The Strategist

The European Commission Started Hunting McDonalds

01/14/2016 - 15:25

McDonalds Corporation is going to face serious troubles in Europe, since three consumer groups in Italy have filed an antitrust lawsuit in the EU, claiming that the fast-food chain uses illegal franchise conditions.

The complaint, which is supported by the American and European trade unions, alleged that McDonalds is abusing its dominant position in the market, harming consumers and taking advantages of its franchise network, exceeding market rates up to 10 times, thus making other brands not available.

All this happened a month after EU regulators conducted a full investigation in relation to fiscal policy McDonalds in Luxembourg, which found that the companies was avoiding paying taxes in amount of 1 billion euros ($ 1.09 billion). The investigation was also conducted in a number of other multinational corporations - tax evaders.

Nevertheless, the EU legal experts pointed out that the last complaint may undermine the dominant position of McDonalds on the European fast food market. Antimonopoly authorities’ check showed that the company is able to raise prices, not affecting consumer demand.

Three groups of consumer associations - Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva - say in a statement that "the restrictive conditions of the contract" introduced by the fast food network "will lead to increase in financial difficulties, financial performance lower than that of competitors and will increase likelihood of the franchise network’s default. "

This in turn will cause a decrease in consumer demand and quality of service, and then will entail an increase in prices, the groups claimed.

The European Commission, the main anti-trust authority in the EU, noted that it will consider the received complaints. After that, the body will decide whether to hold a full investigation, or dismiss the case. Companies found guilty of violating EU antitrust law face fines of up to 10% of total revenue.

McDonalds not immediately responded to a request for comment. The company stated compliance with the tax legislation in Europe and believes that the situation will be resolved positively.
In accordance with the legislation of the EU, companies that occupy a dominant position have a special responsibility that seeks to preserve competition in the market. However, experts argue that these companies in fact has no tangible obstacles in the market that would stop them from squeezing competitors.

Raffaele Cavani, lawyer of group of consumers who filed a complaint, said that McDonalds was "too powerful" fast food corporation in the market of Europe, with the market share of "above 30%, and sometimes above 70%." Such a situation in the market allows the company to dictate its franchise, what other brands are not able to do.

"This complaint is likely to lead to a number of serious problems, including the one that McDonalds, which occupies a dominant position in the market, will have to prove that the alleged behavior does not violate the EU antitrust laws ", - said Dave Anderson, expert at Berwin Leighton Paisner LP.

He also said that such statements can exist within national standards governing unfair competition, which differ from the EU’s antimonopoly legislation requirements and are better suited to cases involving allegations of misconduct at local level.

McDonalds has recently addressed issue of detachment of its vast holdings in the United States in a separate structure to enhance shareholder value. However in November, the company has opposed such a move, saying it would be too risky for the business model, according to which the company gets most of its revenue from franchising.


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