Suitors find McDonald’s franchise offer a bit too sour


Burger and fries chain McDonald’s India has laid down stringent conditions for its north and east franchise, which has led to a stalemate in talks between the US company and prospective Indian partners, three executives aware of the development said.

McDonald’s said the new partner will be barred from listing on the stock exchanges and all shares of the company operating McDonald’s outlets in the north and east must be pledged to the parent company of McDonald’s.

The executives said RP Sanjiv Goenka Group and the Bird Group are no longer in the fray, leaving others including entrepreneur Sanjeev Agrawal-promoted MMG Group, which owns Moon Beverages, Coca-Cola’s largest franchise bottling company to bid for the franchise, the executives said.

“Of all the potential names in the running, talks with most have fizzled out because both sides haven’t been able to reach a consensus on the conditions,” one executive said. Other conditions are non-exclusivity, which means any other company can also be given a franchise to open McDonald’s outlets with the requirement of a minimum investment of $50 million (Rs 358 crore) in the immediate future to renovate existing stores and set up new outlets, and an overall investment of $100 million in the next 6-7 years.

“On top of this, the Indian partner will have to invest another $20-30 million on upgrading kitchens and pay 5% royalty on all food items to McDonald’s, even if these have been innovated in India,” an executive said. Spokespersons of the RP Sanjiv Goenka Group, Bird Group and Moon Beverages declined to comment on the development.

“McDonald’s is actively progressing finding the right developmental licensee partner for north and east India,” McDonald’s Asia Pacific corporate relations director Barry Sum said in an email.

He said the company does not have any update to share related to the search. Connaught Plaza Restaurants will continue to be owned by McDonald’s India Private and its affiliate until the right partner is found for the business in the regions, Sum said.

For prospective partners, McDonald’s, with its captive mass appeal and aggressive entry-level pricing, would be a plum deal to start mopping up volumes, two food industry experts said. At the moment, though, keeping the slowing economy in mind, such stiff conditions only act as deterrents, they said.