McDonald's Corporation (MCD) Beefs Up Prices, Say Italian …
McDonald’s Corporation s (NYSE:MCD) New Year got off to an inauspicious start, this time with the antitrust regulatory authorities in Italy. This follows allegations made by three large Italian consumer groups, Codacons,MovimentoDifesadelCittadinoand Cittadinanzattiva. They claim McDonald s has been abusing its position of market leader to charge franchise rent up to ten times that other franchises. The complaint has received support from the U.S and European Antitrust regulators who have decided to look further into matter.
The groups say McDonald s also binds its franchisee into illegal contractual terms that leave little room for franchisees to take other options if available. Among other claims is the outsize royalties and rent charges mean franchisees must compromise on quality and charge higher prices to meet the expenses. Reuters quotes the grouping saying, “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.”
Figures from the group appear to show that in Bologna, 97% of McDonald s menu items had price rises at franchise-owned restaurants, compared to company-owned restaurants. At franchise stores in Rome, 68% of items had higher price. In Paris 71% of menu items had the higher prices. The complaint states, “This complaint is an important step in recognizing how anti-competitive practices and bad corporate citizenship harm consumers,”
If it becomes a full fledged inquiry, the complaint, could cause significant problems for the golden arches. EU legal experts suggest McDonald s leading position would allow it to alter prices without affecting demand, reports the Wall Street Journal.
The EU antitrust regulatory authority says it has received the complaint and will be looking into the matter. It could open a full inquiry or drop the case if the evidence is weak. If McDonald s is found guilty, it will be fined 10% of its global revenue under EU antitrust laws. That law says entities with a dominant market position have a unique responsibility not to suppress competition. This is the second time McDonald s has collided with antitrust regulators. The first was initiated in May 2015 in the EU, when trade unions claimed Ronald McDonald had evaded $1.09 billion in taxes.
For its part, McDonalds denies the claims, saying it operates all franchises according to the law and regulations – and it complies with all tax regulations.