Italian Anti-Trust Probe of McDonalds

Traveler1Three Italian consumer organizations have urged EU antitrust regulators to investigate McDonald’s (MCD.N) franchise system in Europe, a month after the opening of an EU inquiry into the U.S. fast food company’s tax deals with Luxembourg.

Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva filed their complaint with the European Commission on Monday, urging the EU competition enforcer to step in and look at a system, which they alleged was anti-competitive. “The system construed by McDonald’s raises strong concerns under antitrust laws,” the group said in its 46-page complaint. Franchising is a key business model for the world’s largest fast food chain. The company made $9.27 billion in revenues from its franchised restaurants worldwide last year, accounting for about a third of overall turnover. Franchisees operate about 75 percent of McDonald’s outlets in Europe.  At issue are 20-year contracts which are twice as long as most other franchises, a requirement that licensees lease premises from McDonald’s at above-market rates and conditions hindering them from switching to competitors, the group says. “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.

It said the restrictions hinder competition and lead to consumers paying higher prices in franchised restaurants. It cited a survey which showed 97 percent of menu items cost more in franchises than in company-operated outlets in Bologna, while in Rome the figure was 68 percent and in Paris 71 percent. McDonald’s dismissed the criticism. “We are proud of our franchisees and are committed to working closely together so that they 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 franchisees and the best overall experience for our customers.” Commission spokeswoman Lucia Caudet said: “The Commission can confirm it has received the complaint, which it will now look into.” The Italian consumer groups are backed by the Service Employees International Union (SEIU) and European trade unions, whose complaint about suspected tax avoidance by McDonald’s prompted the European Commission to open an investigation into its tax arrangements with Luxembourg in December.

The Commission is investigating the tax arrangements of multinational companies across the EU. “McDonald’s abuse of its dominant market position hurts everyone: franchisees, consumers, and workers. We strongly urge the European Commission to investigate the charges and to use all of its powers to hold McDonald’s accountable,” SEIU organizing director Scott Courtney said. It is far from certain that the Commission will open a second investigation into the company. Complaints are usually followed by questionnaires sent to companies, after which the regulator determines whether there is cause for further action.