McDonald Is Searching For Partners In North, East India – Can McDonald Survive This Dark Phase?

If you remember that two years back, there was a sudden and exponential shut down of McDonald’s outlets in north and east India. There were 43 outlets immediately shut down due to fail in the issuance of mandatory health licenses. After a 6 year long legal dispute of 22 years’ business between McDonald’s and Vikram Bakshi, these two parties have confirmed to the National Company Law Appellate Tribunal (NCLAT) that they’ve been working towards a out of court settlement.

This means that the position for a new partner to operate in northern and eastern India has highly been discussed and anticipated.

A Brief Insight to the McDonald’s-Vikram Bakshi Feud

McDonald’s has revolutionized fast food in India, opening doors for other multinational food businesses, like Burger King and Wendy’s, by making the burger a mass-market product available to middle and lower classes of the society. In 1995, McDonald’s and an Indian entrepreneur named Vikram Bakshi, signed an agreement of 25 years. It was a 50:50 joint venture between McDonald’s and Bakshi’s Connaught Plaza Restaurants Pvt. Ltd (CPRL), the former’s local partner in the north and east India. Under this JV, the latter would be responsible for opening and managing outlets of the US fast food chain in the country.

The problem began when in 2008, McDonald’s tried to buy out 50% of Bakshi’s CPRL stake, which further worsened when in 2013, Bakshi was terminated as the MD of CPRL, on grounds of alleged financial irregularities, giving rise to a legal battle where Bakshi chose not to step down and continue to stand afoot against McDonald’s. The NCLAT later reinstated him and also refrained McDonald’s from interfering in the functioning of CPRL besides appointing an administrator to oversee the smooth functioning of CPRL.

The battle gained momentum when in December 2017, McDonald’s India terminated the franchise agreement of 169 outlets, jeopardizing the careers of 10,000 employees. This meant that out of the 430 outlets in India during that time, it was shutting down 169, in northern and eastern India, due to alleged breach of franchise terms. Inspite of this, Bakshi continued to run the McDonald’s outlets, sweeping the highest ever sales in east and north India, on May last year. The sales rose up between 2-15%.

The Future of McDonald’s in North and East India Now

Finally, after their 6 years of long legal battle, McDonald’s and Vikram Bakshi have admitted to the NCLAT that they shall close the case with an out-of-court settlement. With the termination of the current franchise agreement, the company is now looking for a new local partner to supervise the sales in northern and eastern India. McDonald’s outlets in the southern and western regions are run by Amit Jatia-led Westlife Hardcastle Restaurants.

This move could hit business in parts of India, as the burger chain seeks to appoint a new partner and rebuild its brand across the northern and eastern markets, once all the complexities of long-term leases signed with CPRL is resolved. The company is in vigorous search of picking the perfect partner, as this time it is not willing to put up with franchisee irregularities at any cost.

According to a report by Euromonitor, the eat-out market in India will reach up to $131 billion by 2020; faster expansion in the region can help McDonald’s capture this growth. 

Possible Partners for McDonald’s Eastern and Northern Outlets

Considering the high-profit margins at which McDonald’s outlets operate, there are many players eyeing the elated position of partnering with McDonald’s as their northern and eastern outlets’ supervisor. McD is to renovate the outlets and rework the entire supply chain of all its 169 outlets, once the handover from CPRL is completed.

 Among highly anticipated and buzzed names are the Sanjiv Goenka group and Moon Beverages, Coca-Cola’s largest bottling partner. They have admittedly started to indulge in negotiations with McDonald’s. 2 years back, in 2017, when McD had cut off its franchise agreement with 169 outlets, it was widely speculated that Amit Jati led Hardcastle Restaurants, heading the southern and western regions, may take over McD’s operations nationally.

With a very open position, a firm finger cannot be kept on who must effectively be elected as McDonald’s partner, heading the outlets of eastern and northern regions. However, for prospective new buyers of this business and McDonald’s Corporation, the end of this crisis is an excellent opportunity to reset their growth levers.