McDonalds India Launch Strategy

Dr Amit Rangnekar

Dr Amit Rangnekar
www.dramitrangnekar.com
NMIMS

Strategic issues addressed

Strategic insight into a consummate global marketer
Market entry in a developing country with low PCI
Evaluating country market attractiveness
Global strategy v/s adaptations+ local responsiveness
Profits or expansion- Critical assessment
Framework to assess Industry / Market attractiveness

Case Coverage
McDonalds International, strategy & challenges
Country Business Plan
Environment, challenges, attractiveness
Strategies- Entry, Marketing (4Ps+ STPD),
Product Adaptation, Operations, SCM
Future Plans, Issues & Realities

McDonalds International

Dr Amit Rangnekar

www.dramitrangnekar.com

Origin
1940s- McDonald Bros Hamburger Stand
Large crowds, fast service, economical, kid friendly
Burger 15 (4 cheese)/fries, 5 coffee, 20 milkshake
Team- 3-flip burgers, 2-milkshakes, 2-french fries,
2-packaging, 2 brothers, 2-men at counter
Tasty, fast, cheap dinner

Progress
1954, Ray Kroc(52), went to McDonalds-Multimixers
"This will go anyplace, Exclusive franchisee @$950
McDonald's System Inc- Kroc 1.4%, Bros 0.5% on
sales,
1956- 12, 1960- 228, 1965- No1 US food chain
1961 Kroc bought out the brothers for $2.7 million
1971 Japan, Germany, 1977 EU, Asia

Mascot

1963- Ronald
McDonald, 2nd only
to Santa Claus in
recognition

1931 Santa Claus- Coke

mascot
Connect Coke to kids / winter
Created by Haddon Sundblom

Taglines
McDonalds is Your Kind of Place (1967)
You Deserve a Break Today (1971)
You, Youre The One (1976)
Nobody Can Do It Like McDonalds Can (1979)
Its a Good Time for the Great Taste of McDonalds (1984)
McDonald makes your day (1988)
Have you Had your Break Today? (1995)
We Love to See You Smile (2000)
Theres a little McDonalds in Everyone (2001)
im lovin it (2003)

McDonalds 2011
McDonalds

Numbers

Market cap

$ 79b

Sales

$ 27.5b

Sales Growth

5%

Net Profit

$ 5.5b

Outlets

33,510

Operates in countries

118

Total employees incl

franchisees

1.7 m (Worlds 3rd largest

employer)

Daily customers

68 m

Annual Report 2011

Philosophy & Vision

Quality, Service, Cleanliness and Value
(QSC&V)
"We take the burger business more seriously
than anyone else. If you've got time to lean,
you've got time to clean" Ray Kroc

Global Strategy
Review QSCV efficiency, mystery shoppers, feedback
Exceptional customer xp
Increase- existing restaurant visits / sales, loyalty
Operational excellence, leadership marketing, innovation

Better kitchen organization, front counter, drive-thru

Global i'm lovin' it- internalise and reflect in service
PR, TVC, SNS, packaging, restaurant xp

Innovation
Evolve to remain relevant to consumers
Variety of value, premium & wholesome menus
Expand Happy Meal choices to attract & retain
Healthy, active lifestyles, premium Salads < 10 gm fat
Wi-fi accessibility, Mc Cafes, cakes, pastries

Franchising
Committed to franchising
Enables expansion, funds for other activities
26,300 outlets operated by franchisees
Different franchisee models
70% McDonald's business from franchisees
65% profits from franchisees

McDonalds India Analysis

Dr Amit Rangnekar

www.dramitrangnekar.com

Asian Presence
Entry

Country

Outlets97

Outlets02

% Change

1971

Japan

2437

3891

60

1975

HK

140

216

54

1979

Singapore

105

130

24

1980

Philippines

157

236

50

1981

Malaysia

110

149

49

1984

Taiwan

233

350

50

1985

Thailand

61

100

64

1988

South Korea

114

357

213

1990

China

184

546

197

1991

Indonesia

103

105

1996

India

46

411

1998

Pakistan

20

1998

Sri Lanka

Asia

3653

6148

68

Income Distribution in India

Classification

People
(Mn)

Household
(Mn)

