In The News

Franchise restraints: case-by-case approach means outcomes vary 10th October 2016

October 2016 – Deirdre Watson shares three lessons on the most recent High Court cases involving restraints of trade and good faith in franchising

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Top 10 franchises decline in US as others storm ahead 7th October 2016

The 10 largest franchise brands in the US collectively lost systemwide sales last year, after 16 straight years of gains. McDonald's was top of the list with a massive $5 billion-plus sales drop, while 7-Eleven, Subway, KFC and Pizza Hut also saw significant drops in y/e 2015 sales. However, many of these companies grew substantially outside the US, suggesting that the brands have reached saturation point at home.

The figures come from Franchise Times' Top 200, an annual report on US franchises. The news wasn't all bad, though - the other 190 franchise brands featured had an excellent year, up nearly 7 percent in what the report calls 'the best show of franchising force in 5 years.'

While year-over-year sales dropped at several leading brands, the picture brightened further down thFranchise Times Top 200 2016e list as franchised brands reached new heights with record-breaking sales, significant gains in unit counts and an ongoing push into new corners of the globe.

Outside the eye-popping declines posted by the largest brands, our Top 200+ ranking confirms that, unequivocally, franchised brands continue to grab an ever-growing share of the American economy. This year’s top 200 companies produced a combined $596.1 billion in systemwide sales during 2015.

Based on total worldwide system sales, our ranking rewards systems for how much they sell in a given year, rather than how many units they build. With Hertz dropping out of the Top 200+ and replaced by RE/MAX, the five remaining brands in the top 10 all saw healthy increases during 2015. Burger King added $287 million in new sales, Ace Hardware was up $557 million, RE/MAX added $1.18 billion, Wendy’s gained $405 million and Marriott Hotels and Resorts added $400 million to its top line.

Read more at http://www.franchisetimes.c...

Seminars – improving performance for franchisees and franchisors 27th September 2016


'Glimmer of good news' for Mad Butcher owner? 26th September 2016

A former director of Salvus Strategic Investments, which became Veritas Investments, has criticised the company for its high-risk acquisitions strategy saying there were no clear synergies between them. He welcomes some good news that the group's bankers have continued to support Veritas and suggests shareholders will be happy, but makes no forecast for Mad Butcher or Nosh franchisees.

Veritas' share price has been severely impacted by the disappointing performance of the four acquisitions. It closed the 2014 year at $1.25, the 2015 year at $0.48 and hit a low of $0.15 on Thursday.

It has subsequently recovered to $0.23 but has a sharemarket value of only $10.0m compared with the purchase price of just over $74m for the four purchases.

Ironically, the original Salvus shareholders invested $20.1m in the company and received over 80 per cent of their capital back, while Veritas shareholders have invested $25m but these shares are worth less than 20 per cent of their issued price.


Small businesses predicting bumper year ahead 23rd September 2016


What can you afford to buy in a franchise? 23rd September 2016

Before you start looking at any particular franchise, you need to know what’s possible. Philip Morrison explains how to evaluate your own financial position

Philip Morrison shows you how to examine your finances to determine the price range of franchise opportunities you can realistically consider, and how to evaluate the maximum price that you could afford to pay for a franchise

One of the results of rising house prices is that many people are using the increased equity in their homes to realise a dream and fund them into their own business. Franchises are particularly attractive to first-time business owners as they can be in business ‘for themselves, but not by themselves’. Having an established brand, proven business systems and specific training and support are all compelling reasons to choose a franchise.

Buying any business is a big decision that often requires a significant capital investment secured over the family home. It therefore demands careful scrutiny of the financial risks involved, as well as other factors such as family support, time commitment, relevant experience, your aptitude for business and your people skills.

The first step for any potential franchisee is to work out your personal equity or net worth so you can determine what franchise systems are realistically within your financial reach.

You can determine your personal equity by compiling a personal statement of financial position. This involves noting what you own – your large personal assets, such as your house or investment property – and deducting what debt you owe. The balance left over represents your personal equity. We suggest you only include assets valued at over $5,000.

