Case Study
PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH, INDORE
An Autonomous Institution Established in 1994, Accredited Twice Consecutively with “A” Grade NAAC, UGC
(Affiliated to Devi Ahilya University & Programs are approved by AICTE and State Government)
PIMR-CASE STUDY
McDONALD'S IN INDIA GROWTH STRATEGY
McDonald's is the leading global food service retailer with more than 30,000 restaurants
serving nearly 50 million people in more than 119 countries each day. It is world’s most
well-known and valued brands and holds a leading share in the globally branded quick
service restaurant segment of the informal eating-out market in virtually every country in
which it does business. Outstanding brand positioning/recognition, experienced
management, high-quality food, site development expertise, advanced operational
systems and unique global infrastructures enable the company to capitalize on global
opportunities. McDonald's plans to expand its leadership position through great-tasting
food, superior service, everyday value and convenience. Its efforts to increase market
share, profitability and customer satisfaction have produced high return to shareholders-a
compound annual return of 21 per cent over the past 10 years. The present case analyses
India growth strategy of this global super brand.
Background and Evolution
McDonald's today is the result of development and growth over period of more than five
decades.
In 1995, Ray Kroc, a 52-year old salesman of milkshake mixing machines, became
interested in a string of seven restaurants owned by Richard and Maurice McDonald. The
two founded the fast food/quick service restaurant industry when they converted their
barbeque drive–in with car hops into the world’s first McDonald's limited-menu, selfservice drive–in restaurant in California. Kroc liked their fast food restaurant concept and
bought the chain for $2.7 million.
Kroc opened his first McDonald's in Illinois in April 1955 and founded the company that
finally evolved into McDonald's Corporation. A brief evolutionary history of McDonald's
with major landmarks (and setbacks) in their growth and development are given below:
1955: First McDonald's restaurant opened. First day’s sale $366.
1957: Quality, Service, cleanliness and Value (QSC&V) becomes the company’s motto.
1960: An indication of competition comes: Domino’s takes its first telephonic order to
deliver a pizza
1962: Taco Bell’s first outlet opens in Downey, California. Two years later, the chain
starts its franchising unit.
1963: Ronald McDonald makes his debut as spokesclown. During the year, the company
also sells its billionth burger.
1965: McDonald's goes public (Wall street) at $22.50 a share.
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1967: McDonald's goes international. The first restaurant outside the US opens in
Canada.
1975: The first drive-through window is opened in Sierra Vista, Arizona.
1979: McDonald's introduces ‘Happy Meals' in response to market demand –a burger,
some fries, a soda and a toy.
1989: McDonald's is listed on the Frankfurt, Munich, Paris and Tokyo stock exchanges.
1991: McDonald's introduces the low-fat McLean Deluxe burger for healthier foods. It
flops and is withdrawn from the market.
1994: Restaurant open in Bahrain, Bulgaria, Egypt, Kuwait, Oman, Trinidad and the
UAE. Total number of restaurants increases to over 15,000 in 80 countries in 6
continents.
1996: McDonald's comes to India –the 95th country. The first restaurant opens in Delhi.
2000: McDonald's sales in the US peak at an average of $1.6 million (annual) per
restaurant.
2001: Subway surpasses McDonald's as the fast food chain with most US outlets. At the
end of the year, it had 13,247 outlets–148 more than McDonald's.
2002: McDonald's posts its first ever (quarterly) loss of $344 million. McDonald's stocks
plumme; Teenagers sue McDonald's alleging that its fatty and unhealthy foods cause
obesity. The case is dismissed 3 months later.
2004: McDonald's introduces delivery service (in India).
2005: McDonald's opens 50th restaurant in India at Faridabad (North India).
2007: McDonald's opens its much awaited restaurant in Kolkata–the fifth metropolitan
city after Delhi, Mumbai, Bengaluru and Ahmedabad.
