1

“The Golden Arches in India: A case of strategic

adaptation”

Course: EMB 690; Sec-01

Semester: Summer 2019

Prepared for Prepared by

M. Nazmul Amin, PhD Md. Jahid Hassan Bhuiyan- 1735031060

Adjunct Professor Md. Robiul Islam Sarkar- 1815269090

MBA & EMBA Program Sihintha Sabin Khan- 1735303090

North South University

Date of Submission: 26th July, 2019

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Table of Content

Particulars Page No.

1. Executive Summary 5
2. Introduction 6-10

7. Objective 1: Strategic & Management Issues McDonalds had to 10-21

Consider to Enter into India
External Environment Analysis 10-14

7.1 Economic Condition 10

7.2 Political & Legal 11

7.3 Global Context 11

7.4 Socio-Cultural 11

7.5 Demographic Segment 12

7.6 Technological Changes 12

7.7 Porter’s Five Forces Analysis 12-14

Internal Environment Analysis 14-16

7.1 Tangible Resources 15

7.2 Intangible Resources 15

7.3 Core Competency of McDonalds 15

7.4 SWOT Analysis of McDonalds India 16

17-21
Industry Environment Analysis
17-18
7.1 Barrier to Enter
18-21
7.2 Management of McDonalds
8. Objective 2: McDonalds Entry Strategy in India 21-24
9. Objective 3: Functional Strategies of McDonalds India 24-26
7.1 Developing the supply chain 24-25
7.1 Establishing an Export Base for Cheese 25
7.1 Planned Market Strategies 25-26

10. Findings 26
11. Conclusion 27
12. Potential Recommendation 27
16. References 28
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Letter of Transmittal

26th July, 2019

To

M. Nazmul Amin, PhD

Adjunct Professor

Department of MBA & EMBA Programs

Subject: Submission of a report on “The Golden Arches in India: A case of strategic

adaptation”

Dear Sir,

We are delighted to submit the group report as a partial fulfillment of EMB690: Strategic
Management Course. We have tried our best to portray the most accurate information within
the timeframe. This case has provided us the opportunity to relate strategic management related
concepts with the real-world practices. If we had not got the opportunity to go through the case
of McDonalds India, we would never be able to understand the real-world strategic
phenomenon that a company can experience in its’ lifetime.

In this regard, we have tried to above and beyond to complete this report maintaining the quality
as per your expectation. It would be really grateful, if you find this report useful and informative
and we hope you will appreciate our effort.

Sincerely,

Md. Jahid Hassan Bhuiyan 1735031060

Md. Robiul Islam Sarkar 1815269090

Sihintha Sabin Khan 1735303090

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Acknowledgement

Initially, we would like to express our gratitude to Almighty Allah for giving us the strength
and knowledge to successfully complete this project within due time.

We are really thankful to our Faculty Advisor M. NAZMUL AMIN, PhD, Adjunct Professor,
Department of MBA & EMBA Programs, North South University, for his direction, constant
and spontaneous support, efficient supervision and constructive suggestions. It would have
been extremely exhausting to prepare this report up to this mark, without his valuable
assistance. We consider this case as an amazing opportunity for creating a platform to gather
knowledge and valuable facts regarding Strategic Management.

Credit must go to all the group members, whose persistent patience and amazing capacity of
creative work, and long hours made the project both possible and successful under the pressure
of knocking deadline.

NAME: SIGNATURE

Md. Jahid Hassan Bhuiyan ……………………….

Md. Robiul Islam Sarkar ……………………….

Sihintha Sabin Khan ……………………….

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Executive Summery

This report portrays the business strategies of McDonald’s in India & how it applied their
strategies to interact with external environment. Porter’s five forces strategy has also been used
to analyze the unique characteristics of the Indian fast food industry and how McDonalds can
cope up with that. McDonalds by being a fast food company, have maneuvered its strategies
depending on the situation they were facing while competing in the Indian Market. The report
covers the barriers that McDonalds faced while entering into the Indian market and the methods
they used to confront that. It describes McDonald’s Business strategies that took place during
the banking crisis, which lead to global economy recession & how it affected the Indian
economy. The report also depicts the entry strategies that McDonalds followed while entering
into the Indian market. Lastly the functional strategies of them has also been discussed.
Through this analysis, it shows the factors influencing the company performance, coordination
between firms in the industry & their quality support services as well. Finally, some
recommendations have been suggested as well.
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Introduction
History of Indian Fast Food Industry

Food which is made and served quickly is termed “Fast Food”. While any meal with low
preparation time can be considered to be fast food, typically the term refers to food sold in an
outlet with low quality preparation and served to the customer in a packaged form for take
away. The concept of ready-cooked food for sale is closely connected with urban development
and has evolved with the changing lifestyles of the young Indian population. The sheer variety
of gastronomic preferences across the regions, hereditary or acquired, has brought about
different modules across the country. Some of the traditional Indian fast food dishes include
include vada pav, panipuri and dahi vada and the main reason for these being famous are the
lower processing and serving time. From the very beginning the fast food or street food which
is quickly and readily available are very welcomed by Indians. Hence, India was a lucrative
position for any local or international food chain to capture.