In the example in figure 1, Arthur, our potential franchisee, has a house which has a current market value of $600,000, a car which has a current market value of $20,000, a redeemable life insurance policy with a current value of $10,000, and ... Read more


Business feedback sought to ACC levy changes 21st September 2016

ACC is asking New Zealand businesses to share their ideas about incentives that encourage safer workplaces and changes to ACC levies as part of a consultation process running to 19 October 2016.


Crowd-funding appeal from Aussie pizza franchisee 19th September 2016

A former Australian Pizza Hut franchisee has launched a crowd-funding appeal to fight for compensation after he claimed that price-slashing by the company caused him to have to sell pizzas for less than it cost him to make them. A previous attempt by a group of Australian franchisees to bring a class action against the company was thrown out by the Federal Court in March.

No such action has taken place in New Zealand where Pizza Hut master franchisee Restaurant Brands operates the majority of outlets itself. However, the Australian story has been repeated in the New Zealand media.

The master licence for Pizza Hut in Australia was recently acquired by a private equity firm. A different private equity firm, NBC Capital, was recently blamed for the decline of the Eagle Boys franchise by its founder, Tom Potter - see

Pizza Hut slashed the prices of its pizzas in 2014 to compete with rival Dominos, with its cheapest pizzas selling for A$4.95 (now A$5 - NZ$5.15). The cheapest pizzas currently sell for NZ$5 throughout New Zealand.

After a group of franchisees failed to get an injunction to stop the price cuts going ahead, more than 280 franchisees from across Australia began a class action against Pizza Hut's then-owner Yum Restaurants in 2015, claiming its aggressive pricing policies were forcing mum-and-dad operators to the wall.

Gordon said once wages, rent, franchise costs, royalties, marketing and delivery costs were taken into account, it cost him A$5.50 (NZ $5.67) to make a A$4.95 (NZ $5.10) pizza.

An estimated 90 percent of franchisees claimed losses and business collapses as a direct consequence of orders they slash the price of pizzas by up to 50 per cent, to take market share from rivals.

The class action, initially led by Sydney franchisee Danny Diab​, alleged unconscionable conduct under the [Australian] franchising code.

While Diab walked away from the class action, concerned for the impact it was having on his family (he declined to speak about the case to Fairfax, citing a confidentiality agreement signed as part of the settlement), the rest stayed – and lost.

Yum defended the action and in March the Federal Court threw out the class action.


Eagle Boys founder calls new owners' policies 'genocide' 14th September 2016

The Eagle Boys franchise in Australia entered Voluntary Administration earlier this year following a long period of decline under the ownership of private equity firm NBC Capital. Existing Eagle Boys franchisees have been vocal about the perilous state of their businesses. Now Tom Potter, the original founder of the business, has spoken out about the mis-management of the franchise under its new ownership and the changes it made to the core business which he said were ultimately 'genocide' to the business's franchisees. The full article makes compelling reading. (NB. the Eagle Boys operation in New Zealand was sold to Restaurant Brands in 2000 and absorbed into Pizza Hut)

He said once the new ownership and management took control they began to implement significant multiple changes to all aspects of the business along with the core marketing strategies of Eagle Boys, and in his opinion, these changes were ultimately 'genocide' to the business’s franchisees.

This included increasing prices and an attempt to re-position the company as a gourmet pizza brand, which only resulted in alienating long term loyal customers.

According to Tom, Eagle Boys’ key family target market who was interested in its $20 value meal became alienated and sales started to decline rapidly.

He explained that gourmet food is only a small percentage of the overall take-away food market at 5%, while fast food accounts for 60%, budget food 25% and QSR (Quick Service Restaurants) 10%.

In Tom’s eyes, another major mistake that the new Eagle Boys management made was replacing its ‘2 minute guarantee or it’s free’ commitment by watering it down to ‘2 minute express when it’s available’, and discontinuing the marketing altogether, which resulted in stores falling behind the expected standard and customers waiting longer.


What's next for The Coffee Club? 6th September 2016

The Coffee Club's master franchisees in New Zealand are looking at bringing in two more brands in 2017. The Groove Train and Coffee Hit are both sister franchises owned by The Coffee Club's Australian owner. Since it opened its first NZ store in 2005, The Coffee Club has been hugely successful here, with its 60th store about to open.

