Mired in ownership battle, McDonald's shuts 80% outlets in Delhi-NCR

Ownership tussle between Vikram Bakshi & McD dented CPRL's growth, hurt profitability since 2013

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.

“The eating house licenses of a number of McDonald's restaurants in Delhi have expired. The board of CPRL is working to obtain the required licenses. Pending this, CPRL is temporarily suspending the operations of the affected restaurants. While there are on-going legal disputes, suspending operations of the restaurants is a collective decision of CPRL's board of directors,” said McDonald’s India in a statement.

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. “India continues to be an important market for McDonald’s and we are committed to working with CPRL to resolve the issue as soon as possible. We understand that CPRL is retaining the employees of affected restaurants and will pay them their salary during the period of suspension. While, there are on-going legal disputes, suspending the operations of the restaurants is a collective decision of the CPRL Board of Directors” McDonald’s India further said.

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 Bakshi, 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. On being called, Bakshi in an SMS said, "I am presently travelling. Shall connect later."

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.

Timeline: A Dismal Saga

August, 2013 : McDonalds announces that Bakshi's term as MD of CPRL has ended on 17th July, 2013 & alleges Bakshi of misconduct.

September, 2013 : Bakshi moves the Company Law Board against allegations by McDonalds.

October, 2013 : McDonalds moves to LCIA for arbitration; Bakshi appeals to the CLB, Delhi for a stay on LCIA proceedings; CLB refuses to issue a stay.

January, 2014 : Bakshi offers to buy 50% of CPRL shares held by McDonalds India; McDonalds says it is interested to buy Bakshi's holdings instead.

October, 2014 : McDonalds offers Bakshi Rs 120 crore for the 50% stake he owns in CRPL.

November, 2014 : In reply to McDonalds offer, Bakshi demands Rs 1800 crore; CLB member B.S.V. Prakash Kumar asks McDonalds India to revise its offer amount by 25th November.

July, 2016: Delhi HC allows McD to pursue arbitration at London Court of International Arbitration; Bakshi approaches Supreme Court

September, 2016: SC reject Bakshi’s plea

June, 2017: CPRL decides to shut down 43 out of 55 outlets in Delhi-NCR

Net sales of Connaught Plaza restaurants over the years

(in Rs crore)	FY15	Change	FY14	Change	FY13	Change	FY12	Change	FY11	Change	FY10
Net Sales	645	6%	609	8%	562	16%	490	27%	385	29%	299

Source: Registrar of Companies, Ministry of Corporate Affairs & industry