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McDonald's eventful two-and-a-half decade journey in India is venturing into a different territory, and one half of the duo who had brought the global fast food giant to India isn't lovin' it one bit.
McDonald’s India announced last week that it just acquired full ownership of Connaught Plaza Restaurants — the entity that ran the global giant's operations in north and east India — from its long-estranged business partner Vikram Bakshi.
So far, McDonald’s had two business entities in India. The other one is Amit Jatia's Hardcastle Restaurants, which runs McDonald’s business in southern and western India.
The financial details of McDonald's settlement with Bakshi, however, have not been disclosed so far.
The association between Bakshi and McDonald’s had begun in 1995 when, under a 25-year deal, the two partners formed a 50:50 joint venture company — Connaught Plaza Restaurant — to set up outlets in the north and the east under the franchisee model.
Fast food, slow fire: The story so far
The years-long dispute showed the first definitive signs of coming to an end when the two parties, a few days ago, told NCLAT that they were about to reach an out-of-court settlement.
It was in 2008 that the partnership turned sour for the first time — after McDonald's tried to buy out Bakshi's 50 per cent stake. Matters took a turn for the worse in 2013 with the Oak Brook, Illinois-based company removing him as the MD of Connaught Plaza. After the case ended up in NCLT (then Company Law Board), Bakshi was eventually reinstated in 2017 and McDonald's was barred from interfering in Connaught Plaza's operations.
The bad blood, however, didn't stop even after NCLT's adjudication. The year 2013 also brought in a whole new challenge — during the year the local business of Domino’s Pizza left McDonald’s behind to become India's largest fast-food business. Around the same time, the running feud with Bakshi ate into McDonald's expansion plans, a Bloomberg report shows.
In August 2017, McDonald's ended Bakshi's franchise rights accusing him of not paying royalties. Under its notice of termination, Connaught Plaza outlets were stopped from using the McDonald's brand name, trademark, recipes and and marketing techniques after September 5, 2017.
Bakshi, however, remained adamant — he ignored the termination notice, continuing to run his 169 outlets like before, which resulted in more court cases in NCLT, NCLAT and Delhi High Court.
A plateful of trouble
Some industry insiders trace the trouble back to the time McDonald’s first entered India by way of an arrangement that was not in the way it liked.
The arrangement McDonald's usually prefers is a hassle-free one which is also substantially low on risk: it basically stays away from owning or operating outlets anywhere and everywhere. It, as a strategy, licences out its highly-valued brand name to local entities in return for a fee.
McDonald's also charges royalties from its partner over and above that fee. According to an ET story, under this win-win model, the more stuff an outlet sells, the more moolah McDonald's makes. Almost 80 per cent of its outlets are run under this model, figures show.
In India's case though, McDonald's entered through the ownership model — two 50:50 JVs with Connaught Plaza and Hardcastle. India at that time was not the high-flying market that it now is. For the first 15 years, there was hardly any difference in the performances of the two JVs.
In mid-2010, things suddenly changed: McDonald’s decided to sell off its shares in Hardcastle in Jatia's favour. According to Bakshi, McDonald's tried the exact opposite with him: it tried to buy him out.
What made the feud more bitter was a purported valuation ruse played by McD's. Bakshi's case said McDonald offered to buy him out two times in 2008 — for $5 million and $7 million. Bakshi says he then enlisted Grant Thornton to value the JV, and it found it was worth a princely $331 million.
Bakshi raised a stink, accusing McDonald's of backstabbing him, that too without giving him his due — and the tone was set for the long, bitter feud that would take years to settle.
New road, new navigator?
The agreement between McDonald's and Bakshi was not an exclusive one, meaning another franchise can now be brought in to run the operations.
For now, Robert Hunghanfoo has been appointed as the head of Connaught Plaza with immediate effect. The outlets in North and East India have been shut for the time being to carry out a relook into the company's protocols and employee training. The existing managers and crew will continue to be employed, an ET story said quoting a McDonald's statement.
Two potential replacements are said to be already talking a deal, says the same ET story. The RP-Sanjiv Goenka Group and Moon Beverages — which is Coca-Cola’s largest bottling partner — have reportedly begun talks with McDonald’s to replace Connaught Plaza.
Sanjiv Goenka, chairman of the retail-to-power RP-Sanjiv Goenka Group, was not available for comment. Nor was Sanjeev Agarwal, the chairman of Moon Beverages.
Source Id: https://economictimes.indiatimes.com/industry/services/hotels-/-restaurants/vikram-bakshi-is-finally-out-and-mcdonalds-india-is-lovin-it/articleshow/69309704.cms