurants, is straining the franchise company's business. That is when McDonald's announced it had issued a notice of termination on its franchise agreement with CPRL, headed by Vikram Bakshi since 1996, when McDonald's first entered India's franchise area.
"The case had led to a slowdown for the burger chain in Asia's third-largest economy. The closure of 43 Delhi outlets in July, following a license expiry, was another reason that compelled the chain to terminate its ties with CPRL," according to a statement by McDonald's. Quartz reported that the move could hit business in parts of India as the franchisor looks for another partner to help it rebuild its brand across the northern and eastern markets.
McDonald's began its operation in India following the opening of the market to foreign players in the wake of economic reforms. "Its first store was in New Belhi's Basant Lok market, with its local joint venture partner, Bakshi's CPRL. For the south and west of India, the company tied up with Mumbai-based Hardcastle Restaurants, which owns the master franchise rights for these regions even now," Quartz news report stated.
In an abrupt and very public announcement, McDonald's ousted Bakshi as managing director of CPRL in August 2013 over alleged financial irregularities. McDonald's claimed that Bakshi's other business interests were benefiting through his management of the fast-food in India. The report said that the long legal battle ensued as Bakshi moved the Company Law Board (now the National Company Law Tribunal or NCLT) in September 2013.
Bakshi stated that his removal was oppressive in nature and intended to buy him out at a lower valuation to take full control of the chain's business in norther and eastern India," the report stated. In 2014, McDonald's then offered Bakshi a resolution paying him for his 50 percent stake in CPRl. But Bakshi valued his stake higher, and the two failed to "arrive at a consensus." Bakshi was recently reinstated as managing director of CPRL by the National Company Law Tribunal, "a move that McDonald's had vowed to challenge."
The continuing legal battle has affected the day-to-day operations of McDonald's in north and east India. McDonald's new store openings went down from 27 in 2012 to 3 in 2015.
Another report last month said with the closure of 84 outlets, over half of McDonald's restaurants in North and East India have now been shuttered. Times of India Business expressed, "This may put pressure on franchisee partner Vikram Bakshi to sell out to the global burger giant."
Early last year, Forbes reported that India's fast food market held strong growth potential, with only 2,700 outlets for a population of 1.2 billion. It said, "with economic growth and increasing disposable income in the country, the fast food market is expected to grow at a compounded annual growth rate of 18% from 2015 to 2020. In 2020, India's fast food market is expected to generate $26 billion in revenue."
Forbes said McDonald's was still not a dominant player in India's fast food market. Domino's was the leading international player there. Today, India has more than 400 McDonald's restaurants. Domino's still leads with over 1,000 outlets in India.
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