McDonald’s dispute puts channel partners at a sticky spot

A closed  McDonald's outlet at Connaught Place in New Delhi.

Food and raw material suppliers, mall operators and employees of McDonald’s are an agitated lot these days because of its decision to close 169 outlets across north and east India in view of its legal battle with franchise partner Vikram Bakshi.

Other than the 6,000 employees staring at job loss, several partners like frozen food suppliers, dairy product and sauce suppliers as also mall operators are up against an uncertain future as the long-term agreement with the food chain now hangs in the balance.

“From business point of view, it is a big hit on us because McDonald’s is one of our largest food chain partners and Delhi is one of their biggest markets,” a top official of a supplier who asked not to be named told PTI.

“We hope that McDonald’s solves its issues for us to be on track,” he added.

On August 21, McDonald’s India terminated the franchise agreement for the outlets run by Connaught Plaza Restaurants Ltd (CPRL), alleging breach of contract terms and payment default, including royalty, for two years.

CPRL is a 50:50 joint venture between the US-based food chain and Bakshi, who was ousted as MD in 2013 due to disputes over management.

Landlords of the affected outlets are unsure about the outcome of the settlement process as directed by the NCLAT.

The National Company Law Appellate Tribunal (NCLAT) has asked the parties to consider settling their dispute among themselves and decide so by August 30, failing which the court will follow its own procedure.

“As of now, there is no clarity on what will happen after September 6 as the matter is in court. But in case the outlets shut down, we will ask for compensation for at least a couple of months till we find a new renter,” an official of a mall operator said.

As part of the termination, CPRL cannot use McDonald’s name, trademark and design, among others, after September 6.

Sources said if the outlets close down, the suppliers will have no option but to face the loss collectively.

“There is a long agreement with McDonald’s and now they (McDonald’s) have to decide what to do if the stores close as per the agreement,” another product supplier pointed out.

The worried employees, on their part, have already started hunting for jobs and a few, in fact, have resigned.

“We had started looking for jobs since the day the notice of termination came as getting a job in such a short notice is not that easy. It is likely that we won’t be paid our last month salaries if the outlets shut down,” said two employees of an outlet in South Delhi.