McDonald's Clashes With Franchisee, To Shut 169 Indian Stores

Per a recent Reuters report, McDonald’s Corporation (NYSE:MCD) intends to close all 169 outlets in India’s northern and eastern regions due to a dispute with the concerned franchise partner — Connaught Plaza Restaurants Pvt Ltd.

Reportedly, the franchise violated certain terms of the agreement, including the payment of royalties. Therefore, all the outlets under this franchisee will no longer be allowed to use McDonald's name, trademarks, designs, recipes, and branding within 15 days of termination notice. Further, it will lead to about 6,500 job losses.

The move also follows the company’s prolonged legal squabble with Connaught Plaza that led to the shutdown of more than 40 restaurants in June.

Meanwhile, shares of McDonald’s have widely outperformed its industry year to date. While the company’s shares have rallied 30.1%, the industry gained 5.7%.

Ever since the company’s CEO, Steve Easterbrook, announced a turnaround plan a string of changes has been implemented on the restaurant chain as well as on its menu. This was done in an effort to rejuvenate the brand. The company since then, has reported better sales and profits by trimming costs, simplifying menus, offering value meals and rolling out digital initiatives.

Currently, McDonald’s operates over 37,000 restaurants in more than 100 countries, of which about 85% are franchised. With less than 500 outlets, India forms relatively small part of the chain. However, as the country is one of the world’s leading emerging markets, disruption in operations here will not bode well for the brand's long-term growth. Shutting down stores here compromises McDonald’s share in the country’s booming quick-service restaurants space where the company is already facing stiff competition from contenders such as Domino’s Pizza, Inc. (NYSE:DPZ) as well as YUM! Brands Inc.’s (NYSE:YUM) Pizza Hut and KFC brands.

Nevertheless, the company has already started looking out for another partner to fill the gap in the region.

McDonald’s presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked restaurant stock from the same space is Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) that has surpassed estimates in each of the trailing four quarters, delivering an average positive surprise of 30.5%. The company currently carries a Zacks Rank #2 (Buy).

Zacks' 10-Minute Stock-Picking Secret

Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.

But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.

Learn the secret >>