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McDonalds India SCM

strategy

Dr Amit Rangnekar

McDonalds 2010
Market cap
Sales
Sales Growth
Net Profit
Outlets
Operates in countries
Total employees including
franchisees
Daily customers

McDonalds
$ 79b
$ 24b
6%
$ 5b
32,000
120
15 lakh
50 m

Fun facts
50m customers daily, 17b annually- 3x global
population
McCafe adds $1b profits annually, 14 thousand
McCafes globally
320m pounds / 150m kgs potatoes every year
560 million Big Macs a year.

Origin
1940s- Rick & Mac McDonald- McDonald Bros
Hamburger Stand, San Bernadino, LA, Ca
Large crowds- Burger 15 (4 cheese extra), /fries +
5 coffee + 20 milkshake within 1 minute
3 grill men only flipped burgers, 2 guys only
milkshakes, 2 only french fries, brothers +2 men at
the counter, 2 for packaging
Cheap, easy dinner, kid friendly

Progress
1954, Ray Kroc (52), went to McDonalds to sell
Multimixers
Kroc "This will go anyplace chain idea, appointed
exclusive franchising agent for $950- Kroc 1.4% on
sales, bros 0.5%
1955 McDonald's System Inc, standard practices,
consistency
Kroc bought strategic sites, leased to franchisees,
money, control
1956- 12 franchisees, 1960- 228, 1965, No1 US food

1 cup of Starbucks coffee= sugar, milk, coffee, cup


from 19 countries

Subway

Subway largest restaurant chain in the world


2010- Subway 33,749 shops, McDonald's 32,737
600 outlets only in LA area
McDonald's No 1 for 50 years
McDonald's- ads, franchising, penetration
Platform- taste and convenience
Subway- ads, franchising, penetration
Platform- healthier alternative, freshness, value,
variety
Formats- in hospitals, where other fast foods cannot
$5 foot-long- $3.5b in sales VFM

India 2010

Daily customers in India 2.75 lakh


82 million Buns
66 million Patties
2.1 million litres of Dairy Products
0.5 million kgs of Lettuce
0.12 million kgs of Curries
22 million litres of Sauces.

Expansion
$250m for 100 new restaurants pa for N5Y- in
India
Fast food industry growth @3x of Indian economy
Hardcastle now a licensee of McDonald's in India
30-40% growth
One minute guarantee of service
14 core suppliers, total 40
4 Distribution Centers, 40 cities, 217 restaurants,
650,000 customers daily
One outlets every 10 days in India for L3Y
31000 restaurants globally, 5,000,000 customers
daily
Informal dining out industry India $74b

Dedicated supply chain, source 99% products


from India
Strong backward integration up to farm level
Dominos Pizza, 1996, 275 stores in 55 cities
KFC, 1995, 46 restaurants in 11 cities (1/5 YUM!
Brands)
Nirulas, 1934, 62 outlets, 5 states
Pricing- Affordability by Bulk buying, long-term
vendor contracts, and manufacturing efficiencies.
Home delivery- 2004, Mumbai, launch web-based
delivery in 75 cities
Dominos Pizza (Bhartia owned Jubilant
Foodworks under master franchise agreement)

Dedicated supply chain, source 99% products


from India
Strong backward integration up to farm level
Dominos Pizza, 1996, 275 stores in 55 cities
KFC, 1995, 46 restaurants in 11 cities (1/5 YUM!
Brands)
Nirulas, 1934, 62 outlets, 5 states
Pricing- Affordability by Bulk buying, long-term
vendor contracts, and manufacturing efficiencies.
Home delivery- 2004, Mumbai, launch web-based
delivery in 75 cities
Dominos Pizza (Bhartia owned Jubilant
Foodworks under master franchise agreement)

Stages
1990-96

1996-03

2003-10

2011+

setting up

supply and aggressive scale and


quality
growth
penetration
systems

Pre launch
US teams- Indias logistics industry- effectiveness,
reliability, transportation, infrastructure

6 years to set up supply chain

Adaptability, religious sensitivities


New menus, vegetarians

Set up
MIPL
WS- Hardscastle- JV
NE- Connaught Plaza- Development
Licensee
Monitor, scrutinize, promote
McDonalds in India