Figure: India’s famous street/fast food vada pav

Present Position of Indian Fast Food Industry

Fast food has been designed to be eaten "on the go", often does not require traditional cutlery and
is eaten quickly. Therefore, Fast Food outlets are take-away or take-out providers, often with a
"drive-through" service which allows customers to order and pick up food from their cars; but
most also have a seating area in which customers can eat the food on the premises.
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Along with the traditional street food these days the fast food items that India is enjoying are fish
and chips, sandwiches, burgers, fried chicken, french fries, pizza etc. India has now a growing
number of young professionals who are daily in need of these types of food. In addition to that,
the uprising middle-income class is becoming more health conscious and aware about their
living standards, which is why roadside fast food is becoming less and less attractive.
Therefore, an increasing number of international fast food chains rushing to India is because
all of them see tremendous potential in for this type of business. Entry of multinational
organizations like McDonalds, Pizza Hut, KFC made the fast food industry boom in Indian
market. The large upwardly mobile population in the urban areas tend to eat out more often or
business or for leisure. The growth in nuclear families, particularly in urban India, exposure to
global media and Western cuisine and an increasing number of women joining the workforce
have had an impact on eating out trends.

History of McDonalds

McDonalds started its operations in India in 1996 in Vasant Vihar, New Delhi, with a 50-50
joint venture partnership between McDonald’s Corporation (US) and two Indian businessmen
Amit Jatia and Vikram Bakshi. The company has evolved special menu in the vegetarian
category to suit Indian tastes and preferences. Taking in consideration the Indian culture, it
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doesn’t offer any beef or pork items in India. McDonals’s imparts world class training to its
employees. McDonald's, a name that instantly triggers a smile for its scrumptious burgers, has
a wide network of outlets throughout the country. Amit Jatia’s company Hardcastle Restaurants
Pvt. Ltd. owns and operates McDonald's restaurants in Western India. While Connaught Plaza
Restaurants Pvt. Ltd headed by Vikram Bakshi owns and operates the Northern operations.
Amit Jatia and Vikram Bakshi are like-minded visionaries who share McDonald's complete
commitment to Quality, Service, Cleanliness and Value (QSC&V). Having signed their joint-
venture agreements with McDonald's in April 1995, they trained extensively, along with their
Indian management team, in McDonald's restaurants in Indonesia and the U.S.A. before
opening the first McDonald’s restaurant in India. McDonalds has pioneered various industry
benchmark practices in terms of service quality over the past decade of serving Indian
customers.

Present Position of McDonalds

TYPE: Public
INDUSTRY: Fast Food
FOUNDED: May 15, 1940 in San Bernardino, California

FOUNDER: Dick and Mac McDonald

KEY PEOPLE: Jim Skinner (CEO), Ralph Alvarez (President and COO)
HEADQUARTERS: Oak Brook, Illinois, USA
NET INCOME: $2.602 Billion USD (2008)

SLOGAN: i’m lovin’ it

McDonalds India Pvt. Ltd. (MIPL) was formed as fully owned subsidy of McDonald’s in 1993
and went into a joint venture with Connaught Plaza Restaurant Ltd. (CPRL) and Hard Castle
Restaurant in 1995 but the first outlet was open in October, 1996 in Delhi. McDonald's in India
is a locally owned and managed company run by Indians, employing local staff, procures from
local suppliers to serve its customers. This vibrant decade has seen McDonald's evolve Indian
menus, Indian sensitivities and yet remain as globally innovative as ever. This journey has seen
McDonald's develop a rich brand identity amongst its customers and employees as well as
partners alike. McDonalds had 430 outlets in India CPRL and Hardcastle Restaurants. But in
2017 MIPL have terminated its joint venture with Connaught Plaza Restaurant Ltd. In ground
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of breach of contract and 169 outlets were closed that were run by the CPRL. This was the
biggest loss that they have faced in India till today.

Products & Services:

McDonald’s India has a single mantra: providing 100% total customer satisfaction and the
formula for achieving this goal is the long-standing commitment to the McDonald’s Promise.
The company is well known for the high degree of respect for the local customs and culture.
McDonald’s has developed a menu especially for India with vegetarian selections to suit Indian
tastes and preferences. Keeping in line with this, McDonalds does not offer any beef or pork
items in India. In the last decade it has introduced some vegetarian and non-vegetarian products
with local flavors that have appealed to the Indian palate. There have been continuous efforts
to enhance variety in the menu by developing more such products. McDonald’s have set up
their menu development team to come up with suitable menu for Indian market back in 1991.
By 2001 they have customized 75% of their menu based on local demand and taste. They
offered two lines of food. One for vegetarian indicated with green dot in a green square and for
non-vegetarian item a red dot in red square for easy understanding of their customers.

Figure: Fast food served by McDonalds

The main items offered by McDonalds in India are; Salad Sandwich, Veg Pizza McPuff,
McAloo Tikki Burger, McVeggie Burger, Veg Surprise, Chicken McGrill, McChicken
Burger, Filet-O-Fish, Chicken Maharaja Mac, Paneer Salsa Wrap, Chicken Mexican Wrap,
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Fries, Beverages, Value Meals, Combos, ice-cream etc.