The Groove Train is described as an "urban dining experience" (think gastro bar), while Coffee Hit is an upmarket roasted coffee café (think Mojo).

[Master franchisees Brad Jacobs and Andy Lucas] have got an agreement in principle from the franchisor but are still assessing local franchisee demand for the more expensive The Groove Train which would have an upfront cost of about $1 million. They're also looking for suitable locations within shopping centres to get it started.

They've just signed another 10-year franchise with Minor DKL for The Coffee Club and plan to expand the chain to around 93 stores within the next seven to 10 years, mainly in regions outside of Auckland where most of their stores are based.


Another Mad Butcher store faces liquidation 6th September 2016

The Inland Revenue Department has filed an application to liquidate the business behind the Silverdale Mad Butcher store, the latest issue to hit the franchisor, NZX-listed hospitality company Veritas. The store was relocated in 2012 from central Orewa, where it had traded successfully for 12 years, to the still-growing Silverdale shopping precinct.

Veritas chairman Tim Cook said the company had been advised of the IRD action by the franchisee in Siverdale.

No outcome had been determined and wouldn't be until the hearing on Friday.

''Tax is a personal matter between the franchisee and IRD and as such neither Veritas nor Mad Butcher have any comment to make,'' Cook said.

''Once any outcome is known Veritas/Mad Butcher will determine what is required going forward.''


Women-only gym to go 24 hours 6th September 2016

Configure Express is set to introduce 24 hour opening with small Configure gyms to feed into the larger outlets. The announcement follows a number of closures and a split which has seen the four former Configure outlets in Wellington re-branding.

Configure Express managing director Greg Peters said gym requirements were changing and his business was following global trends.

People wanted shorter contracts and better availability, he said.

"The gym market has changed since we first set up and we were going in a different direction than other gyms."

Overseas the trend was for smaller gyms to feed into bigger gyms and he planned to open Configure 24 hours gyms to work alongside the Configure Express franchise.

There was still a market for female only gyms but his business had to make changes to be successful.

In some areas it was not possible for the gyms to follow the new direction, which led to closure and splits, he said.


Women-only gym franchise splits 30th August 2016

A group of women-only gyms in Wellington has split from the national Configure Express franchise. While both sides have insisted the split was 'amicable', neither will comment on the reasons behind it, citing a confidentiality agreement. In a statement, Configure Express says the move to 'part ways' was in the best interests of both companies.

The four former gyms on Willis St, Lambton Quay, Lower Hutt and Upper Hutt, have now rebranded as Revive Fitness.

Lambton Quay Revive Fitness general manager Sheree Cooper would not say why the company had left the franchise, citing a confidentiality agreement.

It would be business as usual for the gyms and members, she said.

Members were under contract with the owners of the gym and not the franchise, so their contacts would not change, she said. If they wanted to remain with the Configure franchise, she said members should speak to her on an individual basis.


Mad Butcher earnings down as Veritas posts loss 30th August 2016

The NZX-listed company that owns the Mad Butcher franchise is continuing to make the headlines after posting an audited net loss of $4.59 million in y/e June 2016. While the major loss stems from the end of a joint venture with the local Burger King master franchisee, three Mad Butcher stores have been closed. The performance of Veritas's Nosh Food Market stores, which it has been planning to franchise, was described as 'disappointing'.

The losses stem from the end of its Kiwi Pacific Foods venture, which supplied beef patties to the local Burger King franchise operator, Anatares Restaurant Group, a joint partner in the venture.

The deal broke down last year and was going through the courts before the two parties agreed to sell the assets.

A loss of $2.9m was recognised against this, while write-offs relating to the Mad Butcher cost it $2.35m.

Three Mad Butcher stores were closed during the second half of the year because they were "consistently unprofitable". In a statement, the company said the market was currently very competitive "with supply shortages creating challenges around product choice and pricing".

Veritas said the majority of stores were trading profitably but earnings before interest, taxation, depreciation and amortisation (ebitda) fell 28 per cent to $4.57m.


NZ’s international franchisors share their secrets - PODCAST 27th August 2016

August 2016 – Four of New Zealand’s top international achievers came together at the Franchise Conference for a gripping panel session on how to expand overseas. Their message? ‘Just do it!’

