I was ambushed,” grumbles Vikram Bakshi, the 60-year old former managing director of Connaught Plaza Restaurants Private Limited (CPRL), the 50:50 joint venture with the Illinois-headquartered McDonald’s that operates the chain in north and east India. Bakshi, who was ousted exactly two years ago on August 30, is still fighting the battle of his life, displaying little sign of fatigue.Sitting calmly on a large, antique wooden chair in his war room — the corporate office of CPRL in the posh area of Jor Bagh in south Delhi — Bakshi takes a sip of green tea and makes his intentions clear: he is not going to throw in the towel. “I have fought many battles in my life and this could be the biggest,” he says. “But if anybody thinks that ‘it’s either my way or the highway,’ then I am sorry to say, I won’t let it happen.”On August 30, 2013, Mc-Donald’s dramatically issued a public notice to announce a change of guard: “Vikram Bakshi has ceased to be the managing director of CPRL pursuant to expiry of Bakshi’s term on July 17.”Since then Bakshi has been embroiled in a bitter legal fight with Mc-Donald’s, dragging the world’s largest fast food chain to the Company Law Board (CLB), which will resume the hearing in early September.Two years on, with no end to the fight in sight and no sign of a clear winner emerging, there is one clear loser: brand McDonald’s.Rival American quick service restaurant (QSR) chain KFC has overtaken McDonald’s in India to become the second largest QSR brand in the country, according to a report by market research firm Euromonitor in July.This is after Domino’s had dethroned Big Mac from pole position in 2013 to become the largest QSR chain in India (see How Top QSR Players Stack Up in India).It’s been a rapid slide for the Golden Arches in India. In 2010, KFC’s revenues of Rs 448 crore were roughly half of McDonald’s.It took just four years for the Kentuckyheadquartered chain, which is No 2 to McDonald’s globally, to get ahead of the chain that till a decade ago was synonymous with burgers in India.Clearly, McDonald’s India is hurting, and the ugly spat between the parent and the Indian north and east franchise is taking its toll.Consider: In the past two years, CPRL has shut down two stores. That’s not the alarming part; what is worrisome is that the pace of expansion has slackened, and is way behind that set by the No 1 and No 2 QSR players (see Number of Outlets).For instance, though the planned store rollout for 2013 was 35, CPRL managed to open just 14.The next year, it added another 9 stores and this year it has opened two stores till August. End-result: till mid-August 2015, McDonald’s had a total of 380 stores in India, way behind Domino’s with 921.At the end of 2014, even KFC had crept ahead with 395 stores (that number has since, however, came down to 379 for India division thanks to a rationalisation exercise). McDonald’s 380 stores are a combination of 167 of CPRL and 213 of Westlife Development Limited (WDL). WDL, through subsidiary Hardcastle Restaurants Private Limited (HRPL), owns the master rights for west and south India operations of McDonald’s.

If the tardy pace of expansion has been hurting the overall growth, exodus of manpower has almost crippled the north and east India operations. Over 7,000 people across levels have quit CPRL since August 2013 — just a thousand less than the headcount now: 8,000.



With no fund infusion over the last two years, Bakshi says the organisation has been “surviving on internal accruals by jugglery. It’s sad. It’s a very rapid loss of ground,” he laments.