Major Competitors

The main reason behind the success of the multinational chains is their expertise in product
development, sourcing practices, quality standards, service levels and standardized
operating procedures in their restaurants, a strength that they have developed over years of
experience around the world. There are many international food chains are in India these
days, which create an immense competition for McDonalds in India. Some of its competitors
are; KFC, PIZZA HUT, DOMINOS PIZZA, COFFEE DAY, BARISTA.
Objectives

The reason behind solving the case was to identify the objectives that was provided. The first
objective was to identify strategic and management issues that McDonalds had to consider to
enter into Indian fast-food industry. Then their entry strategies were the second objective to
identify. Then the functional strategies pursued by McDonald’s to Establish its Strong Foothold
in India was the last objective that was needed to be identify.

Objective 1: Identify strategic and management issues that McDonalds had

to consider to enter into Indian fast-food industry.
External Environment Analysis
Environmental analysis is a strategic tool. It is a process to identify all the external and internal
elements, which can affect the organization’s performance. The analysis entails assessing the
level of threat or opportunity the factors might present. These evaluations are later translated
into the decision-making process. The analysis helps align strategies with the firm’s
environment.

There are 2 types of Environmental analysis; one is external and another one is internal.
External environment analysis deals with the factors that are outside the firm. There are several
methods through which external environmental analysis can be done. Some of them are listed
below;

Economic Condition
Economic factors include factors that affect consumer purchasing power and spending patterns.
To a large extent economic trends depends on government policy and regulation towards
businesses and marketers because of the way they affect consumer spending power. In periods
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of relative prosperity, a consumer’s disposable income will be relatively high and, therefore,
there is a willingness to spend more money. Price becomes a less sensitive issue for customers.
India is a gigantic subcontinent with the population of one billion which is fourth time larger
than United State. Among them, 300 million estimated as middle class group. Indian economy
exhibits it’s per capita GDP US $400 approximately which quite low. After adjusting
purchasing power parity (PPP), per capita GDP (2000) turns to US $2540. India is ranked fifth
largest economy in the world and third largest GDP in Asia. India’s food expenditure is US
$77 billion in 2000 where world food spending was US $4000. So, the scenario obviously
signifies that frequent purchasing power is present in major cities though India has poor
infrastructure.

Political & Legal Environment

Political factors include laws, agencies and groups that influence and limit organizations and
individuals in a given society. The dimensions being evaluated include the government attitude
to foreign markets, the stability and financial policies of a country and government
bureaucracy. India is a democratic country of 1 billion populations. Government structures
consist of two layers of parliaments and they are provincial and central parliament. The
government system is stable and formed by democratic election. Armed forces are neutral and
have no straight involvement in politics and civil society. Government body and administration
follows Bureaucratic system. Supreme Court is the highest most judicial body of India. High
court, District court and Session court are also present to serve justice to the community.

Global Context
The economic system has historically modeled on socialist structure since the independence in
1947 which is not investment friendly environment. Since 1991, India began deregulating their
economy to invite foreign direct investment and MNC yet socialist mind set had not been
eliminated entirely. Under this circumstance, many multinationals had rushed by the attraction
of serving a large middle class but most of them failed with their initial strategies and forced
to reposition. Even few MNC had to close their show room.

Socio-Cultural Environment

Since the independence in 1947 from British colonization of 200 years, Indian culture is anti-
western by mentality which make business environment difficult for foreign direct investment
or MNCs. Indian community maintains conservative socio culture, belief and norms. From
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religion factor, 80% of population is Hindu who does not take beef and 12% of Muslim
community does not take pork. 40% of population in India is vegetarian. Almost 50% of
population in India is illiterate. 20 major languages with 800+ dialects are found in this large
country where 8 individual languages are used for official purposes. By the influence of ancient
Indian culture and modern knowledge, Health activists, Environmentalists, Animal welfare
activists etc. perform as pressure group.

Demographic Segment

India is a country of 1 billion populations where 20 different language and 800+ Dialects are
seen. Among them 300 million people are in middle class who have almost common food
intake habit. 80% of population is Hindu who does not eat beef meat. 12% of population is
Muslim who does not take pork. Almost 40% of population is vegetarian.

Technological Changes

Technological factors include forces that create new technologies, creating new product and
market opportunities. It is based on considerations as to whether the local market has
sufficiently developed technologies to take full advantage of the product. Technological
developments have made international travel and communication more accessible to
consumers and led to a situation in which social habits and fashions change much quicker.
Moreover, lifestyles and attitude changes cause changes in product demand and how products
can be sold to customers

Technology sector of India is improving but still the scenario is not satisfactory. Power/energy
sector is not equally developed in every part the country which is the factor that technology
achievement is contrasted area to area.

Porter’s five forces Analysis

Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of
your business environment, and for identifying your strategy's potential profitability.

