- The Wall Street Journal
BRUSSELS- McDonald’ s Corp. could face fresh regulatory headwinds in Europe after three Italian consumer groups filed an antitrust complaint with the European Union alleging that the fastfood chain imposes illegal terms on its franchisees. The complaint, which is supported by U.S. and European trade unions, alleges that McDonald’ s abuses its dominant market position in Europe and harms consumers by charging its franchisees rents that exceed market rates by as much as 10 times, and by limiting their ability to switch to other brands. It comes a month after EU regulators opened a full-blown investigation into McDonald’ s tax affairs in Luxembourg, as part of a widening inquiry into tax breaks for multinationals. The trade unions claimed that the company had avoided about €1 billion ($1.09 billion) in taxes by funneling royalties to Luxembourg. EU legal experts said the latest complaint might struggle to demonstrate that McDonald’ s has a dominant position in Europe’ s fast-food market, a legal test of its ability to raise prices without having an impact on consumer demand. The three consumer groups-Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva- argued in a statement that “restrictive contract terms” imposed by the fast-food chain “result in an increased prospect of financial difficulties, poorer financial performance than competitors and higher probability of default” for franchisees. That, in turn, leads to reduced consumer choice and service quality, and higher prices, the groups claimed. The European Commission, the bloc’ s top antitrust authority, said it had received the complaint and would look into it. It may decide to open a full investigation after inspecting the evidence or drop the case. Companies found guilty of violating EU antitrust law face fines of up to 10% of their global revenue. McDonald’ s said in a statement it was “proud of our franchisees” and committed to “the principle of sharing risk and reward”. That approach “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”, a spokeswoman said. The company has said it complies with all tax laws in Europe and is confident the EU’ s tax inquiry will be resolved favorably. Raffaele Cavani, a lawyer for the consumer groups, said McDonald’ s was “overwhelmingly powerful” in Europe’ s fast-food market, with a market share “consistently above 30% and sometimes as high as 70%”. That market power allows the company to impose conditions on its franchisees that other chains are unable to demand, he said. Under EU law, companies that are shown to have a dominant position in the market have a special responsibility not to stifle competition. Legal experts warned that this hurdle might not be met in this case. “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”, said Dave Anderson, antitrust partner in the Brussels office of Berwin Leighton Paisner LP. The allegations “may fit more comfortably under national rules governing unfair competition, which are different from the EU antitrust laws and are better suited to cases like this involving allegations of unfair bargaining at the local level”, Mr. Anderson said. McDonald’ s recently considered whether to spin off its vast real-estate holdings in the U.S. to boost value for shareholders. But the company decided against such a move in November, saying it would be too risky for its business model, which relies on rental income from franchisees for a big portion of its revenue. Consumer groups in Italy say pressure on franchisees leads to higher prices.
- ECONOMIA & FINANZA