General Business Strategy and Growth
In the introductory phase of business operations, McDonald's focused on following a
generic low cost strategy consisting of offering consumers low-priced food products in
order to ‘make eating out on a regular basis affordable for families…’ Faced with
changing consumer trends and competitors pursuing aggressive competitive strategies
which focused on product differentiation and quality, McDonald's also decided to change
its strategy. Through the implementation of Plan to Win strategy, the company shifted
from generic strategy to differentiation and focus. This was done also to offset negative
publicity faced by the company and also to offer customers a better overall fast food
experience as compared to its competitors.
McDonald's human resource strategy promotes its desire to market an exceptional
customer experience. Hospitality training and E-learning programmes offer McDonald's
the most cost-effective method of training for restaurant staffs, while ensuring that
employees are dedicated to customer service through the attitudes and skills they bring to
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the workplace. This directly supports the organizational, managerial and functional goal
of creating stimulating work environment.
Production strategies promotes an overall quality experience by offering new products to
customers in order to address growing changes in demand for healthier foods and
premium products. Technological improvement, including wireless hot spots, improves
the relevance of the overall quality experience which McDonald's is trying to market to
consumers. With these improvements in each functional area, its marketing strategy aims
to build trust and brand loyalty among current and future customers in order to gain
significant competitive advantage in the marketplace.
McDonald’s has been the market leader in the fast food industry for many years. During
the last 10 years, the company has registered a steady growth in sales, revenue and profits
with some setbacks in profitability during 1998, 2001 and 2002. During the last 5 years,
growth has been both fast and continuous. The highlights of performance of McDonald's
during 2002-2006 are shown in Table 1.
Table 1: McDonald’s Performance, 2002-2006
Indicator
1.
Total revenue ($ billion)
Company-operated sales
Franchised and affiliated
revenue
2006
2005
2004
2003
2002
21.6
19.8
18.6
16.8
15.2
16.1
14.7
13.8
12.5
11.3
5.5
5.1
4.8
4.3
3.9
2.
Net Income ($ billion)
3.5
2.6
2.3
1.5
0.9
3.
Dividend declared ($)
1.0
0.7
0.6
0.4
0.3
4.
Share price ($-year end)
44.3
33.7
32.1
24.8
16.1
5.
Total restaurants
Company-operated
Franchised
(No.)
31,667
31,397
8,7851
8,687
Affiliated
4,195
31,152
30,824
30,876
8,802
8,811
8,661
8,773
18326
18,240
17,854
4,269
4,101
18,12
5
4,244
4,038
6.
Franchised and Affiliated
sales ($ billion)
41.4
38.9
37.1
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30.0
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Modes of International Business
As would be evident from the number of restaurants and sales revenue shown in Table 1,
the most common mode of McDonald’s business is the franchise system for both national
and international operations. This can be more clearly seen in Fig.1.
Fig.1: McDonald’s Restaurants: Franchised and Company-Owned
Franchising can be for existing restaurants or new restaurants. For franchising existing
restaurants, the franchisee has to buy an existing restaurant either from McDonald’s or
one of their owners/operators. The purchase price of an existing restaurant varies and
depends on a number of factors including sales, profitability, occupancy cost,
reinvestment or improvement needs, competition, location, etc.
For new restaurants, the franchisee has to pay $45,000 as initial free to McDonald’s.
Then, there are pre-opening and equipment costs. These costs depends on the size of the
restaurant and facilities, area of the country, signage, decor and landscaping, selection of
kitchen equipment, etc. These costs are paid to suppliers (and not to McDonald’s). These
costs range from $0.5 million to $1 million. The new owner/operator must pay 40 per
cent of total cost of a new restaurant and may finance the rest from external sources.
McDonald’s does not offer financing, but their owners/operator enjoy the benefits of their
established relationships with many national/international lending institutions.
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The company feels that their owners/operators can secure the lowest lending rates in the
industry.
To sum up, McDonald’s has the following system for franchise operations:
1.
2.
3.
4.
5.
The franchisee has to pay an initial fee to McDonald’s.
Franchise term (lease) is for 20 years.
Minimum monthly base rent or rent based on monthly sales.
Monthly service fee of 12 per cent of gross sales.
The franchisee has to pay property tax, insurance, maintenance charges and a
refundable non-interest bearing security deposit.
McDonald’s also has a control and grading system for the franchised restaurants.