Bargaining power of suppliers

For a globally renowned fast food company, a guaranteed supply chain of best quality raw
materials is inevitable. Hence, this projects an enormous threat for the company. To mitigate
this threat, McDonald's invested Rs. 500 million in supply network, distribution centers and
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logistics support even before they started their first restaurant. By mid-2000, this investment
estimated to Rs. 3 billion targeting the confirmation that local supplier, distribution and joint
venture partners and employees would match the restaurant chains quality and hygiene
standards before they became the part of this organization.

Threat of substitute products

Substitute products can be a reason for any company’s demise. Threat of substitute product is
high as various street foods and quick meal can be considered as substitute product. In response,
McDonalds not only confirm just a quick meal but also a quick service restaurant experience
supported by principles and core values. They tried their best to be non-substitutable in their
consumers mind.

Bargaining power of buyers

As there are plethora of fast food chains available for the consumers to choose from, the
bargaining power of them is relatively high. Therefore, an intense competition is seen between
local food retailers. They had been conducting business for years. Their knowledge about the
market, unique sense of local taste and affordable pricing make them competitive in this arena.
In response, McDonald intelligently adopt Indian taste and culture within their menu and cut
down the cost of the food targeting low income middle class.

Threat of new entrants

Severe bureaucratic infrastructure made it difficult for the new comers to hit on the market. As
a result, the threat of new entrants is low. Moreover, McDonalds overtook KFC in the Indian
market. KFC has stopped its business and closed its outlets in India for a long period and there
is no opportunity to expand as well. This is also a fact that failure of new entrants will
demotivate the business players to get involve in a new market.

Competitive Rivalry

There are number of players in the fast food industry in India, which indicates intense
competition. Moreover, the position in all the other forces also indicates the same. So, it can
be said that the rivalry in the market is relatively high, which made the industry attractive.
McDonalds being a major player successfully captured these issues.
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Bargaining power of suppliers

High

Competitive
Threat of new Threat of
Rivalry
entrants substitute products
High High
Low

Bargaining power of buyers

High

Figure: Porters Porter’s five forces Analysis for McDonalds India

Internal Environment Analysis

For going global Internal environment analysis is the first step for an organization. Internal
environment predominantly consists of tangible and intangible resources. For instance,
employee interaction with management, location, physical equipment, reputation, and
management interaction with shareholders, access to natural resources, brand awareness,
organizational structure, main staff, operational potential etc.
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• Launched 40 outlets within eight years of operation.

 State of the art supply chain by having indorsed and reliable suppliers.
Tangible • Healthy financing options produced accurate break-even point forecast.
Resources

• McDonald’s as a fast food brand is globally renowned.

 Knowledge of Indian society gained from its local joint venture partner.
Intangible  Knowledge of Indian government as well as existing law and policies.
Resources  Highly trained manpower

Figure: Internal Environment of McDonalds India

Capabilities
India is very strict about their cuisine, which can be a challenge for any multinational food
chain, while entering into the market. McDonalds on the other hand, with the help of their
extensive research on the Indian food culture, successfully addressed this issue and developed
a customized Indian version of McDonals’ menu.

Core Competencies
Core competencies refer to the combination of resources and capabilities that is the source of
competitive advantage for a company. McDonald’s has a number of capabilities that satisfy the
four-part test for a capability which turn to become a core competency. As the joint venture
has not yet reached to breakeven in 2003, the factor of added value is questionable. They are
more focused on exploration of opportunity rather than yielding above average profit
(compared to other McDonald’s franchises or JV regions). It is obvious that McDonald’s will
face losses on its first-year operation because of expensive advertising and promotional
expenses which also increase the pre-operating expenses. On early years of operation, it is
normal to stay in lose position due to the pre-operating expenses such as the cost of market
study, developing a supply chain, branding, piloting etc. Although McDonald’s is in the market
for almost 8 years it is still not considered as a mature organization. McDonalds’ core
competencies are listed below:

A worldwide recognized brand and receptiveness.

Aiming middle class population through high standard quality food with local taste,
low cost and comfortable environment.
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Offer suitability to the customers by adding local taste and culture in the menu.

SWOT Analysis

Strengths
 McDonalds is a community oriented, socially
responsible company.
 Successfully accustomed themselves as per
the Indian culture.
 One of the world's most renowned logos with
Ronald McDonald the clown.
 Affordable prices and high-quality products
 The world’s biggest marketer of fast food.
They have an efficient, assembly line style of
food preparation and supply integration.
 Joint venture to local partners will promote
sharing of risk and ability to combine the local
in-depth knowledge with a foreign partner
with know-how on technology process.
Weaknesses
 The concept of break-even will limit the
company from utilizing its resources to
attain higher profits in the future.
 Promote unhealthy food.
 There is no cost-benefit analysis before
entering into an investment.
 No profit on its existing outlets and the
stagnant financial performance of its parent
corporation (McDonalds USA) might halt
its expansion.
 Difficult to find and retain employees.