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Lessons from the 2016 franchise conference 25th August 2016

This year’s Franchise Conference in Tauranga was generally regarded as one of the best ever. Here's our review.

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Is it a bird? Is it a plane? No, it’s a pizza! 25th August 2016

25 August 2016 - Domino's to start trialling drone deliveries in New Zealand from next month

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One in three Aucklanders would consider leaving 24th August 2016

A poll conducted for website The Spinoff by research company SSI found one in three people (32.2 per cent) surveyed had considered moving away from Auckland in the last two years because of house prices, says the New Zealand Herald.

A further 36 per cent hadn't considered the option but thought it was a good idea. Auckland housing prices have risen by 85 per cent in the last four years, taking the average price to around nine times the average household's income.

Between the 2008 and 2013 Censuses, 32,184 people left Auckland for the Waikato, Wellington and Canterbury regions, while 29,301 moved to Auckland from those areas.

Economist Shamubeel Eaqub said there were two types of Aucklanders leaving for the provinces - retirees heading for cheaper areas like Tauranga and Northland, and families looking for a better lifestyle.

Since the 2013 Census, Auckland had become even less affordable, but the decision to leave the city was a challenge for some.

"The challenge for a lot of people is they're not able to get the same kinds of jobs or job security in other parts of New Zealand.

"That's [probably why] it's only a third of people saying they've actually considered it."

Download our latest issue to read more about business opportunities in the regions -


BurgerFuel to expand to US despite losing Subway 23rd August 2016

23 August 2016 - BurgerFuel has announced that it is to go ahead with its US expansion plans despite ending its collaboration agreement with Subway and Franchise Brands following the death of Fred DeLuca last year. The company said it would continue to maintain a close relationship with the group which still has a ten per cent holding in BurgerFuel as well as a position on its board.

"The passing last year of Subway founder, Fred de Luca, our key contact within the organisation and the ultimate vision behind the partnership, has meant that Franchise Brands and Subway's priorities have had to change," CEO Josef Roberts said.

"It is clear that for now they have their own challenges. Given this situation we felt that it would be best to seek an end to the operating partnership, which if not in full swing, only delays us from developing in the United States."

"We are confident that we will get something off the ground in America soon and that our goal of opening in the USA will still be fulfilled," Roberts said.

"Let's not forget we have a strong business, no debt and a significant amount of knowledge about doing business in the USA which frankly has been necessary to understand."

The company requested a release from its agreement which has now been granted. Roberts said while the outcome wasn't what the company wanted, it had to be adaptable to the circumstances.


Keep on truckin’, says NZ economic forecast 18th August 2016


Kiwi diners put off by dirty bathrooms but forgiving of slow service – survey 17th August 2016

17 August 2016 - Findings from a nationwide study suggest that most Kiwi diners (70 percent) prefer casual dining over a formal setting, and that excellent food is what will keep them going back to a restaurant time and time again.

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Cartels Bill to be amended to clarify franchising issues 12th August 2016

August 2016 – A law that could have badly affected franchisors and franchisees is to be amended.

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Field managers and community awards - last chance to enter 10th August 2016


Hospitality spending up; fuel down in July 9th August 2016


EmbroidMe celebrates 10 years in New Zealand 9th August 2016


Foodstuffs grows as Countdown slows 9th August 2016

As Australian-owned chain Countdown plans to close six supermarkets, Foodstuffs is planning to open seven new stores under its Pak'n'Save, New World and Four Square franchises - all outside Auckland. 11 other stores are to be refurbished.

Foodstuffs' general manager for property development, Lindsay Rowles, said many growth opportunities existed for retail development in New Zealand.

"Consumers are becoming more discerning about where they shop," said Rowles. "Some want more modern facilities and a wider range of products, while others are focussed on cost savings and environmental sustainability. We are well aware of all those factors, and are investing in order to cater for these needs well into the future."


McDonald's US to revise ingredients in 50 percent of menu 2nd August 2016

In a bid to address customer concerns, McDonald's US has announced plans to remove fructose in its buns, remove artificial preservatives from Chicken McNuggets and some breakfast items, and brought forward its ban on chicken (but not beef) raised with antibiotics. McDonald’s also has begun serving some of its milk and yogurt from cows not treated with an artificial growth hormone. But is it 'too little, too late' to reverse slowing growth trends in McDonald's homeland?