Household Income
$ US

Deprived

763

131

<600

Aspirants

120

20

1000-3000

Climbers

45

3000-6000

Strivers

25

6000-12500

Rich Total

2.18

0.35

>12500

Near Rich 1.55

0.25

12500-25000

Clear Rich 0.44

0.07

25000-50000

Sheer Rich 0.14

0.02

50000-125000

Super Rich 0.03

0.006

>125000

Total

1 Billion

165

Indian Market
Huge Sub-continent
4 X US population
300m Middle Class= US Population
Per Capita GDP $ 400, PPP- $2540

Political
Worlds largest democracy
Fairly stable governments
Armed Forces- Neutral
Bureaucratic red tape omnipresent

Economic
Asia's third-largest economy
1991 Liberalisation
Entry & Exits controlled by Govt
MNC restrictions
MPs comment on MNC in consumer sector
We want computer chips, not potato chips

Social Diversity
20 major languages, 800+ dialects
50% population literate
Advertising- Billboards, Print ,Electronic
8 languages for National launch

Infrastructure
Poor roads
Power situation grim even in New Delhi
(Capital) and Bangalore (Silicon Valley)

Pressure Groups
Anti- Western / MNC factions
Socialist / Swadeshi mindset
Health activists
Environmentalists
Animal welfare activists
Sons of the soil campaigners

Indian Market
Size of Eating Out market- substantial
India food expenditure $77b / world $ 4000b
(2%)
Highly fragmented food market- stalls, carts
Udipi, Sandwich, Chaats, Chinese, Namkeens,
Pizza
Organised chains- Nirulas, Wimpys, Sagar Ratna

MNC Status
FDI- huge potential, over confidence / estimation
Faulty Market Research inputs, bureaucratic hurdles
Low indigenisation, high costs, inappropriate prices
Infrastructural inadequacies
Lack of understanding of local tastes, low demand
Major failures, Peugeot closed shop

KFC
1st outlet, Bangalore, 1995
Excessive MSG levels
1996- restaurant ransacked
Business closed N10Y
No expansion, plans awry

Kelloggs
Initial High price
Targeted at family than kids
3X cost of average Indian
breakfast cost + Milk
Old habits take long to change
No off take

McDonalds India Entry Strategy

Dr Amit Rangnekar

www.dramitrangnekar.com

KSA Technopak Survey

Rs 40k Cr eating out market @ 6%, propensity
increase
Rs 1500 Cr urban fast food segment @ 20%
McDonalds cannot substitute Indian food, its 1 more
option. Indians want a slice of US, but once in a
while, inflexibility in product mix could be their
undoing.

Late Indian Entry

Closed economy pre 1991
Significant Vegetarian population
Limited purchasing power

India Vision
To be Indias "best" quick service restaurant
experience - supported by principles and
core values

Stages

QSR India Entry strategies

Brand/ Company

Franchisee / Owner

Entry strategy

McDonald

Hardcastle & Connaught

Plaza

JV

Dominos, Dunkin
Donuts

Jubilant Foodworks

Master Franchisee

KFC,
Pizza Hut

Yum Restaurants

100% subsidiary
Master FranchiseeDevyani, Dodsal

Costa Coffee, Cream

Bell

Devyani Intl (Jaipuria)

Master Franchisee

Subway

Subway Systems India

100% subsidiary / Regional

franchisee

Starbucks

Tata-Starbucks

50-50 JV

India-Entry Strategy
1993, 100% subsidiary- MIPL
Two 50:50 JVs
Connaught Plaza -Vikram Bakshi- N & E
Hardcastle Amit Jatia- W & S
Indian team trained in Indonesia & US
1996 1st outlet in India in Vasant Vihar, New Delhi, 13Oct96

Product Adaptation- Asia

Asia- high product
adaptations
Thailand- Burgers Basil
Japan- Teriyaki Burger
Indonesia- Rice Burgers

Product Adaptation-Indian Challenge

Much higher degree of adaptability
40% Vegetarians, No beef/pork, vegetable oil
Re-formulate products to Indian spices, Fresh
ingredients
Common Menu- Chicken Nuggets, Fillet-O- Fish, fries,
sodas, shakes

Product Adaptation-Indian Challenge

Special Indian menu to suit tastes
Maharaja Mac replaced Big Mac
McAloo burger, Veg Salad Sandwich
McMasala/McImli/Garlic free sauces
Eggless sauces/ soft serves McShakes