Threats
Opportunities
 Increase competition from local fast food
 Forming a better-off, satisfying experience outlets.
for consumers.
 Financial distress due to price risk.
 Locational expansion where demand is
potential.  Shifting customer lifestyle and taste.
 Expand Happy Meal choices to attract and  Fabricated stories about the quality of our
retain customers.
chicken.
 New set of menus that will exploit
inhabitants’ raw materials.
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Industry Environment Analysis

Barriers to enter into Indian market
In 1999, McDonald’s was rated as being the eighth most valuable brand in the world, ahead of
well-known brand such as Sony, Nokia and Toyota (Dallas Hanson, 2005). The Indian Fast
Food Industry has been growing consistently over the past 3 decades. There was a small
affluent class in the Indian population and the middle class was very big equaling to the size of
UK and Germany combined. The market of India was very attractive for any MNC to enter and
operate business. However, it was extremely difficult to enter the market and adapt with the
business environment in India. If we consider the food industry of India in 2000, we would
find that out of $4000 billion expenditure in the global food sector India alone would Spence
$77 billion (Dallas Hanson, 2005). Besides India’s GDP was on the rise and it was an emerging
economy. India has been named as one of the nations which is very unfriendly towards foreign
investments. However, when it comes to fast food, international chains are being warmly
welcomes by a young, upwardly mobile generation. (Bagri, 2014).

In 1991 Indian economy decided to open up to the Foreign Direct Investment through
deregulation of the economy but it was not easy to change the mind-set of the socialistic culture.
Being a country of one sixth of the world’s population, India was a huge potential for every
MNC. However, after opening up to economy it was the responsibility of the MNC to do their
bit. There are many examples which tell us about the difficulty of grabbing the Indian market.
For instance, KFC had excessive MSG levels on its product and it was closed for a long period
(Dallas Hanson, 2005). Again, it was mentioned that KFC faced political turbulence after
opening in the year of 1995 and closed down in the following year 1996. (Rangnekar, 2014)

Another example can be brought into consideration where Kellogg tried to introduce cereals in
India. Their products were excellent but they failed due to excessive pricing of the products
and also another point was that the cereals were to be consumed with cold milk but in India
people wanted to have hot milk. Both KFC and Kellogg have been a huge success though they
initially failed (Rangnekar, 2014).

Beside this the political condition in India is very much unpredictable and government very
strictly controls the entry and exit of MNCs in the country. The bureaucratic system is another
restriction in India. For instance, copyright in India meant the right to copy and hence the rate
of pirated products was in the increase. Therefore, the chairman of the Microsoft Corporation
India tried to decrease the number through consulting with the government and they found it
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to be very bureaucratic in nature and then one of the ministers told them to change their model
of doing business instead of trying to change the mind-set of the people of India. This somehow
made sense and adaptation process was on the move in Microsoft.

Therefore, the major barriers to enter the Indian economy for any MNC in the food sector
would be:

The political system

The diversified culture, language and norms

The different taste habits in different states

The poor infrastructure of the country which makes it very difficult for MNC’s to
develop a supply chain

The perception of the people towards western food, beef was sacred in India and there
were a very big number of people on vegetarian diet.

Adapt as per the Indian perception in order to do business in the beautiful country
(Strategic flexibility was the Critical Success Factor for McDonald’s India)

Targeting the appropriate customers

The technological boom in the present era

A price sensitive nation

These were the outcomes of the study of the external environments in India while operating a
big international food chain. And accordingly, the strategies needed to be set to operate and
derive something out of the Indian economy.

The Management of McDonald’s India

Again, when we consider the internal factors in McDonald’s we would find that, McDonald’s
India was a wholly owned subsidiary McDonald’s India Private Ltd (MIPL). The MIPL entered
into a 50:50 JV with Connaught Plaza Restaurants owned by Mr. Vikram Bakshi and
Hardcastle Restaurants owned by Mr. Amit Jaita.

It was very fantastic move by the McDonald’s to enter India because both of the members in
the JV had a very more or less good influence in the bureaucratic and political system of the
country. Now, the management of McDonald’s had faced many problems in regards to the
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diversified Indian culture. Though they had entered India through Delhi and Mumbai, they
have found positive spillovers around other localities due to its massive change in the food
menu.

Major problems faced by McDonalds while operating in India were-

2 different New menu boards (Indianization)

Supply-chain development (Enabling to maintain a minimum price)

Expenditure in the promotion

Long term strategy

Price determination (Low cost leadership)

CSR activities

Ensuring quality of the raw materials

Expansion

If we consider the resources, capabilities, core competencies, competitive advantages, value

chain analysis and SWOT analysis of McDonald’s India we would find that they are having a
very good and efficient management who are having an R&D since 1998 when McDonald’s
India made the first consumer survey in order to develop an acceptable menu (Dallas Hanson,
2005). McDonald’s India experimented the Indian market and developed their model of
servicing the customers in accordance to the outcomes of the results. So much rigorous was
their kitchen segregation from vegetarian and non-vegetarian that a person was kept in duty so
that materials from one zone does not enter the other (Roy, 2018)

“The first major challenge for new entrants in the market is menu differentiation and menu
creation, you have to come up with a good sense of taste and localization without
compromising your core product” said Mr. Sain of Everstone Group (Bagri, 2014). That is
what McDonald’s did in India where 75% of their menu were localized.

