Hong Kong Labor Group Protests McDonald’s Store Sale

(Beijing) — A Hong Kong labor group said it is worried that local employees of McDonald’s Corp. could suffer under a plan to sell the company’s restaurants to local buyers — a fresh setback for the deal after a mainland group voiced separate concerns last week.

The Hong Kong Confederation of Trade Unions said it is concerned about the McDonald’s plan, announced last month, to sell 80% of its restaurant unit that includes the Chinese mainland and Hong Kong, plus 20-year franchise rights, to Citic Group and U.S. private equity firm Carlyle Group. The deal is still being reviewed by China’s anti-monopoly regulator.

McDonald’s previously owned most of its stores on the Chinese mainland and in Hong Kong, but is selling them in a bid to replicate the franchising model it uses in most of the rest of the world. That model sees third parties operate McDonald’s stores and pay franchising fees, allowing the parent company to focus on branding, marketing and product development.

But the model also has problems because it makes the company’s franchise partners look for ways to lower costs, which may result in lower wages and worse working conditions for employees, the HKCTU said.

“HKCTU has come to understand that when McDonald’s exits a market or sells a large stake of its business, the resulting model puts enormous pressure on franchisees, which makes it harder for franchisees to provide adequate pay and conditions for their workers,” the group said in a statement issued on Monday.

“The troubling franchise model McDonald’s announced for China and Hong Kong . . . has translated into financial and operational problems, poor returns for the shareholders of the buyers, conflict and neglect for the small-business owners that operate McDonald’s stores around the world, and poor working conditions for McDonald’s employees.”

A McDonald’s spokeswoman had no immediate comment on the matter.

McDonald’s and U.S. rival Yum Brands, operator of the KFC and Pizza Hut chains, have both recently conducted major overhauls of their China operations in a bid to revive sagging sales in one of their most important foreign markets. While McDonald’s moves to a franchising model for the region, Yum has spun off its China operations into a separately managed and publicly listed company, Yum China.

The Hong Kong union expressed its concerns after a mainland-based group voiced other worries last week over the deal. In that instance, Beijing-based consultancy Hejun Vanguard Group filed complaints to China’s anti-monopoly regulator that called for investigations into McDonald’s, saying the company charged franchisees higher royalties in China than other countries and expanded haphazardly.

The complaints might result in further regulatory scrutiny and delay the progress of the deal, according to a lawyer who handles cross-border mergers and acquisitions.

Contact writer Yang Ge (geyang@caixin.com)