Great article from Álvaro Rigal from El Confidencial.
http://www.elconfidencial.com/empresas/2016-04-10/franquiciado-mcdonalds-juicio-vinaroz_1180923/
Translation by Patricia Cañizares
Imagine that you are on holidays in Costa Azahar, enjoying the beaches of Castellón such as the ones in Vinaroz, Benicarló or Peñiscola, and that your children want to eat at McDonald’s. Opening the McDonald’s website on your phone, you come to realise that there is no McDonalds in a 25 kilometre radius.
But nevertheless, there is one. It might be difficult to see the great golden ‘M’ for anybody who is driving towards Vinaroz through the ‘Mediterranean’ road, the one and only N340, the longest in Spain. To understand why McDonald’s doesn’t want any of his clients to visit one of their restaurants you will have to know about Luis Cañizares, the franchisor that runs it.
Luis does not have the typical profile of a franchisor. He left a long executive career of high prestige and responsibilities in multinational companies such as Procter & Gamble, Douwe Egberts or Polaroid to obtain the “McDonald’s Dream”. ‘I was tired of travelling; my children only saw me once every three weekends. I wanted to settle down and have my own business’, he explained.
He didn’t choose McDonald’s for no reason, he was truly passionate about the company of the golden arches, his eyes lit up when he explained the system that developed Ray Kroc, the man who in 1955 bought the company of the Richard & Maurice McDonald brothers and turned it into a worldwide successful company. Without stopping for a second, he remembers with great excitement the first time he visited one of the McDonald’s restaurants with his father during a holiday in the United States, and how he precipitated to visit the first establishment in Madrid’s Gran Vía when it opened in 1981.
But after taking the decision of finally acquiring his own restaurant more than a decade ago, things did not turn out how he expected. Here is the following story:
Every McDonald’s franchisor pays the company a ‘unique canon’ in order to acquire the advantages of the so called ‘McDonald’s System’, meaning that Luis has to pay 17% of his gross billings. On top of that he is obligated to give up 4% of his sales to ‘publicity and promotion of the restaurant’. In order to comply that last rule, McDonald’s Spain created an association of franchisors called ‘COOP’, the origin of all the matter discords. All of the associates have to contribute with the 4%, and therefore the COOP corporation has an annual income of 40 million euros.
Even though the COOP officially is an association of franchisors, their acts prove that 90% of the restaurants involved, already belong to McDonald’s, in which Luis therefore ensures that “it is an extension of the company’s marketing department, and it is totally controlled by McDonald’s” and that the money that Luis should be investing to promote his sole restaurant is used for great national and international campaigns, which are already supposed to be paid with the ‘unique canon’.
The nightmare began when I abandoned the COOP.
Because Luis was already used to managing business concepts due to his former professional job experiences he realised that it was not beneficial to his business and that while belonging to the COOP they were “charging twice for the same services”. Due to the fact that the contract with McDonald’s does not obligate a franchisor to be a member of the COOP and that it is in fact, voluntary to be part of it, he announced that he would leave the COOP and use the 4% of his sales to promote his own restaurant at a local level.
Here is where the nightmare began. From that day on, the ‘rebel franchisor’ began to experience all kinds of obstacles created by the company, which announced that because he did not want to take part in the COOP, he did not have the right to benefit from many basic services, that Luis considers that are part of the ‘McDonald’s System’ of which he paid the ‘unique canon’ without any delay.
“I was very scared to leave the COOP, they said to me that they were going to deprive me from star products such as the Happy Meals and many more things. When I left I received a very harsh fax and I was afraid, because I had my kids, my mortgage…”, he remembers now while he speaks of the internal tensions. “In McDonald’s they are frightened to speak out loud, and when I got to a meeting, people began to avoid me, and I sat there alone, with no one around me. No franchisor wanted to be seen talking with me, even though they came to me in private”.
The list of difficulties Luis had to come across was long, and the removal of his restaurant from the list of restaurants online was only the tip of the iceberg:
To begin with, Luis did not receive publicity materials (‘translites’ and ‘muppys’) which are placed on the walls of the restaurant to display the menu, which is essential to fast-food restaurants. If a customer can’t see a specific product on the signs placed on top of the counters he will never order it, because of this, he had no other choice but to throw away gone off products. “The signs I have are from 2012, and my restaurant looks deteriorated” he noted. As a last resource, McDonald’s offered him a CD with the logos and images that were sent to a notary’s office in Barcelona for him to produce his own materials of advertisement.
McDonald’s said that, due to his removal from the COOP, Luis had to receive all of the special offers six weeks later than the rest of the franchisors. “They only send me what is obsolete” he explained. “Right now I am not aware of the special offers of products that I should have available in my restaurant, or the toys given in the Happy Meal. Kids come up to me asking for the toy in trend, the Skylander for example, and I am forced to say: ‘well no, look I only have this dinosaur book from last year’. And the day that I ask for a Ronald McDonald show they tell me that I have to present a short list of actors and a description of the show”.
The restaurant was excluded from discount coupon campaigns. In the coupons they specified “except Vinaroz”, until the text was replaced by “visit the restaurants available on the website”, where he is not present. Luis is also excluded from collaboration campaigns with Banco Santander, Coca Cola, Cepsa, or El Corte Inglés, and he is not aware of the financial aids given to other franchisors, because “they are discretionary”.