McDonald’s managers/officers regularly visits the restaurants to exchange notes with
franchisees. Beside this, there is a three-day evaluation process, twice a year, to look at
everything from the roof to the ketchup dispensers and the restaurants are graded on the
basis of quality, service and cleanliness. They are not graded on value because, as
independent business units, they are free to set local prices which should, however, be in
conformity with McDonald’s global pricing policy. In addition to all these, suggestions
are also made by the visiting McDonald’s team for overall improvements of the
restaurant.
Joint ventures are not many. We will be discussing JVs as part of India strategy.
India Entry Strategy
McDonald’s has made a complete exception to their most commonly
followed strategy of franchising. Instead, they have adopted the JV route, and also
licensing. For north and west India, they have preferred the joint venture strategy, and for
south (Bengaluru), they have gone for the licensing strategy.
For India entry,
McDonald’s decided to set up two JVs on a 50:50 basis with two local entrepreneurs in
Mumbai and Delhi In Mumbai, Amit Jatia’s Hardcastle Restaurants Pvt. Ltd. was
selected to own and manage McDonald’s restaurants in the western region. In Delhi,
Vikram Bakshi’s Connaught Plaza Restaurants Pvt. Ltd. was chosen to own and manage
McDonald’s restaurants in the northern region. Amit Jatia and Vikram Bakshi are likeminded visionaries, who share McDonald’s complete commitment to Quality, Service,
Cleanliness and Value (QSC&V).
In both northern and western regions, the JV company would make most of the
investments required for setting up and development of the restaurants. Investments on
the part of Indian owners would relate to those areas which involve getting the civil work
of the premises complete and the site approved as a restaurant and other first–time
licences necessary to operate the business.
For McDonald’s venture in Bengaluru, the licensee route is being followed for the first
time in India. The restaurant in Bengaluru is to be managed by Golden Kitchens Pvt. Ltd.
and supported by Hardcastle Restaurants Pvt. Ltd. They provide all the logistic support
apart from the supply chain access. The licensing strategy has been adopted so that the
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brand grows rapidly. There is a personal touch to the process and functionality where
commitment is a big factor.
The licensing route is not new to McDonald’s worldwide. In the Middle East,
McDonald’s uses the licensing route while in Europe, they were adopting this route
previously. This is one of the many systems McDonald’s has worldwide. A company has
to invest $0.5 to 1.0 million for becoming a licensee.
County Risk Analysis
Country risk analysis is a concomitant part of any international business operation or
strategy. If it is food business, such analysis is all the more relevant and necessary
because many sensibilities are involved in terms of diversity of population, cultural and
lifestyle difference, vegetarianism /non vegetarianism, etc. A country risk analysis of
India from the point of view of food business with particular references to McDonald’s is
presented below.
• India has very diverse population and food habits: India has more than 5,000
ethnic communities. Each region in India-north, south, east, west and central-has
distinct food habits and traditions and even sub-regions show enough
heterogeneity in eating habits. Each region and sub-region in India has distinct
food traditions and preferences. Indian people do not change their food habits
even after migrating to other parts of the country. In large and metropolitan
cities, some restaurants serve only speciality regional foods. Some regional fast
foods such as samosa, kababs, chola bhatura, pakoda, aloo paratha, poori-sabji,
dosa and sambarvada are popular among Indian consumers. These are available
in both speciality and multi-cuisine restaurants throughout the country.