Product Mix and sourcing


30-35 items
150 combinations / SKUs
Manageable inventory
Common items, limited
sourcing
Fewer products &
suppliers
40+ vendors
80% from core 14 vendors

Entry strategies
Brand/ Company

Franchisee /

Entry strategy

McDonald

Owner
Hardcastle &

JV

Dominos,

Connaught Plaza
Jubilant

Master

Dunkin Donuts
KFC, Pizza Hut

Foodworks
Franchisee
Yum Restaurants 100% subsidiary
Regional

Costa Coffee,
Cream Bell
Subway

Devyani Intl

franchisee
Master

(Jaipuria)
Subway Systems

Franchisee
100%

India

subsidiary /

McDonalds sold stake to JV


partner
Exited Hardcastle Restaurants (HRPL) 50:50 JV
after 15 years
Sold 50% South-West India stake to HRPL (Jatia
family)
Converted to franchisee
McDonald's- no investment, only lend brand
name, royalty, knowledge and help in training &
development
Global policy
HRPL- Freedom to grow aggressively and take

Restaurants
Street Food / Stalls 14%
Fast Food
Organised 47 %

Cafes / Bars 15%

Full Service
Restaurants 24%

Insights
Most of those eating out are
from the 20-30 age group closely
followed by the 15-19 section
p46
35% of Indians enjoy south
Indian cuisine, 27% North Indian,
and 24% Chinese. P46

Market Segmentation
Restaurant
Industry
Road-side location
No technical standards
No accounting
standardization

Unorganized

Full-Service
Restaurants

QSRs

Fine Dining

Take-away

Casual
Dining

Home
Delivery
Eat-in

22

Organized

Bars and
Lounges

Accounting Transparency
Organized Supply Chain
Quality Control
Sourcing Norms
Multiple Outlets
Dominated by Global Players

Kiosks/Carts

Highest growth segment.


Maximum Footfall due to increasing
traffic at airports, railway stations,
malls, multiplexes and supermarkets

Dominos
McDonald
s
Subway
Pizza Hut
Nirulas

Outlets
09 12
300 430
187 219

Cities
Food Type
09 12
70 95 Pizza
44 54 Western

183 300

26

160 200
75 150

37
10

KFC
Sagar
Ratna
Yo China

74
52

230
88

14
24

42

100

12

Bikanerwa
la

35

148

13

36 Sandwich,
Rolls
40 Pizza
10 North Indian
NV
40 Western
39 South Indian
Veg
15 Chinese
27 Namkeen,
Chaats

Position
Delivery
XP
Health
XP
Taste
XP
Taste
Convenien
ce

Taste

McDonald suppliers
Identify local Indian businesses, which share
McDonalds level of commitment and dedication
in satisfying customers by supplying them the
highest quality products.
Indian suppliers- expand business, access to
latest technology, exposure to advanced
practices, access to overseas markets
Diverse and multi layered
Food ingredients- 2 layers of suppliers
Tier II- Growers (lettuce, potato, poultry farms)
supply to
Tier I- processors (patties coaters, french fries,
potato wedges, sauces, batters)

Suppliers

Tier I
14 core suppliers who supply directly
Vista processed foods, taloja
Dynamix dairy
Ms Bector
Mix of local and global
Tier II
Forward ingredients to Tier I suppliers
Total 40 suppliers
Stellar performance expected
Quality maintain at their end
No legal signed agreements, handshake
relationships
One one supplier per product / item, no back ups/

We dont give any guarantee to our suppliers,


nor do they give us any guarantee. We do not
give any specific volumes to a supplier for any
timeframe just because the supplier is putting in
so much investment. At any given point in time,
any supplier can walk out of the relationship, and
McDonalds could be in a big soup. Similarly, the
company could also walk out on any of its
suppliers and almost certainly bring their volumes
down to a trickle. But this never happens because
the trust among them is very strong. Abhijit
Upadhye, Director National Supply Chain

