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US union blasts ‘mistreatment’ of McDonald’s China franchisees

By RJ Whitehead

- Last updated on GMT

© iStock
© iStock

Related tags: Hong kong, Food safety, Codex alimentarius

A powerful American union has launched a service to help McDonald’s franchisees in China protect themselves from the financial risks posed by the company’s proposed sale of its 20-year franchise rights, valued at more than $2 billion. 

The move is a continuation of an increasingly international campaign by the Service Employees International Union to expose alleged price gouging, anti-competitive practices, labour violations and tax fraud by McDonald’s.

The online McDonald’s China Franchisees Information Centre outlines the rights that McDonald’s small business operators in the country have to raise concerns about the potential impact on their business. 

McDonald’s recently announced a deal to sell its stores and master franchise rights in China to the American private equity firm, Carlyle Group, and Chinese company Citic. 

When the deal was first announced, Citic chairman Chang Zhenming said the company's "unique platform and its extensive resources will enable us to help realise McDonald's full potential in China​," and that "McDonald's extensive network and consumer base will provide us with invaluable insights, which we will leverage to the benefit of our existing businesses​."

The SEIU, which represents some 1,900 members in America and Canada, said the proposed ownership structure poses “serious risks” for Chinese franchisees. 

It said that the failure of McDonald’s to revel publicly the terms of the deal suggest it could “result in future conflict with​” and “mistreatment​” of businesses, as well as “negatively impacting communities and workers in stores​”. 

In an analysis published on the website, the union explains how the new “master franchisee​” could cut support to sub-franchisees or increase rent costs and other fees, citing reports that McDonald’s plans to charge royalties of 6% on sales—double those taken out of the country by Yum! Brands, and higher than the 5% royalties previously paid by franchisees in China. 

The union also warns that the burger giant’s plan to open 1,500 new stores over the next five years may also hurt existing franchisees who would be forced to compete with the new stores in similar markets. 

It advises franchisees of their rights to weigh in on the transaction and urges them to demand guarantees from McDonald’s that they will not face increases in royalties, rents and other costs, and that existing operators won’t face competition by new stores opened by the master franchisee. 

McDonald’s sale of its China and Hong Kong business has faced growing scrutiny since its announcement in January. One Chinese consultancy, Hejun Vanguard Group, has already complained to China’s Ministry of Commerce, while the Hong Kong Confederation of Trade Unions last month announced its objection to the sale, noting that the high royalties and onerous terms of the deal could have a harmful effect on McDonald’s workers. 

"McDonald’s master franchisee model allows it to reap significant benefits from its brand while avoiding costs and risks associated with running stores and supporting franchisees​,” SEIU executive vice-president Scott Courtney said. 

We believe franchisees in China, many of whom have invested their life’s savings in their business, should be well aware of their rights as McDonald’s plans to adopt a master franchise model that has negatively affected operators in other markets around the world​." 

More from China…

Hong Kong mulls adulteration code changes after 30 years

For the first time in more than three decades, Hong Kong food authorities have opened up a proposed amendment to its food adulteration code to public consultation.

Adulteration

The territory’s Food and Environmental Hygiene department last week put proposals for changes to adulteration regulations concerning the limit for metallic contaminants in food to the public over a three-month period.

They deal principally with recommended limits for carcinogens and other heavy metals at a time of growing imports to Hong Kong from China and other neighbouring countries. The current permitted levels have not been changed since 1983.

A spokesman for the department said the government had referred to international food safety standards set by the Codex Alimentarius Commission following a risk assessment conducted by the Centre for Food Safety.

Under the proposal, existing categories of "all food in solid/liquid form​," will be replaced with specific maximum levels targeting individual food or food groups, with more focused categories.

The move will increase the total number of maximum levels of metallic contaminants from 19 to 145. Ninety of these will be made more stringent, while six will be relaxed. 

The maximum cadmium level for polished rice, for example, is now set at 0.1mg per kilo, lower than the Codex limit of 0.4mg/kg.

The maximum level of lead allowed in a number of fruits and vegetables is expected to go down to around 0.1-0.3mg/kg from the current 6mg/kg.

The department said it would consider putting in place a grace period for the amendments to come into effect to give businesses time to implement the new standards.

The proposal is not universally popular, however, with one lawmaker criticising it for being “unscientific​”.

The Democratic Party’s Helena Wong Pik-wan warned that Hong Kong should not “lower any food safety standard just to match the level of exporting countries​”, adding that “economic benefit should not override public health concern​”.

Yet the government hopes that the impact of these changes on food supplies would be minimal.

It is not yet known when a bill will be tabled to the legislature following the consultation.

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