McDonald's says franchise-right sale "win-win cooperation" after monopoly complaint

McDonald's restaurant in Yichang, China. Photo: AP

US fast food giant McDonald's said on Monday that its decision of selling the franchise right of restaurants in China is a "win-win cooperation", in response to a Chinese management consultancy which warned that the transaction will hurt the interests of workers and consumers.

Last week, Li Su, president of Hejun Vanguard Group, a Chinese management consultancy famous for fighting against monopoly behaviors of foreign companies on behalf of domestic firms, filed a complaint to China's Ministry of Commerce, in which its president elaborated on legal violations by McDonald's in China and called for stricter scrutiny over the American company's deal.

"Franchise model is a kind of win-win cooperation, through which McDonald's and its franchisees can work closely with each other in areas of staff training, supply chain building and destination marketing. The partnership will be beneficial to all parties involved, as our franchisees are making contributions to China's economic development," Regina Hui, vice president of communications at McDonald's China, told the via email.

Refusing to disclose the amount of royalties charged in China, Hui pledged that the franchise-right sale will not affect Chinese employees' welfare because the two sides "have long had a sound communication" since 2016 when the company announced plans to introduce strategic investors in China.

Hejun's submission comes a month after McDonald's sold the franchise right of its restaurants in the Chinese mainland and Hong Kong to the Chinese government-endorsed conglomerate CITIC Ltd, CITIC Capital and American private equity firm Carlyle Group in a $2.08 billion deal, which is under review by the ministry. The deal allows the two Chinese investors to own a controlling stake of 52 percent combined in a newly established joint venture, which will act as the master franchisee of McDonald's outlets in the Chinese mainland and Hong Kong for the next 20 years, while Carlyle Group and McDonald's will have 28 percent and 20 percent of the new company respectively.

In the complaint, Li squatted on the higher-than-average royalties McDonald's charges in China. "By abusing its dominant market status, McDonald's charges royalties of 6 percent of its sales in China, compared with an average 3 percent globally and 4 percent in the United States," Li said in the complaint.

Li continued to say that McDonald's violates China's franchise-related laws by failing to timely report the distribution of restaurants operated by Chinese franchisees to the watchdogs, adding that the trend will unfairly enhance McDonald's market share in China, where it grasped over 50 percent of the fast food market in 2015.

Wu Zhuanghui, the attorney agent of Hejun Vanguard Group, said that the Ministry of Commerce should take into consideration a third party's complaint when it comes to scrutinizing a transaction that may involve monopoly, according to media reports.

Since 2016, McDonald's has been assessing the ownership structure, targeting Asia including China as a key experimental field where it was planning to reduce the number of company-owned stores for the purposes of cutting operating costs and simplifying the process of policymaking.

According to a high-profile revitalization plan unveiled last year, the Oak Brook, Illinois-based firm was planning to open 250 new restaurants in China annually over the next five years, replenished with auction of its wholly owned outlets in the country, where there are about 2,600 locations, 1,750 of which are company-owned.

"McDonald's has put the plans of its China franchising business on record in accordance with the requirements of the Ministry of Commerce ... And the deal is waiting for an approval of the ministry's antitrust bureau" Hui said.

Previously, a US labor union had conveyed its worry that the sale of China's franchise-right might lead to poorer payment and working conditions for McDonald's 120,000 workers in the country

Carlyle Group did not comment on the's questions on the issue.

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