McDonald’s feasting dilemma: Is North, East partner’s loss South, West partner’s gain?

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Updated: August 22, 2017 1:33:36 PM

A day after the world's most valuable QSR restaurant chain McDonald’s terminated its franchise agreement for 169 outlets in North and East India, the company's South and West India partner Westlife Development Ltd's shares zoomed today.

The stock of McDonald operator today rose as much as 14.91% to the 52-week high of Rs 282.8 on BSE. (Image: Reuters)

A day after the world’s most valuable QSR restaurant chain McDonald’s terminated its franchise agreement for 169 outlets in North and East India, the company’s South and West India partner’s shares zoomed amid news reports that it may be leading the race to rebuild popular burger chain’s network in the region. McDonald’s has broken ties with its partner for North and East Indian region — Vikram Bakshi-controlled Connaught Plaza Restaurants Pvt Ltd (CPRL). Meanwhile today, the shares of Westlife Development Ltd — the other partner’s parent company which operates and controls McDonald’s in the West and South Indian region — surged about 15%.

Westlife Development Limited controls and operates the chain of McDonald’s restaurants in West and South India through its wholly owned subsidiary Hardcastle Restaurants Pvt Ltd (HRPL).  The stock of McDonald operator today rose as much as 14.91% to the 52-week high of Rs 282.8 on BSE.

Following the McDonald’s step to axe the 21-year old partnership with Vikram Bakshi led CRPL, which has helped in building brand visibility in North and East Indian region, the US multinational will now presumably want to find a partner on which it can depend to rapidly rebuild the network once again.

McDonald’s has said that CPRL cannot use its trademarks, designs, and branding in India. This brings the fate of 169 outlets in North and East India under the cloud, which face closure. The 43 outlets shut earlier are part of the 169 outlets in question now.

Earlier in June, McDonald’s shut down almost 80% of its shops in Delhi as its North and East India licensee CRPL did not renew the eating house licenses, which had expired after 21 years of operations. The closure was a result of a long drawn legal battle between Vikram Bakshi and McDonald’s. Meanwhile, the issue regarding the maintenance of quality and hygiene at the stores had been going on since 2013.

When the first outlet of McDonald’s in India opened 21 years ago in 1996, the global food chain started operating in the country under the management of CPRL in North and East India. CPRL is a 50:50 joint venture between entrepreneur Vikram Bakshi and McDonald’s, which handles all of the outlets of North and East India. Its board of directors has Vikram Bakshi, his wife and two representatives from McDonald’s.

Things were running well until 2013 when in August, McDonald’s announced Vikram Bakshi’s removal from the position in CPRL, following a dispute. Vikram Bakshi was the JV company’s managing director. A month later, in September, Vikram Bakshi filed a petition with the Company Law Board (CLB) challenging McDonald’s action. Meanwhile, McDonald’s approached the London Court of International Arbitration (LCIA) to resolve the dispute. However, it was not taken well by Bakshi and he challenged the step of the food chain in the High Court of Delhi.

As for South and West India, the stores of McDonald are handled by WDL through its subsidiary Hardcastle Restaurants Pvt Ltd through 242 restaurants (as on 30 June 2016) across 32 cities. HRPL is owned by Amit Jatia, who is also the vice-chairman of WDL pays a franchise fee and royalty to McDonald’s for using its brand name.

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