 "Vikram Bakshi")
In 1994, Madhusudan Thakkar, Vikram Bakshi's neighbour in Jor Bagh, an affluent south Delhi colony, came to him with an unusual request. Thakkar, a designer and a manufacturer of industrial kitchens, said that he was tying up with McDonald's, the well-known American quick-service restaurant chain, and needed his financial backing for it: Rs 1 crore. Bakshi promptly agreed. Thakkar took a cheque of Rs 1 as a token of Bakshi's commitment.
Three months later, there was no sign of the venture. But Bakshi saw an opportunity here. India had opened up. Lifestyle aspirations were high. It wouldn't be a bad idea, he thought, to try his luck where Thakkar had failed. He sought the advice of Pramod Bhasin, who had been chosen by Jack Welch to set up General Electric's backend operations in Gurgaon. Bhasin advised him to prepare his detailed curriculum vitae and send it to the McDonald's headquarters in Oak Brook, Illinois. Bakshi had nothing to lose. At 40, he had made good money in real estate. His specialty was to build and lease houses and offices to multinational corporations which were sending people by the hundreds to India. (That's how he and Bhasin became friendly.) He was in fact contemplating retirement: summer in Mussoorie and winter in Goa. He heeded Bhasin's counsel and took this "shot in the dark".
To Bakshi's surprise, McDonald's asked him to meet Jim Kramer, who looked after franchises for McDonald's all over the world, in Delhi. On the appointed day, Bakshi arrived at the Taj Man Singh hotel for the meeting. The setting was familiar. In this very hotel, he had struck real estate deals and sold handicrafts to buyers from overseas. But his swagger turned into nervousness the moment he saw the queue of people there to meet Kramer: teams from the Mahindra, Oberoi and Modi groups - all big names from the world of business. But his detailed letter seemed to have worked. Kramer confided later that he had read it five times and, even though Bakshi was not in their initial shortlist, he had decided to meet this ambitious man. McDonald's wanted a partner who would grow with it, had fire in his belly to run the business and could negotiate the complicated world of Indian real estate. After a chat that lasted one-and-a-half hours, Kramer faxed his US headquarters that he had found McDonald's partner in India.
Bakshi had one apprehension: what if McDonald's threw him out after a few years, even before he could make some money? His concerns were put to rest in a meeting he had a few days later with Jim Cantalupo, then president of McDonald's International (later CEO of McDonald's Corporation). Cantalupo met him at The Oberoi in Mumbai and emphasised that unlike other US corporations, McDonald's took a long-term view of business because the quick-service restaurant business takes 14-15 years to become profitable. That's why McDonald's prefers to sign franchise agreements for 25 years. He also gave him examples of many countries were the model had worked successfully. Bakshi needed no more convincing.
McDonald's actually stitched two joint ventures in India: one with Bakshi (Connaught Plaza Restaurants) for the North and East and another with Amit Jatia (Hardcastle Restaurants) for the West and South. The two companies would collaborate on marketing (single creative and media buying agency), menu and supply chain management. The first McDonald's store opened in 1996 (at that time, it was the first McDonald's anywhere in the world without beef on its menu), and it took 11 years to break even. The company innovated (ice-cream kiosks, home delivery, breakfast, extra hours at night), kept its low prices on a tight leash and indigenised its procurements (potatoes, buns, lettuce) rapidly. Bakshi was its face in India.
* * *
Eighteen years later, the worries Bakshi had recounted to Cantalupo have returned to haunt him. The two partners are involved in a legal battle which broke out after Bakshi was removed last year as the managing director of Connaught Plaza Restaurants (both are equal owners of the company), which runs over 150 stores. Bakshi has challenged his ouster in the Company Law Board, while McDonald's has decided to terminate the agreement with him and has taken the dispute to the International Court of Arbitration, London. A few weeks ago, Bakshi queered the pitch when he offered to buy out McDonald's from the company at net asset value without the brand name. McDonald's is yet to respond. Bakshi says he now wants to chart a new course: either build a new brand from scratch, for which he has investors, or tie up with another international chain.
Why did the honeymoon end abruptly? Bakshi's friends say that it came as a complete surprise to him and his family, especially as the relationship between the two was cordial even weeks before his sack letter was made public last August. Thus, in July, McDonald's Senior Vice-president Bob Larsen wrote to him about the agenda of a meeting which he was planning to have. It did not talk about any trouble; instead, it included routine items like new stores, investments (and debt) and prices (should they be raised in view of the high food inflation?). Earlier, in March, Larsen had conveyed to Bakshi how bullish McDonald's was on India after its top team had visited the country.
