McDonald’s has just been hit with an EU Antitrust complaint from Italian consumer groups. They allege that the popular fast food chain imposes illegal terms on its franchises, according to the Wall Street Journal.
Their complaint speculates that McDonald’s imposes a high rent rate on franchisees that exceed the market average by nearly ten times, and that they use their dominant market position to their advantage.
“McDonald’s exercises an excessive and disproportionate control on its franchisees by implementing conditions that exceed without justification what is required for the protection of its system, its know-how and reputation,” the group recently said.
McDonald’s was in the news about a month ago for tax affairs in Luxembourg. Market Watch reports that a tax deal, struck in 2009, may have illegally reduced the tax burden for McDonald’s.
“This complaint likely faces a number of serious uphill battles, including proving first that McDonald’s is dominant in a market, and even then, it must prove that the alleged conduct falls under and violates EU antitrust laws” says Berwin Leighton, partner at Dave Anderson.
Ninety-seven percent of menu items had higher prices at franchise outlets than at corporate owned restaurants in Bologna, the coalition argued.
“This complaint is an important step in recognizing how anti-competitive practices and bad corporate citizenship harm consumers,” the consumer groups said. “We urge the Commission to examine McDonald’s franchising system in detail, and take all appropriate action to ensure that the unfair burdens on the company’s franchisees end, and can no longer harm consumers.”
This is obviously not how McDonald’s sees it. They released a statement of their own recently, saying, “We are fully transparent about the costs involved in becoming a franchisee which include franchisee investment in restaurant equipment, seating, signage and decor, rent and royalties for the use of the McDonald’s brand.”
The Service Employees International Union backs these complaints. The union has two million members in the U.S. and Canada, and has recently pushed for a $15 minimum wage.
“We fully support the consumer groups in launching this complaint. McDonald’s abuse of its dominant market position hurts everyone: franchisees, consumers, and workers,” said Scott Courtney, SEIU’s organizing director. “We strongly urge the European Commission to investigate the charges and to use all of its powers to hold McDonald’s accountable.”
McDonald’s has undergone a massive brand overhaul in recent memory, trying to appear simpler and more conscious about their ingredients. Since last year at this time, Mcdonald’s shares were trading near the $90 mark, and today, they’re hovering just below the $120 mark per share.
“The progress we have made in a short amount of time gives me confidence we’re making the right moves to turn around our business and reposition McDonald’s as a modern, progressive burger company,” Chief Executive Steve Easterbrook said on a conference call.
All-day breakfast, as well as cutting down the menu items, may have helped McDonald’s boost numbers recently, but whether these new allegations will hurt the stock price of the popular company is something that will play out in due time.
“Our operational growth-led turnaround is focused on appealing to customers in the areas that matter most to them — great-tasting, high-quality food, convenience and value,” Easterbrook continued.
McDonald’s is faced with yet another set of challenges to overcome. Whether they need to change aspects of their overseas operations will become clear soon.
[Photo by Spencer Platt/Getty Images]