Neville Lahiru
Following the news of McDonald’s winding up operations in Sri Lanka, Abans PLC has issued a statement claiming that the group isn’t the franchisee of McDonald’s in Sri Lanka. In a letter addressed to the Colombo Stock Exchange (CSE), the company points out that the local franchisee is its Managing Director Rusi Pestonjee’s International Restaurant Systems as opposed to Abans itself. “International Restaurant Systems (Pvt) Limited is not a subsidiary nor an associate of Abans PLC or its parent company Abans Retail Holdings (Pvt) Limited,” the statement further reads. However, the letter reads as misleading and only raises more questions, particularly given the history around Abans and McDonald’s.
What happened
The Colombo Commerical High Court issued an enjoining order that effectively prevented Rusi Pestonjee/Abans from continuing to operate McDonald’s in Sri Lanka. The lawsuit resulted in the closure of all 12 McD outlets along with its local website and social media pages. Additionally, court filings reveal that six of the McD outlets may have been run illegally.
The order is only effective until the 4th of April and it’s unclear if the franchise will resume operations anytime soon. Sanath Wijewardene, a lawyer for McDonald’s stated that “the parent company decided to terminate the agreement with the franchisee due to standard issues.”
According to the Daily FT, a spokesperson for the franchisee claims the lawsuit pertains to the sale of shares and not due to hygiene-related issues. The spokesperson added that the franchisee will be contesting the enjoining order since as per the agreement “Pestonjee is required to sell only up to 50% ownership of the local franchise entity but McDonald’s is demanding 100%.”
As of now, the McDonald’s Corporation has removed Sri Lanka from its list of global franchise markets, although Wijewardene believes that it “may decide to return with a new franchisee.” Amid the current development, the group clarifies the franchise isn’t part of Abans PLC or its parent company.
Abans isn’t the McDonald’s franchisee?
As per its latest statement, the actual franchisee of McD in Sri Lanka is International Restaurant Systems. An article from 2019 states that Abans divested McD franchise rights to International Restaurant Systems in 2007. However, the same article in Daily FT (supposedly the original version) shows no reference to 2007. Additionally, the name International Restaurant Systems doesn’t show up on any of Abans PLC’s financial statements until its annual report for 2020/21. Currently, Abans Group Managing Director Rusi Pestonjee holds a little over 98% of the company.
Contrary to the statement, the presence of McDonald’s in Sri Lanka has been entwined with Abans since the opening of its first outlet in Kollupitya in 1998. Despite the company’s effort to distance itself from the debacle, the trail of evidence still points the finger at Abans.
Exhibit A
For years, the company has made it a point to state that the group owned and was responsible for McD in Sri Lanka. In its financial statements as recent as the 2022/23 annual report, the company mentions that Abans Restaurant Systems was the first Sri Lankan retailer to franchise an international fast food restaurant chain (McD).
It’s worth noting that Abans Restaurant Systems isn’t specifically listed under Abans Group’s company structure in any of its financial statements. However, an investment valued at LKR 5 million by Abans Group has been in the records since its public listing in 2014.
Exhibit B
In addition to the 12 outlets, the local McDonald’s website was also taken offline as part of the closure. Interestingly, an archived version of the site dating June 2023 specifically mentions Abans Restaurant Systems as the sole franchisee of McDonald’s in Sri Lanka.
Further, any online orders that were placed via the now-defunct website would always send an email receipt via an Abans Group address.
Exhibit C
The website may be shut down, but the McDelivery Sri Lanka apps remain online on Android and iOS. While the Google Play Store app reflects International Restaurant Systems as the app’s publisher, the Apple App Store continues to show Abans Restaurant Systems.
Exhibit D
Least of all, it doesn’t help Abans’ case when some of these McD outlets are literally next to Abans showrooms. In fact, it’s often in the same building.
Unanswered questions
The McDonald’s fiasco leaves many questions unanswered. For instance, Abans states that International Restaurant Systems isn’t part of the Abans Group and that it doesn’t hold franchise rights to McD in Sri Lanka. But if the original McD franchise license was divested to International Restaurant Systems in 2007, why was Abans Restaurant Systems continually listed as the franchise operator to date?
Further, Daily FT’s original article strongly suggests that the 2007 reference might have only been added later to the company’s site. There’s also no reference to the name in any of its financial documents until the annual report 2020/21. After all, why would a publicly listed company at Abans’ scale divest one of the world’s biggest-known IPs to a private individual who also happens to be the Managing Director of Abans PLC?
Typically, any notable changes and updates within a publicly listed company are disclosed to the CSE. However, CSE’s website shows no indication of Abans disclosing the circumstances around McDonald’s Sri Lanka franchise rights given its close association with Abans. The disclosure only came out in light of public criticisms over the handling of the McD franchise. If so, how would the CSE account for the turn of events with Abans and McD, especially considering how the fast-food chain was closely integrated with the company since its early days in the country?
Additionally, the continual operation of the six McD outlets with expired/non-existent licenses indicates that consumers were possibly offered non-standard McD food at international rates. Where does consumer protection come into play? Should the fast-food chain reopen in the future, how would the operators offer assurance to prospective customers?
More importantly, what are the repercussions of Abans Group’s fraudulent actions?
Update: Added context to Abans’ claim regarding International Restaurant Systems gaining McD franchise rights in 2007.
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