Yet those who have closely followed the spat say there is another side to the story. "It may have been an equally-owned venture but the relationship was always unequal. Bakshi would look after real estate and sit in Jor Bagh, while McDonald's would look after the operations, including logistics, from Gurgaon," says the head of a retail consultancy who doesn't wish to be identified. Even in real estate, where McDonald's is known to have struck some amazing deals, it wasn't entirely Bakshi's handiwork. The consultant points out that McDonald's was able to get attractive lease deals in shopping malls (a third of what others paid) because all of them were desperate to get it as their anchor tenant which could increase the footfalls dramatically. "It had nothing to do with Bakshi's acumen," he says.
That the two were not on the same page was evident way back in 2008 when McDonald's proposed to buy Bakshi's stake for $5 million, an offer it subsequently raised to $7 million. However, Bakshi didn't agree to sell as he found the valuation too low. An independent assessment by Grant Thornton said the business was worth $331 million. Clearly, McDonald's thought otherwise. Two years later, McDonald's decided to get out of its other franchise (for the West and South). It thus sold its stake in Hardcastle at a discounted price to Jatia, and converted the franchise into a development licence. No such offer was made to Bakshi. While it cut the royalty to 2 per cent for Jatia, Connaught Plaza Restaurants continued to pay 5 per cent. This obviously annoyed Bakshi. His friends allege that Bakshi's credit lines were squeezed, and in one instance his proposal to lease out the unused part of a property (after giving it to McDonald's) was turned down on the grounds that it would affect the mother brand.
Bakshi's petitions disclose another chain of events. He says that Jatia of Hardcastle, in a meeting in 2011, had expressed his desire to buy out Bakshi's stake in Connaught Plaza Restaurants, and the move seemed to have the tacit approval of the US company. Both McDonald's and Hardcastle have not commented on this issue. Still, the fact was that Jatia's operations, which were much smaller, began to expand faster, and Connaught Plaza Restaurant's plans to expand got stalled. In 2009-10, Bakshi's venture had 90 stores and Jatia's 78; now, Jatia has 166 stores, while Bakshi runs 153. Connaught Plaza Restaurant had planned to start 35 stores in 2013; it opened only 14. This was a clear indication that things were not quite alright between the two partners.
McDonald's did not offer any comment for this article. A spokesperson says it would be inappropriate to comment because it's an internal matter. But McDonald's, in its petition, has blamed Bakshi for not devoting enough time to the business and instead concentrating on his own hospitality and real estate businesses. It has said that he failed in developing and maintaining internal controls, and has also alleged financial mismanagement. Bakshi has denied all these charges. He is ready for a long fight.
* * *
Actually, Bakshi has been up against the odds before. He got into business when he was just 14 after the death of his father. After school hours, Bakshi would run the family's printing press in Connaught Place. At 22, he wanted to change the old printing press and get offset machines but didn't have the money for it. A friendship with the manager of a State Bank of Mysore branch located close to the press changed his life. The bank gave him Rs 75,000 and the manager also found him a partner for a new business: international trade. Bakshi became a door-to-door salesman in Europe, hawking everything from Indian handicrafts to cycle parts. For ten months in a year, he would be abroad. The orders became bigger. Bakshi started attending international fairs, and money started flowing in.
Yet he gave it all up to start a family, which meant shifting to India. And he found his calling in real estate. He bought land at top locations and built houses for expatriates. He also decided to try his luck in commercial property. He demolished his house in Connaught Place and put up a high-rise office complex there: Mohan Dev Building. Unlike other real estate developers, he went after the top end of the market. His key clients were such names as AT&T and PepsiCo. Bakshi claims with evident pride that DLF Managing Director Rajiv Singh, the biggest developer in the country, thanks him for teaching him the key tricks of the trade, especially those related to commercial real estate.
Almost 20 years later, Bakshi could be treading another uncharted path if he decides to start a new chain of quick-service restaurants. But his rivals say his plan is to get another global partner. "If he buys McDonald's' stake, he will get valuable long-term lease agreements for over 150 stores, most of which are at excellent locations. In places like airports, there is no space left for a newcomer. So any other fastfood chain will give a huge premium to grab the spaces," says an executive of a leading fast-food chain. "If he starts from scratch, it will take him over a decade to make money." Those close to Bakshi say most of the lease agreements are for between 15 and 40 years, and that is of immense value. Real estate experts say the rentals are way below the market price. That's perhaps why Bakshi is willing to buy the McDonald's shares at their net asset value. The question is whether McDonald's will give in easily and, in the process, give up prime real estate.
