McDonald’s Mess in India
McDonald’s is engaged in a wild battle with a now-former franchisee in India, who continues to serve the trademark food and use the brand.
In August, after a lengthy dispute, the fast-food giant ordered its partner of 22 years in northern and eastern India to stop using the McDonald’s brand and system. But Connaught Plaza Restaurants Pvt. Ltd., which operated 40% of McDonald’s Indian outlets, about 150 restaurants, went rogue. It has continued to sell Maharaja Macs, McAloo Tikki and McSpicy Paneer burgers under the golden arches — using the McDonald’s name and recipes. “I cannot allow a large organization, this [multinational] monster, whatever you want to call it, to truly belittle our contributions,” says Connaught Plaza’s defiant managing director, Vikram Bakshi. McDonald’s has accused Connaught Plaza, a joint venture between Mr. Bakshi and McDonald’s India Pvt. Ltd., of breaking agreements on financial management, internal controls and paying royalties, among other things. “We’ll continue to take steps to exercise our legal and contractual rights and enforce the termination,” says a McDonald’s spokesman in Hong Kong, Ron Christianson. “It will take time to bring the current situation to a final resolution.”
The standoff has produced a tit-for-tat battle that may be unique in the annals of fast-food wars. McDonald’s notified suppliers that Connaught Plaza’s outlets were no longer allowed to use the McDonald’s brand or trademark menu, and some have stopped supplying to them. Mr. Bakshi has labored to keep his suppliers on board. Menu items have started disappearing. First to go were the McFlurry desserts and other items that use soft serve.
Last Friday, the popular Maharaja Mac — an Indian version of the Big Mac in which the beef has been replaced by either chicken or cheese-and-corn patties — and McSpicy chicken dropped off the menu at a restaurant in New Delhi’s popular shopping district Connaught Place. “Sold out” signs were pasted across menu boards. The sandwiches were back on Saturday, but restaurants in New Delhi said they were still missing jalapeños, tomatoes, milk and Pizza McPuffs. Meanwhile, some outlets seemed to have run out of some sizes of McDonald’s cups.
Mr. Bakshi says he has been trying to calm his fearful suppliers. He says the Maharaja Mac was off the menu because one had stopped sending jalapeños, which he is trying to buy elsewhere. He says a tomato shortage was a quality issue. Amitabha Ray, managing director at Schreiber Dynamix Dairies Ltd., says his company stopped selling dairy products to the rebel outlets after being contacted by McDonald’s. Other suppliers declined to comment or didn’t respond to requests for comment.
McDonald’s needs to find a way to reintegrate or close the rebel outlets. At risk is a market many consider one of the last great untapped opportunities. India currently accounts for a tiny slice of McDonald’s nearly $25 billion in revenues — there are only 427 McDonald’s in the entire country — and yet fast-food companies are hoping to find growth there. Mr. Bakshi opened McDonald’s first outlet in India in 1996 as the company’s first beefless restaurant. In the Hindu-majority nation, eating beef is frowned upon and many people are vegetarian, so McDonald’s built a menu around chicken and vegetarian patties. The top-selling McAloo Tikki burger has a spicy potato and pea patty. The McSpicy Paneer uses tandoori mayonnaise slathered on a crispy slab of paneer, a fresh cheese. Mr. Bakshi’s northern franchise grew to nearly 170 restaurants, while its southern and western counterpart, Hardcastle Restaurants Pvt. Ltd., a subsidiary of Westlife Development Ltd. , has 258 outlets…
He contends McDonald’s has been increasingly tough in an effort to force him out and take what he has built without paying much for it. McDonald’s, in written statements to The Wall Street Journal, has said it has been cutting ties to Mr. Bakshi because of breaches in his agreements with the chain. While Mr. Bakshi denies most of McDonald’s accusations, he admits Connaught Plaza has missed royalty payments. He says the company was only occasionally in violation of its contract — and that it had McDonald’s tacit approval. A McDonald’s spokesman in Hong Kong, Barry Sum, said McDonald’s India didn’t allow Connaught Plaza to avoid fulfilling “essential obligations.”
McDonald’s wouldn’t discuss details of the feud, citing continuing court cases. Mr. Sum said McDonald’s is looking for a new partner for the region. Mr. Bakshi says he has asked India’s courts to stay McDonald’s cancellation of the company’s franchise agreement, and that he has property he can sell to finance the legal battle. Nevertheless, he is willing to leave, he says, if he is paid a fair price for his half of the joint venture, which he contends could be worth more than $100 million. McDonald’s has offered him as much as $7 million, he says, which he considers an insult. McDonald’s declined to comment on any offers.
Referenced In This Post
McDonald’s Has a McSpicy Problem: An Indian Partner Has Gone RogueAfter the restaurant giant tried to pull out of about 150 restaurants, a defiant franchisee vows to keep serving. ‘Our taste buds are settled on that flavor.’