• Cultural and Religious Sensitivity: An overwhelming majority of Indians
(about 83 per cent) do not eat beef or pork, but they eat meat. Therefore, the
introduction of the Maharaja Mac (a mutton-based burger) by McDonald’s
shows an appropriate cultural and religious fit. Contrary to popular belief,
however, India is a predominantly non-vegetarian country. Only about 20 per
cent of the total population is completely vegetarian. Food preferences in India
in terms of vegetarianism and non-vegetarianism vary widely among the
country’s various states and union territories about 69 per cent of Gujrat is
vegetarian; 60 per cent of Rajesthan, 54 per cent of Punjab and Haryana, 50 per
cent of Uttar Pradesh, 45 per cent of Madhya Pradesh 34 Per cent of Karnataka,
30 per cent of Maharashtra, 21 per cent of Tamil Nadu, 16 per cent of Andhra
Pradesh and Delhi , 15 per cent of Assam, 6 per cent of Kerala, Orisa, Bihar and
West Bengal and less than 5 per cent in northeastern state/union territories
(Manipur, Mizoram, Nagaland, and Arunachal Pradesh) are vegetarian. Part of
this vegetarianism is due to economic reasons, but a more compelling reason is
ethnic and even religious. Jains avoid meat totally ) and even onion, while many
Buddhists are vegetarian. However, Brahmins of east India, Kashmir and the
Saraswats of the southwest eat fish and mutton. But even among meat-eaters,
beef is always avoided except by some part of Muslim population.
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• For most Indians home food is considered fresh healthy and inexpensive:
Most Indians prefer to eat home cooked food and take immense pride in the
varieties of food cooked at home. For majority of Indians, home cooked food are
considered fresh, healthy and inexpensive. Because of the distinct dietary habits
and food preference of India consumers, until the early 1990s, western fast food
chains had largely ignored Indian markets. As a result, Nirulas, the only notable
Indian fast food chain had been able to dominate the Indian market for fast food
services /sales for a long period. Therefore, the fast food chains had a big
challenge in inducing the vast majority of Indians to eat out.
• Processed and Fast Food markets have strong growth potential: India is the
world’s third largest food producer, but its food processing industry is very
small compared to other countries in Asia, Europe and the United State. The
growth and size of processed and fast food markets are still quite low. Since the
early 1990s however, India's food service sales have significantly increased.
During the last few years India’s processed and fast food markets have shown
high potential for growth. In fact, these markets are growing rapidly and
expanding to newer cities and towns.
India Operation and Strategy
McDonald’s was faced with two challenges in the Indian market:
a) How to avoid hurting religious sensibilities of Indian consumers?
b) How to avoid political confrontation with Indian Government and political
activists?
McDonald’s was well aware that political activists can creat trouble for foreign-based fast
food chain as demonstrated in the agitation against KFC in Bengaluru.
Considering these factors, McDonald’s has adopted the philosophy /strategy of “think
global act local” for their India operations. The company’s 'localization' strategy is
manifest in their decision to set up two joint ventures on 50:50 basis with two local
entrepreneurs in Delhi and Mumbai. Besides these two cities other places where
McDonald’s has opened restaurants are satellite towns located near Delhi (such as Noida,
Gurgaon and Faridabad)or Mumbai (such as Pune); places with tourist appeal (such as
Jaipur, Mathura and Shimla) and cities with an eating –out culture (such as Ahmedabad,
Chandigarh and Bengaluru). McDonald’s is already operating more than 130 restaurants
in India employing over 5,000 people.
With Two local managing directors (Bakshi and Jatia) playing critical roles, McDonald’s
undertook a series of politically and socially correct strategies to deal with the initial
challenges of the Indian market. Because India’s Hindus (80 per cent of India’s
population) revere the cow as sacred and a large majority of Indian Muslims do not eat
pork, beef and pork have been avoided from the beginning. Instead, McDonald’s
introduced a mutton-based ‘Maharaja Mac’ in India as opposed to its flagship beef-based
Big Mac elsewhere. Other items such as the tantalizing McAloo Tikki Burger (bread
potato and pea-pattie)- were added to the menu to lure India’s middle class.
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Approximately, 75 per cent of the menu available in McDonald’s in India is Indianized
and specially designed to suit Indian customers.
Most Indians like to have desserts after a meal. With this in view, McDonald’s has
opened several very popular Cold Kiosks in Delhi and Mumbai which have become quite
popular. These desserts add considerable value to the main food. The Cold Kiosks are
located either inside the main outlet or adjacent to the outlets. These kiosks offer
customer an innovative range of cold desserts such as ice creams with unusual flavours
like green apple, peach and bubble gum.
Product Strategy
All these give good indication about McDonald’s product strategy in India. McDonald’s
restaurants serve a range of products aimed at satisfying different tastes and preferences.