Potato Farming
Pre launch- Rs. 450 crore investment in food
supply chain
Right Potato quality unavailable
McCain Foods, world's largest French Fry firm,
worked with farmers in Gujarat, Maharashtra to
develop potato varieties
McCain Foods, 1957, 100+ countries, $5.5b sales,
55 plants

Trikaya Agriculture
Fresh Iceberg Lettuce, only winter, now year roundTalegaon
Special herbs, oriental vegetables
Farm infrastructure - nursery, agri experts, High
quality seeds, drip irrigation, pre-cooling/ cold room,
refrigerated transport
Vacuum pre-cooling room- within 30 minutes of
harvesting
Cooled to 2C within 90 minutes
Refrigerated van- 1- 4C temperature, 95% relative

Vista Processed Foods, Taloja


Range of frozen chicken & vegetable foods
JV- Technical- OSI Industries, Food processing
technology
(blending, mixing, forming, coating, frying and
freezing)
Hi-tech refrigeration - 35 C- retain nutrition,
freshness
Clients- hotels, hospitals, caterers, corporates,
schools, colleges, restaurants, coffee shops

Dynamix Diary, Baramati


Supply cheese, JV Schreiber Foods US, orders
from Erie foods
Local milk collection, bulk coolers , electronic
testing and measuring instruments, access to
farmers, passbook
Model dairy farm, dedicated R&D, train, educate
on yields
Technology to market high quality, value-added
milk products
Milk, cheese, butter/ghee, skimmed milk powder,

Amrit Foods Ghaziabad


Milk and Milk Products for Frozen Desserts
Installed capacity of 6000 lit / hour for producing
homogenised UHT (Ultra High Temperature)
processed milk and milk products

Radhakrishna FoodlandDC
1993, Handshake agreement- Distribution
Centre
4 DC- Noida, Mumbai, Bangalore, Kolkata +
transportation
'Cold, Clean and On-time Delivery- freshness,
quality, delivery
Hub and spoke- 1 stop shop- Procurement, quality
inspection, storage, inventory management,
deliveries, data collection, recording,
reporting

DC efficiency
Calibrate performance, KPI
Admin- cases managed / man hour
Warehouse efficiency
Overtime
Transportation time
Truck utilisation
Turnaround time
Cases handled online
Sort issues together

Cremica Industries, Philaur, Punjab


Supply buns, batter, sauces, mayonnaise
Started with Mcdonalds
Now supply to McDonald's European, Asian
suppliers
National set up

Other suppliers
Except Foodland only Coke (own set up)and Buns
(perishables) sent directly to outlets

SCM fundas
Culturepartnership
and
collaboration
Each leg
equally strong
so foundation
stronger
Transparency
at both ends,
all plans shared

3 legged stool

Operators
Company
Suppliers

SCM
100% outsourced, locally
Perishability- product shelf life 2- 270 days
Supplier relationships- exclusive
Technology- all pervasive
Network- Food procurement, processing,
warehousing, transportation and retailing under
controlled temperatures
SCM Investment Rs 50cr before 1st outlet, Rs
300cr by 2000
New crops, agri and food processing practices

Cold Chain
Saves operational wastage, freshness, nutritionintegral to SCM
52% food products stored in 18C to 4C
70% through cold chain, even at Tier II suppliers
Multi temperatures trucks
Frozen foods- -18 to-25C, Chilled -1-4C, 3 doors- rear
+ 2 side
Dry products- ambient temperature
With a Cold Chain in place, there is practically no
need for a knife in the restaurant. Chopping & food

Local Sourcing
Food and supplies- local sourcing
Restaurants- local architects, contractors, labour
and material
Suppliers- expand business, access to
technology /practices / export markets

Dr Amit Rangnekar NMIMS

Distribution
AFL logistics- 50:50 JV AirFreight & FX Coughlinsuppliers to DC
4 DC- Match supplier production- deliveriesrestaurant needs
Aim to enhance quality of storage operations
Emphasis on economies of scale-storage volumes
high
QIP (Quality Inspection Program)- Quality checks20 SCM points