Once ubiquitous in products ranging from soda to ketchup, high-fructose corn syrup has fallen out of favor since scientists and consumer advocates identified a possible link between consumption of the compound and obesity and diabetes. Many food and beverage companies, including PepsiCo Inc. and ketchup maker Kraft Heinz Co. , already have removed the sweetener from products or introduced separate lines without it.

At a press event on Monday, McDonald’s supply chain chief, Marion Gross, said it takes time to make changes at a company with 14,000 U.S. restaurants. “It’s been a journey,” she said.

The chemical composition of high-fructose corn syrup, derived from corn, is nearly identical to that of sugar, and it is unclear whether natural sugar is indeed healthier. Medical research has reached conflicting conclusions on whether corn syrup causes weight gain and other health problems.

 The American Journal of Clinical Nutrition in 2008 published a paper concluding that there is no such link. But a 2010 Princeton University study found that rats that consumed high-fructose corn syrup gained significantly more weight than rats that consumed table sugar, even when their overall caloric intake was the same.


Franchisee profitability expected to grow - survey 1st August 2016


Mad Butcher disagrees with liquidator over franchisee failure 29th July 2016

The Mad Butcher's original store in Mangere failed because of 'unsustainable' sales costs, says the first liquidator's report. But a spokeswoman for Veritas Investments, the Mad Butcher's NZX-listed franchisor, said the company "disagrees strongly" with the liquidator's conclusions.

The Massey Rd store owes $465,014 to creditors, including $418,172 to suppliers and $18,264 in staff wages and holiday pay, according to the report by liquidator Peter Jollands, of Jollands Callander.

He said the liquidation appeared to have resulted from "unsustainable cost of sales giving insufficient gross profit".

The Mangere outlet is one of 10 Mad Butcher stores that have gone into liquidation, receivership or been closed down, according to Veritas.

Two of the stores that had been through liquidation were trading again and a third, in west Auckland, would re-open in around six months.


Court battle after franchisor takes over outdated store 28th July 2016

A franchise seeking to enforce a requirement for franchisees to upgrade their fit-outs turned nasty when the franchisor used a private security firm to take over a store after-hours. The dispute, which took place in Australia, has now landed in court and is reportedly causing other Nando's franchisees in Australia to delay renovating their stores until it is resolved. Renovation to current standards is a common requirement under most franchise agreements.

Since the pair acquired the four venues between 2007 and 2011, Nando's has been trying to force the franchisors into making significant investment into the businesses. It is this the dispute centres on.

Nando's says the franchisees haven't upgraded the restaurants since they bought them, in some cases as long as nine years ago.

 "As a consequence, the fit-out and branding used in all four restaurants are out of date and not in line with Nando's current standards," business development manager Scott Hamilton says in an affidavit tendered to court as part of the case.

The company wants the franchisees to spend almost A$1.2m to refurbish the Narre Warren, Wareca and Braeside businesses, the documents indicate.

The case has become a key test in head office's ability to force franchisees to invest in their business, Hamilton's affidavit says.

"A number of franchisees in the Victorian market have already raised the pending litigation... as a reason to delay their own refurbishment works".

 Franchisees have a requirement to upgrade and invest in stores when head office "reasonably requires" them to do so written into their franchise agreement, a counterclaim filed by the company says.


FANZ turns 20 in style 28th July 2016

July 2016 - The Franchise Association's 20th birthday went off with a bang as over 100 people gathered to celebrate.

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Macca’s trials McDelivery in Auckland 27th July 2016

July 2016 - McDonald’s NZ has confirmed its McDelivery service will be trialled at its New Lynn and Glenfield restaurants in Auckland.

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McDonald's US sales disappoint 27th July 2016

Although McDonald's is still achieving global sales increases, performance in the US is continuing to disappoint investors. Sales rose 1.8 percent at established US locations in the quarter ending June 2014, despite the introduction of all-day breakfast - something which places additional strain upon operations.

Jefferies analyst Andy Barish said he believes an increase in competition will keep pressuring sales growth in the restaurant industry. He wrote in a note to investors that people's options for eating out or dining in "have increased tremendously," particularly with the emergence of smaller chains and independent concepts.