Bakshi predictably blames McDonald’s for the mess, accusing it of making a hostile takeover attempt in August 2013. Bakshi says he failed to anticipate what was coming a day before the board meeting on August 5 when he was having drinks with Bob Larson, relationship partner for Mc-Donald’s India; Larson, claims Bakshi, actually complimented him for opening 27 restaurants in 2012, an ostensible record for McDonald’s in India.The day was spent visiting the new restaurants; McDonald’s had opened its largest restaurant in June 2013, recalls Bakshi.“So from being lauded for doing such a fantastic job to the coup planned next morning, that’s something that you don’t even foresee in your wildest dreams.”In a letter addressed by the nominee directors of McDonald’s India — Aysel Melbye and Robert Latson — to the board of directors on August 6, 2013, McDonald’s said it had “lost all its trust, faith and confidence in Mr Vikram Bakshi.”The letter went on to add that McDonald’s India’s relationship with Bakshi as a joint venture ( JV) partner had to be one of complete trust and utmost confidence.“Over the last few years, this relationship has been severely tested because of the manner in which the business of the company has been managed by Mr Bakshi, his inability to give full focus and attention to the company, and him showing no desire to remedy the failure and shortcomings repeatedly brought to his attention,” Melbye and Latson said in the letter, a copy of which has been reviewed by ET Magazine.Among the accusations hurled by McDonald’s against Bakshi in its CLB filing, are his failure to develop and maintain adequate internal controls, financial mismanagement and misuse of the position of managing director for promoting his other business interests.McDonald’s claimed that during its annual reviews conducted by its internal audit team between 2007 and 2013, it found serious lapses.For instance, the review in January 2013 disclosed as many as 13 high-risk control issues which could have significant operational and regulatory repercussions, the company said in its filings.McDonald’s also alleged that Bakshi had once drawn a sum of Rs 7 crore from the company’s bank account and transferred it to his group company under the pretext of an urgent necessity without the approval of the board of directors or any formal documentation.

“Although the funds involved were recalled and repaid to the company, it created a certain level of mistrust in Mr Bakshi’s management of the company,” McDonald’s said in one of its filings. Bakshi counters all the allegations and calls them baseless.



In its notice of termination, McDonald’s presented the grounds for ending the JV deal signed in 1995 for a period of 25 years. The notice said that “the good faith and mutual confidence between McDonald’s India private limited and Bakshi has been irrevocably lost.” The letter dated November 28, 2013, further mentioned that “Bakshi, through his express words and conduct, has repudiated the joint venture agreement.”



Bakshi, for his part, says McDonald’s had an ulterior motive to oust him since the time the Indian joint venture company started moving towards profitability. In 2009, CPRL had stopped borrowing from the banks and in the following year it became profitable for the first time, claims Bakshi. Till the middle of 2012, the Indian JV grew with its own money, and added close to 50 odd restaurants.

By November 2012, the JV agreement was amended to bring in more money into the business from the American and the Indian partner for further expansion. In early 2013, Dave Hoffman, president of Mc-Donald’s APMEA (Asia Pacific, Middle East & Africa) division, wrote to Bakshi, “hoping to work shoulder to shoulder to realise the dream of India,” according to the former CPRL managing director. “In precisely eight months I was discarded,” he adds.



In his CLB filings, Bakshi alleged that during 2007 and 2008, “McDonald’s started attempting to usurp investments of CPRL unfairly, illegally and oppressively by armtwisting the Indian partner to sell (his) entire shareholding.”

In August 2008, McDonald’s for the first time offered $5 million to buy out Bakshi in the JV, he claims. Bakshi rejected the offer. “It was a ridiculous offer; $5 million is what I invested way back in 1995,” he says.



After three months, McDonald’s revised its offer to $7 million, but this too was rejected; Bakshi says he was open to a buyout provided it was based on a fair market valuation. McDonald’s, he points out, was in no mood for that.

In 2009, Bakshi commissioned Grant Thornton to fix the valuation of the joint venture; the firm arrived at a figure of $331 million.Bakshi expressed his willingness to settle for a deal anywhere close to $100 million. A team from the US visited India, went through a Grant Thornton presentation, but never came back, contends Bakshi. He adds that McDonald’s didn’t indicate that the offer was rejected. “So I was under the impression that the matter has been sorted out.”Two years on, another offer for a buyout came along, claims Bakshi, this time from Amit Jatia, vice chairman of WDL, which runs the south and west operations. His venture was converted into a development licensee in 2010 when McDonald’s sold its 50% stake to Jatia.While in a JV, the company puts in money for expansion of the operations, under a developmental license arrangement, licensees provide capital for the entire business, including the real estate interest, and the parent company invests no capital.“The west & south India region JV partner also went to the extent of saying that McDonald’s would not let Mr Bakshi function effectively if they refuse to sell out,” Bakshi had alleged in his filings. He also alleged that McDonald’s has been influenced by Jatia to take oppressive steps against CPRL.Jatia declined to comment on Bakshi’s allegations levelled against him. To an exhaustive mail sent by ET Magazine, a WDL spokesperson said that “the matter is internal to Connaught Plaza Restaurants and hence we cannot comment on it.”

