McDonald's faces competition complaint over franchise business in Europe

Three Italian groups allege that the restrictions McDonald's places on franchises lead to customers paying higher prices in stores

Three-quarters of McDonald's restaurants in Europe are franchises (Corbis)

Three Italian organisations have called for an investigation into McDonald's in Europe over its franchise agreement, alleging that the restrictions McDonald's places on franchises are "unjustified and illegal" and lead to customers paying higher prices in stores.

The groups filed the complaint with the European Commission on Monday, calling for an investigation.

Italian consumer organisations Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva have alleged that McDonald's abuses its position as a landlord by charging excessive rents to franchisees with prices up to 10 times above market rates.

They also claim that McDonald’s contract terms severely limit the ability of franchisees to switch to other brands, preventing effective competition between chains.

They also said that the operational risks forced upon McDonald’s franchisees by restrictive contract terms result in an increased prospect of financial difficulties, poorer financial performance than competitors and higher probability of default.

This cost is passed onto the consumer, the groups said. It cited a survey which reportedly showed 97 per cent of menu items cost more in franchises than in company-operated outlets in Bologna, while in Rome the figure was 68 per cent and in Paris 71 per cent.

Three-quarters of McDonald's restaurants in Europe are franchises. McDonald's made $9.27 billion in revenues from its franchised restaurants worldwide last year, which accounts for a third of its overall turnover, Reuters said.

In a statement, McDonald's 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. This approach, with the principle of sharing risk and reward, 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.”

In December, it was revealed that McDonald's tax deals with Luxembourg are under investigation by EU antitrust regulators. The Commission is investigating the tax arrangements of multinational companies across the EU.

Regulators are looking into tax deals that may have allowed McDonald's to escape paying taxes on European royalties in Luxembourg and the US. The investigation follows similar probes into Starbucks and Fiat Chrysler two months ago in which the two companies were ordered to repay £21.2 million because their tax deals were seen as unlawful aid.