Luis also does not receive the campaign guide of the ‘KnowHow’, the recommended prices etc. Or he might receive them as a fax, because this way, he is only able to receive the informative, explanatory pictures in black. To make things worse, he is excluded from the McDonald’s Breakfast line.
A pending trial sentence
“I have spent the last five years preparing the lawsuit, studying the history, the system and the contract in detail” reassures Luis. “There is no one who knows it as well as me, and the contract is like a jigsaw”. Even though the lawsuit was presented in April of 2014, we are waiting for the judge’s sentence, but they didn’t have to wait until the case was resolved to see that McDonald’s has made several changes since then.
To begin with, the company has elaborated a new contract in which, now, it is obligatory for the franchisor to invest in advertisement through the association designated by the company, and that is states a ‘canon’ of publicity and confidentiality. On top of that, the presence of the international McDonald’s Corporation has practically disappeared in favour of McDonald’s Spain, even though in the trial it was declared that this change was not conferred by the corporation (apart from McDonald’s Spain, a lawsuit was also brought against McDonald’s corporation, but they did not appear in court).
There had not only been changes in the contract, but also in the structure of the company. Patricia Abril, president of McDonald’s Spain for 9 years, was named in September of 2014 vice president of the Business Development in McDonald’s Europe, a position which she only remained for 18 months before becoming a simple franchisor, after buying two restaurants in Palma.
The trial was held last 6th of October and in front of the jury they attended as a witnesses the board of directors of McDonalds Spain, including the former president, Patricia Abril; the financial director, José Sánchez Guerrero; the Regional Legal Counsel of South Europe, Luisa Masuet or the Director of the east region of McDonald’s Robert Ros. Every one of them, including the president of McDonald’s Spain, the Portugese Mario Barbosa, have been object of a complaint for false testimony already admitted in process, represented by Contiac Lawyers. In response, McDonald’s is declined to make any comments due to the pending case.
“The difference in relation to the majority of the trials that have anything to do with franchisors” explains Luis, “is that normally it is about a franchisor who is not earning money because the contract is unfair or because there is an arguable clause. But I only want the contract I signed to be obeyed”.
“There are many franchisors who are waiting”
The petitions of Luis in relation to justice are multiple ones and varied, in which some could end up having financial consequences for McDonald’s, whatever way they are resolved. Some are exclusively referred to a specific case, like the ‘punishments’ suffered because he left the COOP or unrepaired leaks that weren’t fixed in the restaurant, but others would be comparable to all franchisors in Spain.
For example, if the jury’s sentence says that all the payments made to the COOP were used for services which were already paid for through the ‘unique canon’ of McDonald’s system, the 412 restaurants managed by 135 franchisors in Spain would be entitled to claim back from the company the money they had been providing all along. “There is already a few number of franchisors that are looking out for the jury’s sentence, in case they have the right to claim back what is theirs”, assures Luis, who paid 582.000 euros to the COOP.
The same would happen if they state that there are franchisors who have received financial aid while others have not, something that shouldn’t be happening, since McDonald’s System technically ensures the equal treatment of all franchisors who pay the same ‘canon’, and like it has been done before, he would be entitled to claim back the money. In Luis’ specific case, if the reduction was applied to his restaurant like the one nearest to his, he should have been paying nearly 1.5 million euros less than what he actually was, from the moment he signed the contract, an amount that he is now claiming back.
But that’s not all, because the lawsuit is also made against Havi, the logistic operator of McDonald’s Spain. “They told me from the very beginning that Havi was an independent supplier, and we had a ‘gentlemen agreement’ stating that I had to buy their goods” Luis explained. “But when I fight with McDonald’s about leaving the COOP, I begin to have problems with them too, and after I asked them for an explanation they sent me a fax in which they confess that they are not an independent supplier, that who is selling the goods is McDonald’s”.
In other words, if it is decreed that Havi is not an independent supplier and that it is really McDonald’s who is selling the product, Luis is claiming back the money that belongs to him, that has been given to Havi throughout his years in the company, which in his case, is nearly 5 million euros, because he has already been paying it in the ‘unique canon’, and the payment would be duplicated and the rest of the franchisors in Spain would also have the right to claim back their money. “But if is decreed that Havi is an independent supplier, and that it is not McDonald’s, then If I buy the Big Mac sauce from them, and I pay them…then why do I have to sell it in my McDonald’s restaurant? I would be entitled to sell it to anyone I want, I could sell it to Burger King. When I said this during the trial, their lawyers didn’t know what to do”.
Luis Cañizares ‘The Rebel Franchisor’ is the only one who has come this far, but he wasn’t the first to leave the COOP. The pioneer who made this dangerous decision before Luis recognised that it was obligatory to belong to the Coop. This rapid change of opinion, gave us the intuition of existence an economic compensation in exchange of. “I am all alone, there has been franchisors who have been forced to sign a penalty of 300.000 euros if they declared in court against McDonald’s”, says Luis.
“This is not Luis against McDonald’s” he concludes,” This is McDonald’s against
McDonald’s, they are going against their own contract. I signed it and I want the contract to be fulfilled. But they have been giving me written statements that are saying the opposite of what they state in the contract, they haven’t studied my case. I am a little flea in the middle of a village in Castellón and no one can see me.”
Las goteras de McDonald´s 