Joint-ventures have a finite shelf life. It is best to look at them as an entry-strategy, no more. But this is a difficult perspective for Indian partners to understand.
The year was 1996. My office those days used to be at Basant Lok, just next to Priya Cinema, in New Delhi. The corner outlet of the market, as you entered from the Vasant Vihar side, was a Nirula’s QSR. Quite popular. Reasonably crowded throughout the day. One day, quite inexplicably, the Nirula’s downed its shutters. And in its place opened India’s first ever McDonald’s. There were hundreds in the queue on the first day, even first week. Even the first month. Braving the queue, I was lucky to partake the Maharajah Mac, the fries and the legendary vanilla milkshake as one of McDonald’s first customers in India. Which is why I was more than a trifle saddened by the news that 43 of McDonald’s 55 outlets in Delhi shut down a few days back.
Connaught Plaza Restaurants Pvt Ltd (CPRL), which runs the McDonald’s franchise for North and East India, has been forced to close down 80% of its outlets in the NCR region as it failed to secure regulatory health clearances to keep the business running. Much has already been written in media about how Vikram Bakshi, the Indian partner, and the American company have been at loggerheads in the 50:50 JV. If memory serves me right, the bickering in the JV first surfaced in 2008 when McDonald’s offered to buy Bakshi’s 50% stake for $5 million, and later for $7 million. Bakshi tabled a Grant Thornton’s report that pegged CPRL’s enterprise value at $331 million and demanded upwards of $100 million. The success of the company between 2008 and 2012, when it grew manifold and turned profitable, was not enough to re-establish amity and peace between the partners.
Between 2009 and 2013, CPRL registered a cash profit of Rs 110 crores. In 2014/15, it had a cash loss of Rs 41 crores. After opening 27 outlets in 2012, it opened only 14 in 2013 as against a target of 35. The numbers were nine in 2014 and three in 2015. The time taken to start an outlet also went up from four months in 2012 to 12 months in 2014 and 16 months in 2015. Read More