Menu Development
Do not
entirely
localise
menu

Wider
product
range

More
Hot
food

Low
entry
level
prices

Veg
Pizza
McPuff

1998- Menu R&D team- preferences, taste, feedback

Localised menu- India-75%, Asia 33%, others < 5%

Restaurant Management System (RMS)

Separate veg, non-veg
Menus- green, purple
Kitchens, staff, uniforms, preparation, wrapping
area
Kitchen tours, RMS brochures

International Standards
Local suppliers, highest quality, freshest ingredients
GOI regulations- food, health and hygiene
adherence
Benchmark- own international standards

Service- Fast & friendly- global McDonald's hallmark

Cleanliness- stringent, also lobby, kitchen, pavement

McDonalds India Marketing Strategy

Dr Amit Rangnekar

www.dramitrangnekar.com

Market Segmentation
Restaurant
Industry

Road-side
Quality
Hygiene
Transparency

Organized

Unorganized

Full-Service
Restaurants

Fine Dining

Bars &
Lounges

QSRs

Take-away
Home
Delivery

Casual Dining

Accounting
Transparency
Organized SCM
QC
Sourcing Norms
Multiple Outlets
Global Players

Eat-in

Kiosks/
Carts

Highest growth segment.

Maximum Footfalls at
airports, railway stations,
malls & multiplexes

Target Markets
Possible target < 10% population- reach, logistics
Phase I - Mumbai, Delhi (income, western exposure)
Phase II Satellites- Gurgaon, Pune (+ve spillover)
Phase III- Tourist destinations- Jaipur & Agra
Phase IV- Malls/Multiplexes/Highways/Stations/Airports
No plans for South, East, Goa?

Family Restaurant
McDonalds XP for the family
Focus on kids, gifts- attract children, family follows
Brightly lit, casual, comfortable, contemporary look
Friendly, smiling, fast service
Emphasis on cleanliness

Competitive Prices
KFC- Rs 59- Rs 79 ( Burger/KFC, Drink)
Nirula- Chicken, rice, gravy meal @Rs 39
Pizza Hut- Family meal (2 med pizzas, Pepsi- Rs 350)
Wimpys- Mega meals starting @Rs 35
2003- Family (Parents +2 small kids) QSR dinner <Rs 400

McDonald- Value Pricing

Happy Meal- Small Burger, fries, coke+ toy @Rs 39
Quick bites @Rs 25, Soft serve ice creams @Rs 8
Medium Meal Combo- Burger, fries, coke- Veg @Rs 75
Maharaja Mac meal Non Veg @Rs 94
Pricing <Pak, SL, 50% of US, affordable prices, 40%
margin

Marketing Strategy

Worldwide- drive-in, convenience, India- Family

XP
Segment- The Young family (<30 years)
Target- The young family who eats out
Positioning- world class xp, taste, speedy
service
Differentiation- brand, food & variety
Communication- Indian adaptations, taste, fresh,
VFM

Taglines
Entry-McDonalds mein hai kuch baat Special place for family to celebrate
Growth- To aaj McDonalds ho jaaye Acceptable and enjoyable
Growth- im lovin it Comfort zone for young families

Promotion
Price cuts, Kid contests
TVC (80%)- Star, Zee,
HBO, Colors, Aaj Tak,
NDTV, CNN-IBN, Times
Print, radio, net
BTL, in-store activities
(Ice Age 3 toys)

Promo Spends Rs Cr
Generate repeat visits

50
26

10

Widening the Customer Base

Surveys Perceived as Premium
Festivals- harness prosperity & feel-good-factor
Ensure trial- selective price cuts, periodic promotion
Customers attracted purely by unsustainable but
attractive low prices, would not pay repeat visits.
Critical to develop low cost supply chain to deliver
value

McDonalds India SCM

Dr Amit Rangnekar

www.dramitrangnekar.com

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

Supply Chain
Create international quality suppliers,
distributors in India
Invested Rs 50 crore before selling 1st burger
By 2000- Investment in supply chain Rs 300
Crore

Cold Chain
52% food products under cold chain
Temperature range 18C to 4C
Procurement, warehousing, transportation, retail
under controlled temperatures
Freshness, nutrition, low operational wastage

Trikaya Agriculture, Talegaon

Iceberg Lettuce, special herbs, oriental vegetables
Advanced agricultural practices, farm infrastructure
Specialised nursery, agricultural experts, precooling room, cold room for handling, refrigerated
truck for transportation