Credit goes to the management of the McDonald’s India, while implementing some unique
features of the supply chain managements like lean management, multi-layered supply chain,
cold chain, Hub and spoke system. Training programs like Supplier Quality Management
Systems (SQMS) and Distributor Quality Maintenance Program (DQMP) (Sharma, 2013).
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It was a great achievement to have suppliers from all 3 directions of India, like the buns from
Northern part, chicken & cheese from the Western part, lettuce & pickles from the Southern
part, the only exception was French fries which McDonald’s imported from Indonesia. By
1999, McDonald’s had 98% sourcing from inside India (Dallas Hanson, 2005).

The promotional offers were successful with the tours of the customers inside the McDonald’s
kitchen. Though some of the campaigns which had not been materialized like the New Zealand,
Opel Corsa cars and Lucky Ali concerts Macdonald’s reduced its advertising budget to 180
million Rupees after changing its slogan & theme in Hindi which went like, “Aaj McDonald’s
ho jaaye & McDonald’s main kuch baat hain” (Dallas Hanson, 2005) .

This changing with time understanding the customers’ perception and needs McDonald’s were
able to top the Indian fast food industry by 2011. This customization to the Indian culture
created a homely feeling among the customers and they were able to say that it’s McDonald’s
India. This concept of accepting the international chain as one of its own not only gave
McDonald’s a positive impression but also played role in its expansion within the country by
adding value.

The resources and capabilities combined formed their core competency as a part of Indian food
culture. They were also very active in performing their social responsibilities in India. They
were participating in many social welfare activities like setting up Polio awareness booth in
Pune, upkeep traffic junctions, detoxify river, maintaining heritage spots and many more which
was also a milestone for them to work for India.

The low-cost leadership strategy was followed by the McDonald’s considering the
sensitiveness of the Indian people. As Vikram Bakshi, explained: “I will never be unaffordable,
as I will not be able to build up volumes” (Dallas Hanson, 2005). It was a very big management
issue to maintain the price level at a very low level. “Currently we are seeing consumer
sentiment to be weak, and our same store sales has been negatived this quarter. But I don’t
think you can form your long-term strategy based on an immediate event. Any brand looking
to enter the Indian market should not be looking at only this year to make their judgment call”
said Amit Jaita (Bagri, 2014).

Another very recent issues of McDonald’s India were that it would close 169 outlets out of its
430 outlets in India due to breach of franchise terms by Mr. Vikram Bakshi, Managing Director
of Connaught Plaza Restaurants (AP, 2017). Dr. Mohan said that the type of food habit that
 21

McDonald’s is offering to the Indian people is detrimental for health (Bagri, 2014). Having
pros and cons McDonald’s has been able to pave its path in India and has become an icon for
other MNC’s that how to operate business in India.

Objective 2: McDonald’s Entry Strategy in India.

The McDonald's Corporation's business model is slightly different from that of most other fast-
food chains. In addition to ordinary franchise fees, supplies, and percentage of sales,
McDonald's also collects rent, partially linked to sales. McDonald’s India was incorporated as
a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into
two 50:50 joint ventures: one with Connaught Plaza Restaurants Pvt. Ltd. in the Northern &
Eastern region and another with Hard Castle Restaurants Pvt. Ltd. in the Western & Southern
region. McDonald's India (North & East) does not offer a franchise. In India, McDonald’s is a
joint-venture company managed by Indians. The two companies either buy or take premises on
a long-term arrangement.

McDonald’s search for Indian suppliers started as early as 1991. Its initial challenge was to
develop local suppliers who could deliver quality raw materials, regularly and on schedule. In
the five-and-a-half years until start-up, McDonald’s spent as much as Rs500 million (US$12.8
million) to set up a supply network, distribution centers and logistics support. By mid-2000,
some estimates placed the total investment in the supply chain at almost Rs3 billion. Local
suppliers, distributors and joint venture partners and employees had to match the restaurant
chain’s quality and hygiene standards before they became part of its system.

Surveys commissioned by McDonald’s, showed a large eating out market in India with an
increasing propensity to spend by customers. Indians wanted to taste American fast food, but
it could not be a substitute for Indian food. Hence adapting McDonald’s menu to Indian tastes
was critical if they were to succeed in India. One aspect unique to India was that half its
population was vegetarian for whom a separate menu had to be created. The average Indian
had limited purchasing power hence large investments had to be made to entice a trial at an
attractive price.

Although McDonald’s had done product adaptation to suit local tastes and cultures in several
previous ventures, such as the Teriyaki Burger in Japan, rice dishes in Indonesia, noodles in
Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India
was significantly greater. McDonald’s replaced its core product, the Big Mac, with the
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Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid
offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows
as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In
addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the
McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken
kebab sandwich. It also offered spicier sauces, such as McMasala and McImli (made from
tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries,
sodas and milkshakes, were in common with the rest of the McDonald’s system.

