Strategic Management Presentation on:

MCDONALD’S IN INDIA
TROUBLED TIMES, TROUBLED TIES

GROUP 5
SIMRAN REDDY 18BSP3324
NARNEVINAY CHOWDARY 18BSP3110
 MCDONALDS
• Started by 2 brothers- Richard and Maurice McDonald in 1940.

• It was structured as a typical drive thru restaurant with variety in many and car
hop services.

• Kitchen apparatus salesman, Raymond Kroc, proposed a franchise mode of

operations to the McDonald brothers in 1954.

• Franchise, Supplier and the Employees were the 3 important elements suggested
by Kroc.
 MCDONALD’S STRUCTURE
• It had Franchise structure.

• Franchise Operator must have:

1. Capital

2. Resources

• McDonalds started owning and renting the place for franchise,

• Thus the Royalty and Rent were the 2 mainstreams of inflow.

• Rents insulated the business from ups and downs in the market.
REVENUE MODEL

• FRC
FRANCHISING ROUTE TO INTERNATIONALIZATION
Structure

Conventional Developmental
Franchise License
(CF) (DL)

Small entrepreneurs Large businesses with financial power

McDonalds owned the land and building McDonalds did not invest any money

Operator invested in equipment, décor, seating,

Operator invested in equipment, décor, seating, etc. along with the land.
etc.
Widely used structure with 6300 restaurants

It was based on availability of experienced entrepreneurs and financial availability

THE STORY OF TWO FRANCHISEES
• In 1996, McDonald’s made an entry into India by launching its first store in New Delhi by
partnering with Bakshi
• Started off its business in India as ownership which he later converted into franchisee
business
• Indian Market – Operated with two major ventures
1. CPRL (Connaught Plaza Restaurants Limited) for the North & East Indian Regions in 50/50
Joint ventures with MIPL (McDonald’s India Pvt. Ltd.)
2. HRPL (HardCastle Restaurants Pvt. Ltd.) for the South & West Indian Regions in 50/50
Joint Venture with MIPL (McDonald’s India Pvt. Ltd.)
• McDonald’s signed a 25 years venture agreement with both its master franchisees which
would run till 2020
• It was charging a 2% royalty for the Jatia led franchisee against 5% for Bakshi
 West and South Region East and North Region

Mr.Amit Jatia, HRPL Mr.Vikram Bakshi, CPRL

200 outlets 169 outlets

$128 Mn revenue in 2016 $100 Mn revenue in 2016

$0.5 Mn per outlet $0.8 Mn per outlet

McDonald sold its 50% shares McDonald wanted to buyback 50% shares
BUSINESS OUTLOOK AND VALUATION
OF FRANCHISEES
• In 2016 CPRL made $100 million revenue But Profitability remained constant.
• Average per store sale was $0.8 million as compare to McDonald’s $2.5 million.
• HPRL growth had Got Boost post 2010 when it was made a DL.
• HPRL had Access the public fund by its holding company WD.
• In 2017, Market value of WD was $560 million and CPRL was about $400 million in which
Bakshi’s 50% Stake of $200 million.
MCDONALD’S IN 2017
• Overall sell of McDonalds had hit the Market for the year end
December 31, 2016.
• Increase the spread of its menu resulted in Fast service chain
chock in delivery times.
• Criticized for maintaining profitability by raising rents.
• Franchisees passed, because of increased prices.
Total revenue:
Reporting segments Growth %
US 34%
International Lead Markets 29%
High Growth Markets 25%
Foundational Markets 12%
 THE INDIAN MARKET
• India was catigorised under the foundational market segment

– most diverse segment

– spaned over 80 countries

– 60% of the world population

ISSUE WITH REAL ESTATE IN INDIA
TOUGH TIMES
THANK YOU!!!
 CONFLICT
• Mr. Jatia had handled the business very well .

• On the other hand,

Mr. Bakshi had difficult time running the business due to:

1. High percentage of royalty

2. Difficult market

3. High competition

4. No input from McDonalds in terms of reinvestment

EFFECTS OF CONFLICT

• Relations between McDonald and Mr. Bakshi deteriorated.

• Quality of services became poor.

• Growth of outlets in N&E region began to stall.

• Competitors like Pizza Hut, Dominos, Burger King, etc. benefited.

• McDonalds was heading towards the self-destruction mode.

 CONCLUSION

• It was a tough situation for McDonalds in Northern region.

• Finally, McDonald ended the contract with Mr. Bakshi stating the non payment of

royalty.

• The northern outlets were shut down until the further proceedings and

reopened eventually under full ownership.