Is McDonald's gouging its European franchisees?

A group of Italian consumer organizations filed an antitrust grievance with the European Commission over claims McDonald’s has been overcharging franchise owners for rent.

AP Photo/Gene J. Puskar
FILE - In this Saturday, Oct. 10, 2015 file photo, the sun sets behind a McDonald's restaurant in Ebensburg, Pa. On Tuesday, Jan. 12, 2016 the European Union said it will analyze an antitrust complaint targeted at the McDonald’s which accuses the fast food giant of abusing its dominant position by at the expense of both its franchisees and consumers. The complaint comes on top of last month’s opening of an EU investigation whether McDonald's received a sweet tax deal from Luxembourg.

In the wake of slumping sales some are attributing to a new American penchant for healthy eating, McDonald’s is now under fire in Europe for potentially violating antitrust laws.

A group of Italian consumer organizations filed an antitrust grievance with the European Commission, claiming McDonald’s has been price-gouging franchise owners and consumers.

The Citizen Defense Movement (MDC) contend the company is grossly overcharging franchise owners for rent, a cost they say is then passed on to consumers.

"This report shows how the anti-competitive practices and the management of the [company] harm consumers,” the group said in a statement posted online. “We urge the European Commission to examine the system of franchises of McDonald's and to take all necessary measures to put an end to the rules imposed to franchisees that generate consumer harm."

Three organizations called Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva launched the suit, which has the backing of the American Service Employees International Union (SEIU).

"We fully support the consumer associations which submitted the complaint,” said Courtney Scott, organizing director for the SEIU, in a statement. “The abuse of dominant position by McDonald's hurts everyone: the franchisee, consumers and workers. It is time that McDonald's will become the leading modern and progressive [company] it claims to be."

The MDC complaint alleges that the fast-food chain also uses its position as the largest landowner in the world to stifle European competition.

The complaint said McDonald’s charges  its franchisees up to 10 times rental market prices, while it gleans 66 percent of its profits from real estate. The grievance also claims the company uses “a series of restrictive contract terms with more distortion of competition.” Contracts average 20 years, which are double the normal period in Europe, according to Reuters

Through its franchises, the company brought in $9.27 billion in global revenues last year. About 75 percent of European McDonald’s are franchised, Reuters said.

"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," said Joanna de Koning, a McDonald’s spokesperson, in an email to Reuters.

The company also noted it has used the same business approach for many years, “which has helped create the best business opportunities for our franchisees and the best overall experience for our customers.”

"We are fully transparent about the costs involved in becoming a franchisee which include franchisee investment in restaurant equipment, seating, signage and decor, rent and royalties for the use of the McDonald's brand," the company said.

The European Union is now investigating the complaint to decide whether McDonald’s used its position to squelch competition, while the European Commission has also been examining the tax arrangements of numerous multinational corporations within the EU.

“No company is more responsible for driving a global race to the bottom than the Golden Arches, which has pioneered and perfected a brand of cannibal capitalism,” said Scott, the American union official.

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