In 1998, McDonald’s India set up a menu development team to collect consumer feedback.
New items were developed and added to the menu based on consumer insights. Subsequently,
the team came up with its menu vision, and new products since then have been based on this
vision. Considering the sentiments of the local people, no beef or pork was introduced in the
menu and separate food lines were maintained throughout the various stages of procurement,
cooking and serving. A Restaurant Management System (RMS) was created for efficient
management of the operations. Separate kitchens for vegetarian and non-vegetarian food were
created in the restaurants with different uniforms for the kitchen staff. Separate areas for
preparation and wrapping were created. The vegetarian menu was printed in green and the non-
vegetarian menu in purple to clearly distinguish the menus. Customers were taken on kitchen
tours to build their confidence, since the hard-core vegetarians usually did not prefer to enter
places where non-vegetarian food was served. These extra steps were taken to assure Indian
customers of the wholesomeness of both products and their preparation. To convince Indian
customers that the company would not serve beef and would respect the culinary habits of its
clientele, McDonald’s printed brochures explaining all these steps and took customers on
kitchen tours to gain trustworthiness.

McDonald’s positioned itself as a family restaurant in India. The prices in India were less than
Pakistan and Sri Lanka and half the prices in the US. The average price of a ‘Combo’ meal,
which included burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a
Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger,
regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi).
McDonald’s Happy Meal (to attract kids, and the family followed), which included a
complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or
Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent
 23

product in the United States. The brand was differentiated on the platform of taste and variety
while the brand communication focused on the Indian adaptations and value for money.
McDonald’s products were competitively priced. Happy Meal (Small Burger, fries, coke+ toy)
for Rs 39, Quick bites for Rs 25, Medium Meal Combo- Burger, fries, coke- vegetarian for Rs
75 and non-vegetarian for Rs 94, and Soft serve ice creams for Rs 8, made the McDonald’s
experience affordable to Indians.

McDonald’s menu in India

Menu item Price(Rs) Menu item Price(Rs)

Burgers Happy Meals Quick Bites
Salad Sandwich 18.00 Cappuccino + Wedges 25.00
Veg Pizza McPuff 17.00 Cappuccino + Puff 29.00
McAloo Tikki Burger 28.00 Salad Sandwich 54.00
McVeggie Burger 34.00 McAloo Tikki Burger 64.00
Veg Surprise 18.00 Veg Pizza McPuff 54.00
Chicken McGrill 24.00 Value Meals
McChicken Burger 46.00 McAloo Tikki Burger 49.00
Filet-O-Fish 46.00 Salad Sandwich 39.00
Chicken Maharaja Mac 55.00 Veg Surprise 44.00
Paneer Salsa Wrap 40.00 Chicken McGrill Meal 49.00
Chicken Mexican Wrap 49.00 Meal Combos
Fries Filet-O-Fish Combo 89.00
Regular 20.00 Paneer Salsa Wrap Combo 82.00
Medium 26.00 Chicken Mexican Wrap Combo 92.00
Large 33.00 Chicken Maharaja Mac Combo 94.00
Beverages Desserts
Regular Coke/Fanta/Sprite Soft Serve: Pineapple/Vanilla 19.00
Medium Coke/Fanta/Sprite 17.00 Soft Serve: Cone 8.00
Large Coke/Fanta/Sprite 21.00 Soft Serve: McSwirl 12.00
Cappuccino 25.00 McShakes: Chocolate/Strawberry/Vanilla 30.00
Café Mocha 17.00 Apple Pie
17.00 24.00
 24

To fight its premium image among the public, the company undertook selective price cutting
and ran some periodic promotions. In February 1999, the company was offering ‘economical’
for as low as Rs 29. The company reduced the price of vegetable nuggets from Rs 29 to Rs 19
and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded
McDonald’s a healthy margin (40 per cent for cones). As Vikram Bakshi, explained, ‘I will
never become unaffordable, as I will not then be able to build up volumes.’ The lower price
could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range
local restaurants, and the development of a local (low-cost) supply chain.

McDonald’s promotional strategy specially emphasis on attracting children. A happy Meal film
has been consistently shown on the Cartoon Network and Zee Disney Hour. The company first
embarked on its first nationwide promotional campaign in June 2000. The campaign, budgeted
at Rs 100million, was expected to highlight the brand, food quality, and variety. The company
also ran special promotions during festivals and vegetarian days. McDonald’s held a children’s
painting competition across all its outlets in Delhi. 5000 children participated in the
competition and twelve paintings were printed and sold as greeting cards. The proceeds from
the sale of greeting cards would go toward restoring vision, through corrective surgeries, for
needy children.

Objective 3: Functional Strategies Pursued by McDonald’s to Establish its

Strong Foothold in India.
Developing the Supply Chain
Developing a strong supply chain is essential for the low-cost leadership strategy. McDonald’s
started to set up a pool of local suppliers, distribution centers and logistics support long before
they started their operations. They spent Rs. 500 million before starting operation and by mid-
2000 they spent a total of Rs. 3 billion. A focus on the restaurant chain’s quality and hygiene
standards were mandatory.

