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McDonald's faces EU grilling

January 12, 2016

The pressure continues to mount on the world's largest fast food chain. Already facing a potentially searing tax avoidance probe, McDonald's now looks headed for a grilling over its treatment of its franchisees.

A McDonald's restaurant in lower Manhattan, New York City.
Image: Getty Images/S. Platt

An alliance of Italian consumer groups backed by European and US trade unions on Tuesday filed a complaint with the European Commission against the Big Mac-maker, claiming it abused its power over franchise partners.

"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 said in its 46-page complaint seen by Reuters news agency.

The three plaintiffs - Codacons (Coordination of the Associations working for the rights of the customer), Movimento Difesa del Cittadino (Citizens Defense Movement) and Cittadinanzattiva (Active Citizenship Network) - also argued that McDonald's practices raised "strong concerns under antitrust laws."

For instance, the complaint cited a survey showing 97 percent of menu items cost more in franchises than in company-operated outlets in Bologna. In Rome, that figure was 68 percent and in Paris it was 71 percent.

Rents beat burgers

Also at issue are the company's contracts, which bind franchisees to a 20-year period - twice as long as most other franchises - while at the same time requiring them to lease McDonald's-owned premises at above-market rates.

According to the complainants, it is this real estate scheme, not hamburgers, that earn the company the most as two-thirds of its franchise revenue comes from rents.

The group said such conditions have made it harder to be profitable, leading to higher food prices and lower quality for consumers.

"McDonald's abuse of its dominant market position hurts everyone: franchisees, consumers, and workers," said Scott Courtney of the Service Employees International Union (SEIU), a US-based union supporting the legal action.

"We strongly urge the European Commission to investigate the charges and to use all of its powers to hold McDonald's accountable."

The SEIU also helped bring attention to an alleged sweetheart tax deal with Luxembourg. As a result, the EU last month launched a probe into the fast food giant's tax practices.

'We are proud'

However, McDonald's on Tuesday rejected any wrongdoing. "We are proud of our franchisees and are committed to working closely together so that they can have the support they need to operate their restaurants and their businesses," spokeswoman Joanna de Koning said in an email.

"This approach, with the principle of sharing risk and reward, has been successful for many years and has helped create the best business opportunities for our fanchisees and the best overall experience for our customers."

Franchises have long been one of the keys to McDonald's success, making up more than 80 percent of its 36,000 global restaurants. Last year alone, these accounted for about a third of the company's overall turnover, raking in nearly $9.3 billion (8.6 billion euros) in revenues.

European Commission spokeswoman Lucia Caudet on Tuesday confirmed that Brussels would look into the complaint. But experts believe it is far from certain that the watchdog will launch a second investigation into the burger behemoth.

pad/hch (AP, dpa, Reuters)