The menu includes a variety of burger-vegetarian and non-vegetarian, McDonald’s
world-famous French fries, Mcpuffs, a slew of hot and cold beverages and the
mouth-watering shakes and soft serves while its ‘Happy Meals’ are immensely popular
among children, its Meal Combos are equally popular as they meet the needs of all age
groups.
McDonald’s celebrated 2002-03 as the ‘Year of Taste’ as part of which a plethora of new
offerings like the Wraps-Paneer Salsa for vegetarians, chicken Maxican for
non-vegetarians and McCurry pans were introduced. McCurry pan was first baked dish in
McDonald’s product portfolio in India. McCurry Pan is available in two
variants–Broccoli n’ Mushroom for vegetarians and chicken n’ Tomato for
non-vegetarians.
As part of its new products strategy, McDonald’s is going Chinese. According to Amit
Jatia, MD of Hard Castle Restaurants, they are now planning to launch a new ‘Crispy
Chinese Burger’ with ‘Chinese' flavour, across their restaurants in India very soon.
The ‘Crispy Chinese Burger’ will be available as part of the Value Meal. They launched
‘Mexican’ food items in August 2002.
Research findings state that ‘our customers are looking for products without losing the
Indian flavour. Hence, we have seasoned “Crispy Chinese Burger” with oriental flavour.
topped with a creamy vegetarian Schezwan sauce and crisp iceberg lettuce served
between two fresh buns. While “The Crispy Chinese Burger” will be priced at `29 (net),
the Value Meal will include the burger, potato wedges, and a regular soft drink priced at
`59 (net), Jatia adds.
McDonald’s India had been exploring the possibilities of launching iced-tea in the Indian
market. This initiative was in a planning stage for some time, and the product has now
been introduced. In order to encash on the World Cup Cricket 2003 fever,
McDonald’s”Cricket Wicket Birthday” targeted kids at its restaurants across the country.
As part of the promotion, consumers celebrating their kids’ birthday at McDonald’s
outlets were offered a chance to play cricket with first innings, second innings and extra
innings. On McDonald’s new new marketing moves, comments Market Search India Pvt.
Ltd. CEO, Sundar Rajan, ‘By conducting the Dragon dance, McDonald’s India has come
up with an innovative idea as such dances are often seen in countries such as Singapore
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and Malaysia. Also by launching ‘Crispy Chinese Burger’ it is going to be a winning
combination for McDonald’s as Indians have accepted the Chinese cuisine long back.’
Pricing Strategy
McDonald’s growth in India can be largely attributed to its product strategy and pricing
strategy. An average Indian household spends about 50 per cent of its income on food
and beverages. Food prices are, therefore, critical determinants of demand and
consumption. The Indian middle class-particularly the middle income and lower income
groups-always remains price conscious. McDonald’s has, therefore, pursued what Amit
Jatia calls ‘purchasing power pricing’ which means the customer’s ability to pay. Such a
pricing strategy has been quite successful in India for market penetration and
achievements of market share. This has also helped the company to maintain price
differences of its products on the basis of purchasing power party (PPP) across countries
as provided by the Big Mac Index.
Globally, McDonald’s has been successful by exploiting the middle-class segment. But,
in India, the situation has been different because the middle class itself is very
heterogeneous in this country McDonald’s has succeeded, to a large extent, to tap the rich
and upper middle-class segments, but this is not enough because of the predominance of
the middle middle-class and lower middle-class segments of the population. These two
sections have largely abstained from eating out in McDonald’s because of the
apprehension that McDonald’s is expensive. But, these two segments are vital for
McDonald’s, particularly for penetrating into smaller cities and towns.
Because of this reason company cut prices on its vegetable nuggets from `29 to `19 and
the soft service ice cream cone from `15 to `7 in 1997. In September 2001 McDonald’s
offered its enormously popular shudh shakahari (pure vegetarian) Veg Surprise (a veggie
burger) for `17. With this price, McDonald’s was able to sell the veggie burger 40 per
cent more than what it expected within a month between September and October of 2001.
