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Fast feud in Delhi

| Updated on: Jul 07, 2017
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As many as 43 McDonald’s restaurants down shutters as knives are drawn in the boardroom

Forty-three of McDonald’s 55 outlets in the National Capital Region shut shop abruptly on June 29 as the result of a long-drawn battle with its Indian partner for the north and east regions, Connaught Plaza Restaurants Ltd (CPRL). The future of 1,700 employees hangs in the balance, although they have been assured that their salaries will be paid during the closure period.

While the burger chain’s popular outlets in locations such as Regal cinema, Connaught Place and Janpath remain shut, a few others that are run by the international partner, including the Nehru Place and V3S mall outlets, are doing brisk business. “The ‘eating house licenses’ of a number of McDonald’s restaurants in Delhi have expired... CPRL is temporarily suspending the operations of the affected restaurants,” McDonald’s India Pvt Ltd (MIPL) said in a press release.

CPRL owns 145 McDonald’s outlets in the north and east regions under the joint venture with the global food company MIPL. McDonald’s has many firsts when it comes to Delhi. Its first outlet, in Basant Lok, was also the first to offer a pork-free, beef-free menu.

Trouble began in 2013, when the McDonald’s board ousted the then CPRL managing director Vikram Bakshi, citing reasons such as failure to devote adequate time to the joint venture. Bakshi filed a case at the Company Law Board, and McDonald’s subsequently took it up with the London International Court of Arbitration (LICA). Bakshi has since been fighting the international company simultaneously at the international court and Company Law Board (CLB).

Meanwhile, posters advertising jobs for delivery boys and servers have been posted on the glass doors and walls of the V3S mall outlet in Laxmi Nagar. The day I visit, there’s a huge rush at the delivery counter. “We are not shutting down, and have no intention of doing so in the future... the other ones will also open up,” the server shouts to me over the billing counter, as I jostle for space. Several other customers before me in the line had anxiously enquired about the restaurant’s fate.

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Where’s the cool customer?

Preeti Singh, a student who lives nearby, is among them. “While there are many fast-food options in this area, since it is populated by students, people like me inevitably end up at McDonald’s at least twice a week. This is the cheapest air-conditioned place with sitting space that you can find, and I’m addicted to their piri piri French fries and aloo tikki burger.”

A few other customers complain about the dipping quality and the absence of uniform standards across outlets. “I do not care if this place shuts down. I remember the euphoria when the first McDonald’s opened in Delhi, and it became a cool place in school to throw parties and hang out. Now I come here either because I don’t have enough money or because I wouldn’t find any other option in that area,” says Devyani Kothari.

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Partnership out of joint

Reports of McDonald’s losing market share to Domino’s in Delhi and its falling revenues have been swirling since 2013, when legal troubles first erupted between MIPL and CPRL. Media reports hinted that the international partner was looking to operate the restaurants by itself, edging out CPRL.

It has already approached the landowners who have leased their properties to CPRL, seeking to transfer them to its name, to reduce Bakshi’s hold.

Following Bakshi’s representation, the CLB directed McDonald’s to maintain status quo on the shareholdings between the company and Bakshi. When MIPL approached the LICA, Bakshi had challenged this move at the Delhi High Court. However, in 2016, both the HC and the Supreme Court ruled against Bakshi. The SC rejected Bakshi’s plea to deny parallel proceedings, since the matter was already being heard at the CLB. The Delhi HC had previously ruled that McDonald’s was within rights to pursue the matter in the London court, since there existed a valid arbitration agreement to resolve disputes between the two companies.

This sparring between the partners has seen several twists and turns.

Bakshi himself had in the past offered to buy out MIPL’s 50 per cent stake in the joint venture, minus the brand name, after he was ousted by the company board. In a counter-move, MIPL offered to buy out CPRL’s stake for $7 million (about ₹45 crore). Bakshi rejected the offer, claiming his stake had been valued by an independent audit firm at a whopping $331 million (about ₹2,142 crore).

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Competition, on the side

As sales revenues fall, the blame game is on. Market experts warn the closure will hurt McDonald’s market share in India. Bakshi hadn’t responded to our queries at the time of going to press. The CPRL’s media relations officer chose to remain tight-lipped on the current situation. “We have nothing to add by way of explanation unless Mr Bakshi chooses to do so,” he said.

Meanwhile, homegrown fast-food chains are finding their place in the sun. Haldiram’s current annual turnover exceeded McDonald’s and Domino’s combined, at ₹4,000 crore. As the country’s QSR (quick service restaurant) industry undergoes a transformation with the entry of newer players such as Carl’s Jr and Burger King, among others, and delivery apps such as Swiggy connect local restaurants with customers, the competition is heating up all the more for the already troubled fast food chain.

Published on January 11, 2018

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