McDonald’s shuts 80percent of its outlets in Delhi as hygiene conditions and politics take toll

McDonald's shuts 80percent of its outlets in Delhi as hygiene conditions and politics take toll

NewDelhi,June29:Fast food major McDonald’s is shutting nearly 80 per cent of its stores across Delhi-NCR starting today. Connaught Plaza Restaurants Pvt Ltd (CPRL), which runs the McDonald’s franchise for North and East India, has been forced to close down 43 of its 55 outlets in the region as it failed to secure regulatory health clearances to keep the business rolling.

While the move could prove to be lethal for the firm, maintenance of quality and hygiene at the stores had been an ongoing issue since mid-2013.

The infighting between Connaught Plaza Restaurants (CPRL) and McDonald’s took an ugly turn as a result of which the CPRL board decided to shut out the outlets.

CPRL is a 50:50 local joint venture between Vikram Bakshi and McDonald’s that operates the fast food chain in north and east India\.

“It’s unfortunate, but operation of 43 restaurants operated by CPRL has been temporarily suspended,” Vikram Bakshi, former managing director of CPRL, which operates 168 restaurants, told ET.

As per reports, Bakshi and his wife are on the CPRL board and McDonald’s has two representatives on it.

ET quoted sources as saying the CPRL failed to get the mandatory regulatory health licences renewed because of the infighting between Bakshi and McDonald’s. The move, they point out, will render over 1,700 employees jobless.

Bakshi was expelled as managing director of CPRL in August 2013 and has been mired in a protracted legal fight with McDonald’s. The verdict is not out.

McDonald’s has been pursuing arbitration against Bakshi in the London Court of International Arbitration.

Meanwhile, shutting down of the outlets will hurt McDonald’s.

Brand strategist Harish Bijoor told ET that unless McDonald’s sorts out its legal battle, things might worsen. “Every passing day is a slur on the front-end brand,” he said, adding that there is nothing really bigger than the brand.

The decision comes at a time when the long-drawn battle over the ownership of CPRL between its founder Vikram Bakshi and McDonald’s India has dislodged the company from the growth track. The conflict has also hampered its profitability, while most other quick service restaurant chains have managed to grow. CPRL is a 50:50 joint venture between the two and is currently operated by four board members — Vikram Baksi, his wife, and two representatives of McDonald’s.

 

According to data available at the Registrar of Companies, Ministry of Corporate Affairs, CPRL’s revenue growth fell to six per cent in 2014-15 compared 29 per cent in 2010-11 as investments came to a standstill. The slide being pronounced in 2014-15, when CPRL posted Rs 645 crore revenue compared to Rs 609 crore in the previous year.

 

In 2013-14, too, revenue growth halved to eight per cent from 16 per cent in 2012-13. In 2012-13, CPRL generated Rs 562 crore in revenues and in the previous year it stood at Rs 490 crore. Data has been sourced from the industry.

 

Persons in the know said CRPL’s revenue slide actually began earlier if the revenue growth rates of previous years are taken into account. From 27 per cent in 2011-12, revenue growth in 2012-13 was down to 16 per cent, the sharpest drop in five years.

 

Moreover, highly placed sources in the company told Business Standard that maintaining hygiene and store-level efficiency became a major headache since 2014 as indecisiveness hampered day-to-day operations. Bakshi did not receive calls and an SMS sent to his mobile number remained unanswered.

 

Bakshi had dragged McDonald’s to court in 2013 after the multinational company announced its Indian partner would cease to be the managing director of the equally owned joint venture. Bakshi had argued that McDonald’s move to remove him was linked to its objective of buying his stake at a cheap price. McDonald’s denied these charges.

 

While Bakshi has indicated since that he is ready to settle the matter out of court, McDonald’s seems to think otherwise.

 

From 27 new stores opened in 2012, the number whittled down to three in 2015. In between, CRPL opened 13 new stores in 2013 and nine stores in 2014, sources in the know said.

 

The CRPL board includes Bakshi, his wife, and two McDonald’s representatives. The equal representation has seen the Bakshis and McDonald’s at loggerheads, notably, since the legal tussle began. Predictably, the poor condition of the business has resulted in attrition levels growing. From around 12-14 per cent a few years ago, it is now in the region of around 30 per cent, persons in the know said. When quizzed on attrition levels, Bakshi told Business Standard a year ago that talented people were leaving the company.
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