In March2004, McDonald’s launched a Happy Price menu, under which its sold four of
its burger products at `20 each. This led to a 25 per cent increase in customers.
All this shows that, McDonald’s strategy has been to increase the sales volume by
making its products available at an affordable price. It has been offering value meals in a
range of prices-`29, `39, `49, `59, `79, and `89. McDonald’s employed this
value-ladder strategy to ensure affordability and thus attract the widest section of
customers. Thus, if a customer starts with a McAloo Tikki Burger (breaded patato and
pea pattie), what he graduates to finally is a vegetarian burger. Or, if a customer starts
with a chicken kabab burger, what he graduates finally to is the McChicken. Such
strategy has helped its volume business.
Another strategy that seems to have gone well with Indian customers is what the
company calls the 80-20 menu board-80 per cent visual and 20 per cent descriptive. The
main objective of the company is to make it easier for customers to understand what the
29,39,49,59,79 and 89 –rupee option are. Coupled with the pricing range, McDonald’s
quick service, convenience, and no-tips environment have attracted many school-and
college-going customers as well as young middle-class families.
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Family-Centric Strategy
In India, McDonald’s has positioned itself as a family restaurant. Family has become the
cornerstone of its strategy. Its outlet are called ‘McDonald’s Family Restaurants’ as
opposed to simply McDonald’s in other parts of the world. McDonald’s restaurants
provide a clean, comfortable and stress-free environment especially suited, for working
families. With India’s changing family system in metropolitan cities, where the extended
family is no longer the preferred way of living, McDonald’s has become an attractive
place for working and busy young parents on weekday. On weekends, residents of Delhi
and Mumbai bring their children to McDonald’s so that they can relax, while their
children play in McDonald’s hugely popular play places.
Like its other worldwide location, McDonald’s target children as their main clientele in
India. Children in India may not have the purchasing power compared to their western
counterparts, but they are still the center of the universe in the Indian family system, and
can actually pull the parents to visit a place time and again. The child factor has been
predominant in McDonald’s mind in its planning for customer and market segmentation
in India. In modern living in India, children are becoming a strong influencing factor in
parental decision marking, particularly for eating out. Also children are the future
consumers. McDonald’s is well aware of this.
Because of this, during the opening of its outlets in south Mumbai, a children’s parade
was organized all along marine Drive, led by McDonald’s mascot, Ronald, who was
accompanied by a 40-feet long float displaying the various tourist destinations in
Mumbai. Its ‘Happy Meals’ and the accompanying Lego toys were a great attraction for
children. Fun Zones, i.e., place for children’s play in McDonald’s outlets, attract children
and their parents they are considered safe, reliable, hygienic and child friendly. Children
like McDonald’s outlets because they are brightly lit and full of young people. In many
outlets, kids are showered with knickknacks when they visit the outlets.
In some outlets McDonald’s has opened low-height counters for children. The Noida
outlet near Delhi is an example of this. McDonald’s outlets provide the children with a
hassle–free eating experience where no one tells them to ‘sit down’, or ‘don’t move’,
McDonald’s also promotes birthday parties through television advertisements complete
with cake, candles and toys. In cities like Mumbai, Delhi and Bengaluru, birthday parties
are the rage for upwardly mobile youngsters. Because many young people in these cities
live in small, overcrowded flats, McDonald’s has become a convenient and welcoming
place for birthday celebrations.
McDonald’s has become a popular place for many teenagers and young adults, who use
the outlet, as a venue to meet their boyfriend/girlfriends, which is not encouraged in
many Indian middle-class families. McDonald’s appeals to India new westernized elites
because its food is clean safe and reliable. India’s upwardly mobile middle-class families
show considerable interest enjoying what is often described as the ‘McDonald’s
experience’ -i.e., eating McDonald’s food in a clean, congenial and friendly environment
with fast, attractive and accurate services.
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McDonald’s offers attractive new promotions from time to time to attract more young
adults to its outlets. One such promotion-‘Music Meal’ launched in April 2005 in
association with Coca-Cola India and Universal Music India- became extremely popular
with young men and women. Through this promotional campaign, young people were
offered free tickets to an exclusive hugely popular Bombay Vikings show upon collection
of four McDonald’s mini CDs, which come with a large meal combo order. By engaging
young customers with fun and new promotions that are in tune with their changing
desires, McDonald’s has been able to increase its business considerably over the past
years.