Vista Processed Foods, Taloja

JV- OSI Industries, US & McDonald's, India
Range of frozen chicken & vegetable foods
Separate processing lines- chicken & vegetables
Blast freeze @-35C temperature- retain
freshness

Dynamix Diary, Baramati

Cheese
Convert milk to cheese, butter/ghee, skimmed
milk powder, lactose, casein, whey protein &
humanised baby food
Supplier to McDonalds & Nestle

Amrit Food, 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 Foodland, Mumbai

1-stop shop for food distribution management
Large volumes, effective process control, low cost
Procurement, quality inspection, storage,
inventory, delivery, data collection, recording &
reporting
Dry / cold storage facility to store/ transport
perishables at temperatures up to - 22 C

Cremica Industries, Philaur

Sauces, Buns, Toppings
Breading & batters
Supplier to McDonald's EU and Asia

SCM components
Tier II

Lettuce
growers
Potato
growers
Poultry
Coating
systems

Tier I

Patties- Vista
Potato- McCain
Dairy- Amrit,
Dynamix
Bakery- Bector
Sauces- Bector
Fish- Innovative
BeveragesCoke

Inbound
logistics

Radhakrishna
Foodland

DC

Noida
Mumbai
Bangalore
Kolkata

Outbound
logistics

Dedicated
cold fleet

Distribution

Match supplier production to restaurant needs

2 DC- Mumbai & Kochi, 100 outlets each
QIP (Quality Inspection)- checks at 20 points in SCM
AFL logistics- 50:50 JV- AirFreight & FX Coughlin, US
With a Cold Chain, there is practically no need for a knife in the
restaurant. Chopping & food processing is done in plants.
Restaurants are confined to only the actual cooking Amit Jatia

Inculcating a Service Orientation

The truck drivers had to be explicitly and
specifically conveyed not to switch off the trucks
ignition to save on fuel & electricity as the
refrigeration system also automatically shuts off.
We installed trapping devices to log temperature
charts through the entire journey Amit Jatia

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,
Maharashtra

Cups, Straws,
Napkins,
Maharashtra

Cheese
Dynamix,
Baramati

Chicken,
Veg Patties
Vista, Taloja

Fish
Innovative
Kochi

Chicken
Godrej Tyson
Maharashtra
Coimbatore /
Hyderabad

Dilemma
In some cases, Indian suppliers had the
technology - but no market for the products
they produced besides McDonalds

McDonalds India 2011

Dr Amit Rangnekar

www.dramitrangnekar.com

Indian XP
1990s- consumers classified McDonald as bland
2000s, sought for its taste
98% sourcing local
Most popular Veg pizza Mcpuffs (Samosa + Pizza ingredients)
Chicken Mcgrill (with extra tangy Indian spices)

India 2010
Daily customers 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

Outlets

Cities

Food Type

Position

09

12

09

12

Dominos

300

430

70

95

Pizza

Delivery

McDonalds

187

219

44

54

Western

XP

Subway

183

300

26

36

Sandwich, Rolls

Health

Pizza Hut

160

200

37

40

Pizza

XP

Nirulas

75

150

10

10

North Indian NV

Taste

KFC

74

230

14

40

Western

XP

Sagar Ratna

52

88

24

39

South Indian Veg

Taste

Yo China

42

100

12

15

Chinese

Convenience

Bikanerwala

35

148

13

27

Namkeen, Chaats

Taste

Haldirams

15

26

Namkeen, Chaats

Taste

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 Development licensee
McDonald's- no investment, royalty on brand name, global
policy
HRPL- Freedom to grow aggressively and take quick
decisions

Export Base

Indian Cheese & Lettuce exported- SL, HK, UAE

Sauces, batters, breads to Russia, EU, SE Asia
McAloo Tikki to Middle East
Strategic location- SCM can service other
countries

Growth Strategies
Increase seating, add Birthday party areas
Tier I/II cities- Ludhiana, Baroda, Kolhapur
Airports, Rail/Bus stations, Highway, Petrol Pump
Malls, Multiplexes, Kiosks- Heavy footfalls
Home delivery (Indonesia & Egypt)
Limited menu restaurants

McDonalds plans
Hardcastle 130, Connaught Plaza 120 outlets
Focus- drive-throughs, 40 to 100, costly
Tie-up BPCL/HPCL/IOC petrol pumps
Price hike- 3-4% pa
1996