Dr Amit Rangnekar NMIMS

Pull- supply chain


SCM team ensures timely stocks and delivery
Dedicated fleet- reliable, non stop and punctual
Restaurant manager- aware of delivery timeplans, forecasts
Order- Restaurant to DC to supplier
Supplier maintains bare inventory to cover
contingency- machine service / over haul
Fill rate to store- 99.8%
Maximum inventory only 10 days, inventory
turnover ratio 36

Demand forecasting
Restaurant 3-7 day forecast to DC
DC 3 month rolling plan to supplier
31Q system- 3 year monitoring, N1Y, Q is
quarterly
NPL and new restaurants factored in
Annual budgets
Production schedules set

Taste
Sensory programme- train sensory experts
Every batch sample checked pre despatch- score

QA teams visit outlets monthly at random

Quarterly- product cutting- fry and check at


suppliers- score
Random samples monthly sent to Hong Kong QA

Tech
Systems upload orders at restaurant level
Track outlet sales daily
Schedule staff
Match sales forecasts, change if required
Anvil- connect DC to suppliers

SCM
Distributi
on Centre
Procurem
ent

VAS

Informati
on
Managem
ent

Transpota
tion

Distribution
Centre

Quality
Inspectio
n

Warehous
ing

Chiller
Processing
Center

Lettuce
farm
Quality
Inspection
Programme

Transportati
on

Outlet

DC

Sourcing
S
S
S

D
C

S
D
C

S S

D
C

S S
S S
SS
D
C

S
S

Key Suppliers
City

Stat
e

Supplier

Item

N Ludhiana

Pun

Bectors

Sauces / toppings

N Chandiga
rh

Pun

Pagro

Frozen Veggies

N Noida

UP

Bectors

Bun

N Ghaziaba
d

UP

Amrit

Dairy mix

N Shimla

UP

Binay

Lettuce

W Mehsana

Guj

McCain

Wedges, fries,
Hashbrowns

W Taloja

Mah

Vista

Chicken, Veg patties

W Khopoli

Mah

Bectors

Bun

Mah

Cargill

Oil

W Baramati

Mah

Dynamix

Cheese

Mah

Packaging

Cups, straws, wraps,


napkins

Mah

Godrej

Chicken

Sauces
/Bun/
Toppings
Bector,
Punjab, UP/
MS

Frozen Veggies
Pagro, Chandigarh

Lettuce
Trikaya / Binay/ Meeta/
Green Earth- HP/ Utt/TN
Dairy Mix
Amrit, Ghaziabad

Fries,
Wedges
McCain,
Mehsana
Oil
Cargill,
Maharasht
ra

Cups, Straws,
Napkins,
Maharashtra

Cheese
Dynamix,
Baramati

Chicken,
Veg
Patties
Vista,
Taloja

Fish
Innovativ
e
Kochi

Chicken
Godrej
Tyson
Maharashtr
a
Coimbatore
/

SCM components
Tier II

Lettuc
e
growe
rs
Potato
growe
rs
Poultr
y
Coatin
g
syste
ms

Tier I

Patties- Vista
PotatoMcCain
Dairy- Amrit,
Dynamix
BakeryBector
SaucesBector
FishInnovative
BeveragesCoke

Inbound
logistics

DC

Radhakrishna
Foodlan
d

Noida
Mumbai
Bangalo
re
Kolkata

Outboun
d
logistics

Dedicate
d
Multi/uni
temperature
fleet

40 cities
217
stores

The Big Idea; McDonalds Unravels its Supply Chain,


Pamela Cheema Feature22 hours ago
http://logisticsweek.com/feature/2011/07/the-big-idea-mcdon
alds-unravels-its-supply-chain/
McDonald's India franchisee to open 30 stores in 2011, S
Chatterjee, Neha SinghFeb 21, 2011
http://www.reuters.com/article/2011/02/21/us-mcdonaldsindia-idUSTRE71K0HS20110221
http://www.mcdonaldsindia.net/about/company_prof
le.htm
McDonalds sells Hardcastle stake
Chaitali Chakravarty & Ratna Bhushan, ET Bureau Feb
21, 2011, 01.31am IST
http://www.casestudyinc.com/case-study-mcdonalds-indiabusiness-strategy