Challenges and Future Plans
Break even time for fast food business through franchising route is generally high.
McDonald’s has also been experiencing this. Even after 10 years of experience,
McDonald’s was still to make profit (net) in India operations. McDonald’s management
contends that, every McDonald’s restaurant in India take about 5-7 years to break even. A
major reason for such break-even period is the level of investment required for each
individual store in process control equipments (which the company imports from abroad)
and acquisition of prime location real estates. Cost of store interior is also to be added to
this but, McDonald’s experience shows that the break-even period in India is almost half
of the average break-even period globally. In any new country the company enters, it
takes 12-13 years to break-even. Analysis of factors for this shows that one of the most
important reasons is McDonald’s efficient cost and investment management system
leading to progressive reduction in pre-store investment though indigenization. A good
illustration of this is that the pre-store investment during 2003-04 was less than during
1996-97. This was a great achievement.
McDonald’s faces challenges in its India operation. One Important area is food
processing and distribution. So far, the company has been depending on its food
processing and distribution centres in and around Mumbai in the west and Delhi in the
north. But for future growth, the company has to improve its logistics and supply chain.
India’s rail and road transportation systems are not very fast and efficient. Because of
this, transportation of food inputs/items from long distance will add to the cost of the
final products. The company, therefore, needs to develop new food processing and
distribution centres in other cities for both operational efficiency and cost effectiveness.
This involves additional investment, and, the cost of investment may have to be absorbed
in the company’s cost structure and cannot be passed on to consumers because of price
sensitivity. There are other challenges also in terms of new competition, inflation and
changing consumer tastes and preferences.
But, in spite of challenges, the company is fully committed to its India growth strategy.
The company has already invested `450 crore since its launch in India in 1996. During
the next three years, it projects that this investment will go up to `750 crore, which will
be utilized for development of the supply chain as opening of new restaurants. The
expansion will also be reflected in district employment generation of an additional 3500,
taking total employment generation to 6500 people. The expansion plans would drive 50
per cent of the company’s future growth.
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McDonald’s is planning to open more restaurants in north India. The company is
moving up north and will soon open outlets in Himachal Pradesh, Uttar Pradesh,
Uttaranchal, Punjab and Chandigarh. Public movement and convenience place such as
national highways, expressway, airports, railway stations are some of the targeted
locations for outlets. The company’s plan is to open a total of 100 outlets in India course
of next few years. This number will go up further in future years.
McDonald’s quick service restaurants (QSR) format exists in different forms at various
locations. While family restaurants serve the entire menu, McDonald’s Express offer
limited menu and those are largely located in food courts and McDonald’s Kiosks serve
just beverage and desserts in places such as petrol pumps, among others. The Indian QSR
industry is expected to grow rapidly. To establish itself as a volume-driven mass
marketer, McDonald’s is focusing on high quality, affordability and penetration, and
introduction of new formats including home delivery. Home delivery is already being
offered at 23 restaurants out of 45 in North India.
As part of expansion strategy, McDonald’s is going places to localize its product. In this
endeavour, it has executed a tie-up with Delhi Metro. Delhi Metro Rail Corporation
(DMRC) and McDonald’s India have joined hands to provide a plethora of services to
Delhi Metro commuters. A number of value options will be offered to customers of both
organizations as part of this tie-up including the McValue Card and a children user
package. They have also partnered with Bharat Petroleum Corporation Ltd. (BPCL) and
Big Bazaar.
McDonald’s ‘glocal’ strategy seems to have paid good dividends in India. And, the
company’s future expansions will have ‘ localization’ or ‘indigenization’ as the driving
force. Right blending of western and Indian food tastes and choices with appropriate
strategic support provides the idea; base for McDonald’s growth momentum in India for
the future years.
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PIMR-Case Study- McDonald’s IN INDIA GROWTH STRATEGY-ARP-2017
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