Not lovin it! McDonalds India suffers biggest ever loss

McDonald's India posted a loss of Rs 305 crore in FY 17-18. As compared to a loss of Rs 2.82 crore in FY 16-17.

As per the official filing, the loss is due to provision amounting to Rs 198.20 crore created to write off investments in CPRL (Connaught Plaza Restaurants), a 50:50 joint venture between Vikram Bakshi-led CPRL and Mc Donald's India. Loss is also on account of one-time provisions of nearly Rs 105 crore made for the discharge of the tax liability arising from the prolonged litigation with the Indian taxation authorities as well as the Mutual Agreement Procedure (MAP) proceedings.

Since August 2013, Vikram Bakshi-led CPRL is involved in a bitter legal dispute with McDonald's corp. It started when Mc Donald's expelled Vikram Bakshi from the designation of Managing Director. Bakshi challenged his removal at the Company Law Board (NCLT), accusing McDonald's India of mismanagement and oppression. NCLT had reinstated Bakshi as managing director in July 2017.

Mc Donald's Indian territory is divided into two segments.Vikram Bakshi-led CPRL runs the franchisee in North and East India.Amit Jatia-led Westlife Development Ltd. through its unit Hardcastle Restaurants runs the franchisee in South and West India.

In December last year, over 80 McDonald's stores in North and East India had closed operations after CPRL's logistics partner Radhakrishna Foodland discontinued supplies, stating "reduction in volumes and uncertainty of the future". Simultaneously McDonald's India had issued a health advisory on the 'quality' of food being served at stores operated by CPRL in North and East India. On August 21, McDonald's India had directed CPRL to stop using its brand system, trademark, designs and associated intellectual property, the deadline for the same ended on September 6, 2017. CPRL, however, continues to operate the restaurants, and has since, made alternate arrangements with a new logistics partner ColdEX.

Untill 2017, CPRL, which ran 169 stores in North and East India, was category leader in the quick service restaurant space, banking on affordability and aggressive pricing. However, post scuffle, sales at McDonald's North and East had declined. About 80 stores shut down intermittently and a key vendor ended its contract with the chain. These factors helped rivals such as Burger King and KFC report higher sales.

Till 2012, McDonald's was market leader with 10.9% of QSR (Quick Service Restaurants) market share followed by Jubiliant FoodWorks Ltd. (Domino's) with 10.2%.In 2015, Domino's market share rose to 16% while McDonald's market share dropped to 7.4%

McDonald's is actively searching for a developmental licensee partner in North and East India region. To write off investment of Rs 198 crore in CPRL and a tax liability of Rs 105 crore, McDonald's India proposed to infuse Rs 90 crore worth of fresh equity shares by raising its authorized capital limit to Rs 408 crore to finance these one-time losses.