Announcing the results of HRPL for the quarter ended June 2015, Jatia said that for the second year in succession the operating environment remained challenging with market growth under pressure. “We believe the worst is behind us and remain positive on the mid to long term opportunities available in the marketplace,” he said in a press release, adding that WDL is well positioned to capture the demand in the industry.

McDonald’s global team too declined to comment. “As this is an ongoing legal matter, it would be inappropriate for us to comment,” said Heidi Barker Sa Shekhem, vice president, global media relations at McDonald’s, in response to a detailed mail sent by ET Magazine.As accusations, allegations and charges fly thick and fast between the local partner and the global leader, it’s the Golden Arches that have been losing their sheen in India, say QSR experts and industry veterans.“To an outsider, it looks like a clash of ego between the local partner and the global brand,” says Sam Chopra, chairman of Cybiz Corp, which owns the master franchisee rights to the California-based premium burger chain Carl’s Jr. in India through subsidiary Cybiz Bright-Star Restaurants. “But there may be more to it than meets the eye,” he adds.Carl’s Jr. opened its first outlet in India early this month. Chopra reckons that because of infighting, McDonald’s is at a disadvantage against the likes of KFC and Domino’s as well as newer competitors like Burger King, Wendy’s and Carl’s Jr. “There can be problems when you have two captains on a ship as one can’t boss around over the other,” adds Chopra. The need of the hour is to smoke the peace pipe, he feels, and that the brand has enough resilience to be able to bounce back. “But for that to happen they need to get down from their high horses.”Chopra pitches for a master franchisee-based business model rather than an equity-based JV, as CPRL is. A local partner has a better knowledge and grasp of the market than a foreign partner who is best at technical know-how and brand operating skills. “An equal-stakes JV would work only when there are defined roles and proper coordination between the two partners,” he adds.Agrees Murali Krishna Parna, chief executive officer of Sagar Ratna, India’s largest South Indian restaurant chain. Normally in a conflict, when the arguments reach a point of emotional position, it is difficult to reconcile with logic. “And if this conflict happens to be in a business context, the brand suffers irrespective of who the winner is,” he says. Sagar Ratna had to contend with a controversy of its own when founder Jayaram Banan got into a tussle with the management led by IEP, a private equity firm, in 2012. The matter is still in the court.For his part, Bakshi acknowledges that he is “not an easy person to work with. I have ideas of my own, and I am not the subservient kind.” Observers also point out that Bakshi may also have got emotionally attached to the brand which, at the end of the day, wasn’t his own.A former CPRL employee points out that Bakshi may have rubbed the American partner the wrong way by going ahead with all-vegetarian restaurants in places like Amritsar and Jammu, and even delivering burgers on bicycles in Chandni Chowk for some time. Bakshi defends the idea. “In a country where close to 55% of people are vegetarian, is it wrong to have vegetarian restaurants, especially in those places where you can’t serve non-vegetarian because of religious sentiments,” he asks.“You may not like me for some things, you may not like my ideas or thought process, but you can’t say that I didn’t work for the brand,” he says. The brand, for now, is in peril. Devendra Chawla, group president, food & FMCG, Future Group , says that the brand that brought about a burger revolution in India is fast losing out to a new set of players and the changed market dynamics.“The American burger run has been disrupted by many new global cuisines fast food brands that are spoiling the consumer for choice,” says Chawla. He adds that it will be food innovation and consumer understanding that will now define the QSR landscape.Bakshi says he is privileged to have worked with a brand like McDonald’s but he is ready to move on, provided he gets a fair deal. “In life, you have to exit at some point.” Exiting at one’s own terms, though, is another matter altogether.