MCD McDonalds Corp

By Corinne Abrams 

MUMBAI -- Indian tax authorities have raided the offices of McDonald's biggest partner in India, another potential setback for the fast-food giant which was already locked in an ugly break up with its only other licensee in the fast-growing South Asian nation.

A spokeswoman for the income tax department said 20 locations connected to Hardcastle Restaurants Pvt. Ltd., which runs more than 270 McDonald's in the south and west of India, had been raided in the western cities of Mumbai and Pune.

Tax authorities were at the corporate office of Hardcastle Tuesday and Wednesday, a spokeswoman for the company said.

Hardcastle said it fully complies with tax laws and that the visit was "part of a routine survey being conducted by the income-tax department. They have certain queries and we are fully cooperating with them."

A spokesman for McDonald's India Pvt. Ltd., the master franchiser for the company in India, declined to comment on or share details of Hardcastle's agreement with MIPL.

McDonald's needs solid partners in India as the country is seen as one of the world's the last great untapped consumer markets.

Since its first restaurant opened in India almost 22 years ago, it has embedded its brand with the country's emerging middle class but now faces a surging amount of competition from local and international brands.

A north-south divide has also emerged in its restaurants, following a more than-five year battle to oust the managing director of Connaught Plaza Restaurants Pvt. Ltd., which runs 166 outlets in the north and east.

Following the lengthy conflict with Vikram Bakshi, the founder of the other franchisee, McDonald's last year ordered Connaught Plaza to stop using its brand. Mr. Bakshi says he won't stop running McDonald's outlets until he gets a fair price for his half of the joint venture.

A standoff has ensued, with McDonald's sending letters to suppliers informing them that they terminated their franchise agreement with Connaught Plaza, and Mr. Bakshi scrambling to fill gaps where they have pulled out.

While McDonald's had launched cafes and new products with Hardcastle in the south and west, Connaught Plaza's northern and eastern restaurants have no such cafes and operate on an older and shrinking menu.

The northern outlets still have the golden arches, Ronald McDonald and the signature Maharaja Mac, but some items are now unavailable. Happy meals are gone, Fillet-o-Fish is usually sold out, and Chicken McNuggets are now just labeled chicken nuggets, served in unbranded boxes with unbranded dipping sauces.

The Mumbai based Hardcastle had a much better relationship with the global chain. It is aiming for a total of 400 to 500 stores in the south and west by 2022.

Shares of Westlife Development Ltd., parent company of Hardcastle, ended up 0.95% Wednesday.

Vibhuti Agarwal in New Delhi and Debiprasad Nayak in Mumbai contributed to this article

Write to Corinne Abrams at corinne.abrams@wsj.com

(END) Dow Jones Newswires

April 18, 2018 10:01 ET (14:01 GMT)

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