McDonald’s factually developed their local suppliers. In India a prime challenge was shortage
of iceberg lettuce. Eventually McDonald’s found out a local lettuce supplier and helped him
from seed selection to giving advice on farming practices. They helped import foreign
technology for another supplier of sesame seed buns. They invested in a supplier of cheese to
establish a milk procurement program which ultimately led to higher milk yields and improved
quality of milk. Therefore, the supplies of McDonald’s chain were geographically diverse. The
 25

sesame seed buns came from North India, chicken and cheese from Western India, and lettuce
and pickles from Southern India. 98% of all the ingredients and paper products needed to run
the restaurants were locally sourced by 1999. Only exception was the French Fries which were
imported from Indonesia. A total of 40 suppliers were in the company’s supply chain at that
time.

Each distribution centers of McDonald’s served 25 outlets from their position. The focus of the
distribution centers was quality of storage. To ensure the quality, McDonald’s Quality
Inspection Program (QIP) was used which checked all the goods that were delivered to
restaurants at 20 different points. They also adopted Hazard Analysis Critical Control Point
(HACCP) – which was a proactive system to prevent hazards rather than a reactive one. All
these were done by going into joint ventures with two local retailers.

According to Mr. Amit Jatia, the most important part of the supply chain was developing a cold
chain. It indicates that the process of procurement, warehousing, transportation and retailing of
food products have to be under controlled temperatures to ensure food safety standards. This
cold chain is part of logistics. McDonald’s contracted out their logistics support to AFL
Logistics, which is a joint venture of a local firm and McDonald’s international logistics
provider. They were responsible for the temperature-controlled transportation of all perishable
goods by rail, road or air from suppliers to distribution centers. Ensuring freshness of the food
was the focus of logistics. They even installed temperature trackers on their transport to ensure
it was controlled throughout the entire way.

Establishing an Export Base

McDonald’s started exporting cheese, lettuce and other products used in their burgers since
1999. They started exporting to Sri Lanka and were trialing exports to Hong Kong and Middle
East. Because of the planning and the success of developing the supply chain in India they
could locally source the ingredients as well as export it to other countries. Once the supply
chain was set up in a strategic location like India, it started to serve other countries from there.

Planned Market Strategies

McDonald’s had a positive market outcome from the very beginning of its operations. Its first
year of operation they served 6 million customer visits in their seven outlets in Delhi and
Mumbai. By December 2000 the total number of outlets increased by 46.
 26

In June 2002, McDonald’s had 38 restaurants operating at that time with an average of 4000
customer visits per day. It is notable that only 8 of its restaurants’ operations were stopped,
where KFC entered the market at nearly the same time had pulled out of the market in the year
2000. McDonald’s had a 15 per cent annual rate of increase in transactions over the past four
years. The average spending per customers was Rs 45. According to the customers, regular,
local or street-side restaurants/carts would cost Rs 25 for a kabab with all the sides, whereas,
they preferred having McGrill is providing a similar taste and satisfaction in a better lively
environment inside the golden arches. Where McDonald’s taste was stated as ‘bland’ few years
ago is now more preferable to the customers. To create this specific brand awareness and
customer acceptance, McDonald’s followed several planned market strategies:

The first strategy was to increase the seating capacity in several of its restaurant. In the fast-
food industry, they had low profit margin so the seeming way to increase profit was to exploit
all chances of economies of scale.

They planned to expand their branches to new cities and new locations. The locations included:

Inter-state bus terminal in New Delhi

Airports and railway stations
Busy highways and in petrol stations
Malls, multiplexes and cinema halls.

Their advantage was that the investment per outlet was lower in compared to the traditional
format of a fast-food store. They also had risks in expanding which they considered:

The expanding cities has lower per capita income and lower population density
There would be customer which did not match their usual target customer profile
The traffic generated at some of the places can be low
Maintaining quality and hygiene standards would be difficult.

Findings

After analyzing the case, some of the major issues there were identified, are listed below;

McDonalds efficiently accustomed the Indian culture both in their business model as
well as in their menu.
Although the market was large, the perception of the population regarding fast food that
are not traditional functioned as a hinder for McDonalds
 27

Due to infrastructural impediments McDonalds were not capable of using their

resources and capabilities appropriately.
McDonalds changed their entire business model just to enter in this humongous market,
which they have never done before.
Selective pricing strategy of McDonals for India was one of a kind.
In order to achieve economies of scale McDonals efficiently deployed their functional
strategies.

Conclusions
The main dilemma of McDonald’s was that expanding too fast would be risky when they have
not yet achieved the breakeven. They would be exposed to all types of market risks. But on the
flip side, their success in creating a reliable supply chain and creating a satisfied customer base
was indicating the opportunity to expand into other territories. McDonald’s took the risk the
next several years and succeeded in their operation across India.

Potential Recommendations
Additional investments by the parent company or entering into joint venture or
franchising agreement will help the company stretch its finances without sacrificing its
growth and potential earrings.
They can start home delivery services to get their products to customers’ home.
They can improve their feedback system to understand what exactly a customer is
looking for.
They should expand their business to the neighbor country of India like Nepal,
Bangladesh.
 28

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