 Chains are also pushing more deals to attract customers amid the intensifying competition. Wendy's has been promoting a "4 for $4" deal, while Burger King recently said it would start a promotion for $1 hot dogs.

To boost results, McDonald's has been closing underperforming stores. It ended last year with fewer stores in the U.S., its first contraction after decades of expansion. It is on track to shrink its domestic store base of more than 14,000 again this year.

Globally, McDonald's said sales rose 3.1 percent at established locations. That included a 2.6 percent increase in the division that includes established markets like the United Kingdom, Canada and Australia. The high-growth segment, which includes China and Russia, saw a 1.6 percent increase.

For the quarter, McDonald's earned $1.09 billion, or $1.25 per share, including a 20-cent negative impact from restructuring charges. Analysts expected $1.39 per share, not including one-time items.


Festive coffee cups help young artists win $9,000 for schools 27th July 2016


Franchisors finalists in EY Entrepreneur of the Year awards 26th July 2016


Maccas shuts down website after customer offensive 22nd July 2016

McDonald's New Zealand has been forced to close down its new Make Burger History website after customers made a range of offensive and bad taste suggestions for product names on the design-your-own-burger web page. The Stuff website suggests the problems have 'left the company red-faced', presumably because it under-estimated the immaturity and stupidity of its users.

The company launched its "Make Burger History" site this week, as part of a new promotion where customers can "build your own unique burger" and get free fries and a medium soft drink.

"Just come in to a participating 'Create Your Taste' McDonald's and order your Creation at the self ordering kiosk," McDonald's promised.

But its failure to consider what pranksters might dream up online has left the company red-faced, with the website overrun by racist, homophobic and otherwise offensive suggestions. The page now redirects to the McDonald's homepage.



Original Mad Butcher store closes 18th July 2016

The very first Mad Butcher store in Mangere, Auckland, has closed, with intense competition from supermarkets being blamed for the demise of a store which was a top performer just three years ago. Howver, Tim Cook of franchisor Veritas Investments has said the problem lies with the franchisee, not the business model.

"Despite many offers to help and a rent holiday being negotiated on his behalf, the [current] franchisee has been unable to turn around a consistent slide into poor performance," Cook said.

He said the franchisee was offered a "top performing proven operator free of charge" and an advertising package to help turn the business around.

"This was rejected by the franchisee," Cook said, adding that he had been surprised by the liquidator's lack of understanding of the state of the business.

"It is a lesson for all franchisee businesses that you can't simply buy a business and expect good performance to be maintained if you are not working in and on the business."


Domino's robot kerbs enthusiasm 7th July 2016

Domino's driverless pizza deliverly robot has hit a few snags - like kerbs and crossing roads. It hasn't slowed down the company's plans for new store openings in New Zealand, though, especially in Christchurch.

The vehicle, based on United States military hardware and input from Australian defence contractor, Marathon Robotics and other advisers, was a four-wheeled vehicle with compartments "built to keep the customer's order piping hot and drinks cold whilst travelling on the footpath at a safe speed from the store to the customer's door".

It was able to navigate from a starting point to destination, selecting the best path of travel, the marketing said. "His on-board sensors enable him to perceive obstacles along the way and avoid them if necessary."

Domino's wants to spin its robot wheels in New Zealand, where law covering the rollout of driverless technology is less rigid. Australia allows testing of semi-autonomous vehicles but not the unguided type that Domino's has in mind.

It hoped to start an DRU trial in this country in the first half of 2017, Bush said


Tracking franchise performance – breakfast meeting 27th June 2016


McDonald's registers McDelivery trademark in NZ 26th June 2016

McDonald's has registered the 'McDelivery' trademark in New Zealand consisting of a golden McDonald's arch zipping along on a skateboard.

Big Mac deliveries have taken off in Australia, with customers able to order online after setting up an account with the fast food restaurant. The online account can be set up to allow super-fast reordering with a "save your favourites" function.

There is no McDelivery option on the New Zealand McDonald's website, but the McDelivery logo has made an appearance on the Government's Intellectual Property Office's register of trademarks this month.


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