2001

1,000

2016

800

Weve established ourselves firmly in the

expand and extend the brand in whatever
manner we can Vikram Bakshi

300
50

2001

People- 12000, +2500 pa N3Y

mind of the consumer. Now is the time to

500

500

0 1996

2011

1,000

750

250

2006

2006

2011

Investment (Rs Cr)

2016

Points to Ponder
Doraha (NHI Ludhiana) > 3000 customers= CP, Delhi
Location- 150+ seat restaurant, no subletting/dispute
Customer profile on highways/railways- appropriate
Dispersed outlets- effective catering? Traffic?
Expand? Break even? SCM? Customers? Brand?
Investment / outlet excluding real estate- Rs 3 Cr
Area, Location, Size, Seating- Crucial but expensive
Footfalls up 25% per outlet per day

Case Analysis

Dr Amit Rangnekar

www.dramitrangnekar.com

Perceptual Map
Vada Pav
Dosa
Pav Bhaji
Chaats
Chinese
Pizza

Expensive

Affordable

Junk
Food

Healthy Food

Mental map
Burgers
Celebration

Kids
American

Happy Meal

Range

XP

Tasty

Fun
VFM

Unhealthy
Beef Tallow controversy

4Ps

e,
v
i
t
a
r
t
e
Pen
VFM

R
S
Q
n
ca
i
r
s
e
n
o
m
i
t
A
a
apt
d
a
n
India

ts,
e
l
t
u
o
250
r
e
i
T
,
o
Metr
I/II
ad
o
R
/
r
i
A
Rail/

0
6
,3
C
M
I
er
m
u
cons points
h
c
u
o
t

STPD
The Youn
g family
(<30 yea
r s)

World c
lass xp,
taste,
conveni
ence

Kids, you
th,
young fam
ily who ea
ts out

Brand, fo
od

& variety

Ansoff matrix
X Product

N Market

N Product

X Market

Brand=value proposition
Emotional- world class xp

EconomicVFM

FunctionalAmerican QSR,
taste

Brand Identity & Image

Identity

American QSR,
Golden Arches,
Ronald, Burgers,
Im lovin it

Position

World class xp,

unique taste, VFM

Customers Mind

Image (Perception)
Fast food, convenience, fun

y
p
p
a
H

Extended
o
b
m
o
C
,
l
a
e
Core
M

Kids, Youth
Brand Essence

Aakers Model

Taste

Co
nv
en
ien
ce

American food, QSR

Value

Aff
ord
ab
le

Variety

ge
n
Ra

POP & POD

POP
QSR
Western Food

POD
Taste
Experience
Range

Kapferers Brand Identity Prism

Personality (Soul)Exciting, friendly

Relationship
(Brand to customer)Trust, value

Culture (Brand in
customers conscience)
American, Aggressive

Reflection (Customer
identifies wrt brand)In with the times

Self-Image (Customer
identifies brand wrt self)Satisfaction, fun

Internalisation

Externalisation

Physique (Purpose)QSR, Burgers

Kellers CBBE / Brand Equity Pyramid

High recall, awareness, range

Aware
ness

Identity

t
Building
blocks
c
e
n
n
o
c
ip er
Int
h
en
s om
n
se
io ust
t
loy
a c
l
alt
Re and
y
r
Loyalty, attachment
B
u
Po
o
e
y
s
si
n ut
o
tiv
o
p
b
s ta
e
e
re
R ha
ac
W
High value, quality
American xp
tio
u
g
o
in y
ns
n
e
PO
ea ar
P
M ho
/P
W
Freshness, nutrition
Taste, range, brand
OD

References

Interview Amit Jatia, Vice Chairman, HRPL, 2004

Interview 8 McDonald India, restaurant employees, 2004
Survey 110 McDonald customers in Mumbai, 2005
Low prices & vegetarian options have won fans for McDonalds in India, 16Mar11
Western chains flock to India as fast-food craving grows, Nandita Bose and Neha
Singh Reuters, Apr 28, 2011
McDonalds to spend Rs 500 mn on marketing in India, ANINDITA SARKAR
http://www.indiantelevision.com/mam/headlines/y2k9/july/julymam4.php 2 July
2009
Business Strategy in India, 2e, Singh, Pangarkar, Heracleous; 2004, Thomson
http://www.mcdonaldsindia.com/pdf/Press-release-MCDonalds-plans-21Feb.pdf