#140 McDonald’s Indian Woes
With almost 500 stores, India is an important foreign market to McDonald’s. Not too long ago, it was praised in India for its responsiveness to Indian tastes. After having had items such as the Maharaja Mac and the Aloo-Tikki Burger on its menus in India since the 1990s, the fast-food giant added more offerings to woo Indians such as the Masala Dosa Brioche, the Chatpata-Naan, and several rice bowls. McDonald’s has also made items healthier by making some items free of preservatives and by reducing sodium and fat content in many others. So, all is peachy, right? Well, except it isn’t.
In 2017, McDonald’s ordered one of its two licensees in India, Connaught Plaza Restaurants Pvt. Ltd., to stop using its brand. McDonald accused its partner of breaking contractual agreements on financial management, internal controls and royalties. The owner of Connaught Plaza, Vikram Bakshi, outright refused, demanding a fair price for his half of the joint venture that operates 166 outlets in the north and east. McDonald’s had offered him a meagre $5 to 7 million but Bakshi demanded $100 million based on a valuation by firm Grant Thornton of $331million. Next, McDonald’s turned on the heat and informed its suppliers of the separation, causing Connaught to struggle and slip even deeper into the non-compliance swamp. In the meanwhile, Hardcastle Restaurants Pvt. Ltd., McDonald’s other partner which runs more than 270 McDonald’s restaurants in the south and west of the country launched McCafés and new products, leaving Connaught’s northern and eastern restaurants with an outdated image and shrinking menu. Soon, Happy Meals were gone in the north and east, and other menu items were unavailable. Already involved in the ugly breakup with Connaught, McDonald’s was dealt another blow. The Indian tax authorities recently raided the offices of 20 locations connected to Hardcastle. Could it be a coincidence that these recent developments are concentrated in the south and west, outside of Connaught’s territory?
The struggles of McDonald’s in India are just another example that demonstrates how important careful partner selection, developing shared long-term visions in license, franchise, or joint-venture arrangements, and well-executed relationship management are in international contexts, especially when the cultural distance between the principal’s home culture and the host culture is as large as between the US and India. Partners in global business – can’t live with them, can’t live without them…