WHO WILL MCDONALD’S SHARE ITS BURGER WITH?

In India, McDonald’s is right now chewing on a rather hard burger. McDonald’s India Private Ltd. (MIPL), the local unit of the American fast food chain, terminated its franchise agreement with Connaught Plaza Restaurants Private Ltd. (CPRL) on August 21, which runs McDonald’s outlets in north and east India. Therefore, it is now searching for a new partner to rebuild the brand. CPRL, a joint venture between MIPL and Vikram Bakshi, the managing director of CPRL, runs 169 McDonald’s restaurants. McDonald’s cited “default in payment of royalties by CPRL” as the primary reason for termination.

The termination implied that CPRL would not be authorised to use McDonald’s branding, trademark, design and marketing policy rights within 15 days of the termination notice, starting September 6. However, around 15 stores of the 169 stores across the north and east region are currently operational even after the deadline set by the termination notice.

To see how the deal turned sour, in 2013, McDonald’s voted against the re-election of Bakshi as managing director of CPRL, following which Bakshi challenged his removal at the Company Law Board (now the National Company Law Tribunal, or NCLT), accusing McDonald’s of mismanagement and oppression. Later, that same year, McDonald’s revoked the joint venture agreement and invoked arbitration. McDonald’s has been pursuing arbitration against Bakshi in the London Court of International Arbitration. However, the NCLT reinstated Bakshi as managing director of CPRL earlier in June.

McDonald’s entered the Indian market in 1996 as a JV between Oak Brook III and two local partners – Hardcastle Restaurants Private Ltd. in western India and Connaught Plaza Restaurants Private Ltd. in northern India. The journey began on a profitable note, opening doors for many such international brands to foray into India. The recent tiff, however, has started rocking the boat but has also created an opportunity for competitors to overtake McDonald’s business in the northern and eastern regions.

For example, Burger King, the second-largest burger chain globally, is already discussing matters with many of McDonald’s real estate partners to set up its outlets at those locations. Carl’s Jr., another competitor, has already signed five of those locations where McDonald’s was operational. So take a look the potential partners McDonald may consider to put its business back on track:

Hardcastle Restaurants

Amit Jatia, who owns Hardcastle Restaurants, could be the most potential partner for McDonald’s in the east and north since his brand is already well-established in west and south with 261 successful outlets and the McCafes business. On the other hand, McDonald’s USA may not want to give Jatia the sole right to run the business pan-India as he has a different goal to meet.

Speciality Restaurants

Owned by Anjan Chatterjee, Speciality Restaurants became the first company in this space to come out with an Initial Public Offer (IPO) in 2012. It now manages a lucrative mix of brands and could be a potential partner since there is no burger on its plate right now. On the flip side, Chatterjee has hardly ever tried his hands on setting up a QSR chain and hence it may not be a win-win scenario for both.

Bharti Group

Known more for its Airtel brand, it also has a ‘pizza presence’ after Ramit Mittal got PizzaExpress to India in 2012. Ramit may look at McDonald’s to expand its wings since both burger and pizza make for the third-largest cuisine in India. Alternatively, Ramit may want to stay focused only building the pizza brand so as to make it as big as Domino’s or Pizza Hut.

Lite Bite Foods

Promoted by India’s largest corporate family icon, Dabur, Lite Bite Foods has already got the experience of running QSR chains at locations like high streets, malls, airports, etc. With more than 100 outlets, it could provide the necessary infrastructure support to McDonald’s.

K Hospitality Corp

Built on a strong heritage of over 40 years, this is the first brand of its kind to acquire international tie-ups in India. Running a mix of categories and outlets is the dynamic Sunil Kapur. Also, as the group is responsible for building all the airports outlets via their ‘Travel Food Service’ wing, McDonald’s could get a chance of being present at some of the top airports across India. On the other hand, since the group has always focused on casual dining and fine dining, it may not be a suitable partner.

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