Barriers to Entry

Slowing industry growth makes entry problematic

Threat of price retaliation

Established players enjoy high brand equity

High fixed costs and need for economies of scale

High marketing costs and training costs for new stores or franchises

Experience curve is important barrier but can be overcome by hiring of skills

from market

Facilitators of Entry
The propensity of final users to switch to other foods makes entry at the local
level relatively easy

Capital intensity can be bypassed by franchising after first store (restaurant)

On International markets, there may be little competition

Major chains may encourage imitation by local chains better understanding

local eating and consumption habits

Opposition to western chains

Initially, when the larger fast food chains first started to enter the Indian market,
they bore the brunt of domestic opposition to foreign investment. Even when
permission was secured to open an outlet, companies faced organised boycotts
and threats of violence. In one celebrated instance, a KFC outlet was closed for
breaching local hygiene regulations.
As late as 1998, the Hindu extremists of the Vishwa Hindu Parishad (VHP)
party campaigned against a new McDonald's outlet at Ville Parle in the Mumbai
area, initially against its supposed use of beef (untrue - McDonald's bowed to
Indian tastes and dietary practices by eschewing beef or pork in favour of using
mutton). Later the VHP took a 'swadeshi' line, accusing the company of taking
away local jobs. Ironically, local catering businesses did not support this
campaign - they saw it as threat to free trade
Domestic and International (BOTH)
The leading domestic fast food chain - Nirulas - has meanwhile been playing on
the fact that it has an extensive menu, insisting that other factors such as
restaurant ambience and the whole eating experience also make a big difference
to the customer. McDonald's, for instance, plays very heavily on the ambience
factor, combining it with affordability.

The international chains have also changed the concept of 'fresh food'. While
Nirulas still operates with a centralised kitchen in Okhla, Delhi, supplying the
food to all of its restaurants, others chains such as Dominos, Pizza Express,
Pizza Hut and Pizza Corner, hand toss their pizzas after the order is placed.
McDonald's has taken freshness to another plane all together, by establishing an
extensive cold chain system. For example the lettuce used in burgers is exposed
to the open air for less than six minutes, this makes sure it is as fresh as possible
when it reaches the consumer.

New entrant

The largest domestic and internationally reputed dairy product manufacturer

Gujarat Co-operative Milk Marketing Federation (GCMMF) has forayed into a
fastfood chain business very recently. Their brand has been a huge success in
India. The organisation now plans to set up around 2000 pizza parlours across
India. The basic idea behind this is to establish consumption of 'mozzarella
cheese'.

Industry sources reveal that the next largest competitor to McDonald's

worldwide, Burger King, is also eyeing India.

Fastfood chains spreading fast (Number New entrant

The largest domestic and internationally reputed dairy product manufacturer

Gujarat Co-operative Milk Marketing Federation (GCMMF) has forayed into a
fastfood chain business very recently. Their brand has been a huge success in
India. The organisation now plans to set up around 2000 pizza parlours across
India. The basic idea behind this is to establish consumption of 'mozzarella
cheese'.

Industry sources reveal that the next largest competitor to McDonald's

worldwide, Burger King, is also eyeing India.
 Fastfood chains spreading fast (Number of outlets)
Brand 1996-97 1998-99 2000-2001 2005
=========================================================
Dominos 5 28 60 100
KFC 3 5 Discontinued -NA-
McDonalds 3 15 30 80
Pizza Hut 2 10 15 30
TGI Friday 1 1 2 5
Pizza Express 1 1 2 4
Pizza Corner - 4 25 50

The above table indicates the way the fastfood chains are spreading in India.
McDonald's has plans to establish new outlets at the newly constructed
highways and expressways in and around Delhi. The only unsuccessful story is
that of KFC which did not blend well in the Indian market.

Challenges for international fast food entrants

Cold Chains in India are inadequate so sector entrants must have their own
system.
Raw materials sourced from India sometimes may not match the international
standards.
Continued competition from the culturally embedded 'artisan' sector.
A large majority of Indian consumer still prefer traditional style and ethnic
cuisine in restaurants