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There are chances the burger you ate at McDonald had stuff that was airlifted. The long-drawn tussle between the burger giant and its Indian franchise has hit the business hard, constraining supplies as well as leading to shutdowns.
With the closure of 84 outlets on Monday, over half of McDonald’s restaurants in North and East India have now downed shutters, which may put pressure on franchise partner Vikram Bakshi to sell out to the global burger giant, according to a TOI report.
Connaught Plaza Restaurants (CPRL), a 50:50 joint venture between Bakshi and McDonald’s, ran around 160 outlets. But a fallout between the company and McDonald’s supply chain partner Radhakrishna Foodland, due to alleged non-payment of dues by CPRL, has impacted supplies.
“We are now having to airlift supplies and more outlets are likely to get affected over the next few days,” Bakshi told TOI. “Radhakrishna Foodland has abruptly ended their services and the timing is a suspect because this is the peak season.”
CPRL was in constant dialogue with the promoters of Radhakrishna Foodland, Bakshi said, and the due of Rs 2 crore was not part of the regular monthly payments that were being made to the company. “They are holding back around Rs 10 crore of my stocks,” he said. “I was ready to pay Rs 50 lakh up front to resume dialogue.”
However, Raju Shete, promoter of Radhakrishna Foodland, told TOI that the discontinuation of his company’s services to CPRL was not abrupt. “We had written three letters to CPRL and followed it up with several meetings with Mr Bakshi, as even our regular payments were not being made and CPRL’s dues were ballooning,” he said. “I am not ready to fund the collateral damage between two battling partners with my own money.”
According to Shete, Bakshi had asked the logistics firm to pick up supplies from companies that were not approved by McDonald’s and as an official partner of the US burger chain, the company is not allowed to do it. “We declined to do it,” Shete said.
With regards to the outstanding dues from CPRL, Shete said the Bakshi-led company’s volumes had fallen by half, when it closed down several stores earlier this year. As per the legal understanding with McDonald’s, if volumes go down, the cost to the logistics partner goes up. “As for the stocks that are lying with us, most of it has passed the expiry date because CPRL was not picking them up due to poor sales,” he said.
How McDonald’s reached India
The golden arches in McDonald’s logo are a loud symbol of American lifestyle for Indians. After liberalisation, when economy was opening up and more Indians were travelling to the west, McDonald’s found a vast market in the burgeoning middle class. And it was willing to offer a customised America to Indians—the first McDonald’s restaurant in India, which opened at Basant Lok in Delhi in 1996, was the first in the world to not serve beef or pork products.
What went wrong
Today, America’s commonest symbol in India is unravelling. McDonald’s is shutting restaurants in India after a legal row with local franchise operator Connaught Plaza Restaurant Ltd (CPRL). All its outlets in north and east India including the capital New Delhi will close. McDonald’s has accused CRPL of breach of contract and payment defaults.
McDonald’s had terminated its franchise agreement with CPRL in August due to a longdrawn legal battle with Bakshi, which began in 2008, when the fast-food giant wanted to buy out his stake in the company. It had offered $5-7 million for Bakshi’s stake, while Bakshi quoted $100 million after Grant Thornton valued CPRL at $331 million.
Tussle between Mcdonald’s and CPRL saw deterioration in quality. There have been numerous incidents of customers finding foreign objects, body parts or insects in food. On business front, McDonald’s could have a relatively easy run due to its brand appeal, but once its brand started eroding due to poor quality and hygiene, it had little hope.
The company’s business wrangles have delivered a fatal blow to the brand which will benefit other international fast-food brands. McDonald’s can survive business wrangles but not brand erosion. McDonald’s iconic status gave it a unique standing in India. Though its market share of 7.5% is nearly half of the market leader Dominos, its brand appeal held a big promise. There is competition in the burger market too, but the McDonald burger comes with a unique cultural pull.
Subway, Burger King and KFC have gained market share after McDonald’s shuttered stores in Delhi, according to a report by Kantar IMRB-Crownit.