New Delhi: September 6, 2017 is the day 169 stores across North and East India are supposed to shut because of a corporate dispute at McDonald’s India. Shut doesn’t mean that the stores have to literally down shutters, but they have to stop using the McDonald’s brand name, including the famous golden arches logo and the Ronald McDonald clown.
McDonald’s stores are ubiquitous in urban centres, especially Metropolitans. To understand why you may cease to see these stores in Delhi, Jaipur and Kolkata, let’s step back to understand the business model and origins of dispute.
Not all stores in India are directly owned by the American fast food giant. A lot of stores are operated on a franchise model: A local partner operates the stores tailored to the specifications that McDonald’s lays down and uses the company’s logos, branding in return for a royalty payment.
When the burger and fries corporation entered India in 1997, one such agreement it signed was with local entrepreneur Vikram Bakshi. It signed a 50:50 joint venture agreement called Connaught Place Restaurants Ltd (CPRL), which was given charge of operating McDonald’s outlets in the North and the East. Bakshi was installed as the managing director of CPRL.
Trouble was brewing though, and in 2013 Bakshi was ousted as the MD. He, in turn, dragged the American corporation to the company law board. McDonald’s approached the London Court of International Arbitration. India is the only territory where McDonald’s fare is “non-beef, non-pork”.
Bakshi claims that McDonald’s wanted to buy him out of the JV and become the sole owner of the outlets in the North and East. The global fast food corporation, on the other hand, alleges that Bakshi was not devoting enough time to the JV. In the process, McDonald’s expansion plans have been hit.
Four years ago, McDonald’s was the biggest player in terms of revenue while Dominos was No 3. The situation today is the reverse. Even the healthy fast food alternative, Subway, has gained at McDonald’s expense.
The dispute has raged on for the past 4 years and earlier this year, Bakshi was reinstated as the MD. However, McDonald’s India terminated the franchise agreement with CRPL and the termination period ended yesterday – which means that from September 6, no outlet operated by CPRL can use McDonald’s branding.