How Will McDonald’s Fare In India’s Burger Battle?

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Burgered,” headlined The Economic Times, India’s leading economic daily. The publication elaborated: “From worms to lizards to fungus to finger nails, all kinds of ‘foreign’ objects have been reportedly served to consumers along with burger and fries.” It’s happened before: in Japan, where McDonald’s had to apologize for a tooth being found in French fries, and in the U.S. itself when a customer field a lawsuit after biting down on a foreign object in her breakfast burrito.

But the issue in India is about more than lacertilian legacies. It’s about a full-blown war between the U.S. fast-food chain and one of its local franchisees — Connaught Plaza Restaurants Ltd (CPRL) and its head, Vikram Bakshi. The current state of affairs: Some 169 outlets in the northern and eastern region are closed. (The west and south come under a different franchisee – Amit Jatia’s Hardcastle Restaurants.) McDonald’s has told its suppliers not to serve CPRL. And that has probably compounded the problem of quality with both sides saying the other is to blame.

The problems between McDonald’s and Bakshi are long standing. CPRL was set up as a 50:50 joint venture between the two; there were differences from the beginning over financial issues. Both sides made offers to buy each other out. They were rejected. Bakshi was ousted as managing director of CPRL by McDonald’s India in August 2013. He moved the National Company Law Tribunal (NCLT) in Delhi, which ruled in his favor. McDonald’s went to the London Court of International Arbitration. The U.K. court has asked Bakshi to sell his stake in the joint venture to McDonald’s at a fair valuation in accordance with their agreement. In the meantime, the Delhi tribunal will take another look at the issues at the end of October. The U.S. company is believed to be negotiating with Hardcastle, Jubilant FoodWorks (which operates the Domino’s Pizza and Dunkin’ Donuts franchises in India) and Moon Beverages (Coca-Cola’s Indian authorized bottler) to take over from CPRL.

Delhi Switches to Subway

But while the courts act with judicial speed (McDonald’s has gone back to the Delhi tribunal), what is happening on the ground? Consumers in New Delhi and elsewhere are heading to the nearest Burger King, Burger Singh or Jumbo King — just three of the rival fast-food chains that are stepping on the gas. According to market research firm Kantar IMRB, since McDonald’s stopped operations in Delhi, fast-food rival Subway has gained 5% traffic and KFC 2%. Overall share for McDonald’s declined from 9% in June to just 3% in July.

“Until recently, the [quick service restaurant] space in India was shaped by the international players…. But now and going forward, Indian QSRs have come of age.” –Ankur Bisen

Even outstation rivals are stepping up. “Jumbo King is now on a high-growth trajectory,” says Dheeraj Gupta, managing director of Jumbo King Foods, an Indian-style (vada paav) burger chain. “We will close the current financial [year] at 100 stores in Mumbai and Pune, the cities of focus currently. This is a market of 500 stores for us. The plan is to get to at least 200 stores here and then look at national expansion.”