Vinod Iyer
PGDBM I, Simsree
McDONALD’S IN INDIA – A BRAND REVIEW
· Brief History of McDonald’s
The two golden arcs of McDonald’s is an endearing symbol for most urban children and teenagers around the world. It is worth noting that for many young families McDonald’s is a part of their lives. This is a result of the children’s power to influence decision making, at least in trivial issues. McDonald’s franchisee’s popularity is a result of more than fifty years of marketing with a focus on children and young families.
McDonald's was founded by Dick and Mac McDonald, who first venture into the food business was in 1937, when they opened a hot dog stand in Arcadia, California. They opened the first McDonald's restaurant on May 15, 1940, in San Bernardino, California where Hamburgers were their most popular product. In 1948 the brothers introduced their "Speedee Service System," a streamlined assembly line for hamburgers that allowed them to produce burgers quickly and inexpensively. This was extremely successful, and in 1953 they began to franchise McDonald's restaurants. Entrepreneur Ray Kroc visited the first restaurant in 1953, and sensing its potential, he convinced the brothers to put him in charge of franchising. He later purchased the brothers' interest in the company, and in 1955 he opened his first restaurant in Des Plaines, Illinois and the McDonald's Corporation was created.
In 1957, "Quality, Service, Cleanliness and Value (QSC& V)", became the company motto. After expanding for 6 years in the United States, McDonald's unveiled their biggest brand ambassador yet, "Ronald McDonald”. In 1967 the first restaurants outside of the USA were opened in Canada and Puerto Rico. The New Hamburger University campus was opened in Oak Brook, Illinois where training is provided for every level of McDonald's management worldwide. By 1994 restaurants were run in countries like Bahrain, Bulgaria, Egypt, Kuwait, Latvia, Oman, New Caledonia, Trinidad and United Arab Emirates, bringing the total to over 15,000 in 79 countries on 6 continents.
Currently there are close to 30,000 eateries worldwide serving nearly 50 million customers per day.
In October 1996, McDonald’s opened its first Indian outlet in Vasant Vihar, an affluent residential colony in India’s capital, New Delhi. It was a 50-50 joint venture with two local businessmen, from Mumbai and Delhi.Amit Jatia’s company, Hardcastle Restaurants Private Limited from Mumbai and Vikram Bakshi’s Connaught Plaza Restaurants Private Limited own and manage the eateries in western and northern regions respectively. 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. It did help them that they had a business plan emphasizing on India-centric management strategies and had an easy access to bureaucracy so critical to effective government relations building. There are about 90 restaurants in India with plans to expand to 150 throughout India by 2008.
India has a very diverse population with each community having its own typical food habits, spicy or bland, vegetarian or otherwise, rice based or otherwise, etc. Majority of the Indians prefer eating at home and this even truer in 1996 when the middle class still focused on saving rather than spending. The service sector was at its nascence and the young middle class spent in a limited fashion. Besides there was no history of success of American brands in India, barring soft drinks. On the contrary KFC, the one of the first American restaurant chains to venture in India had a difficult start with low acceptance and political opposition in Bangalore.
McDonald's, however, made an excellent entry into the Indian market. They were already an internationally renowned chain with world wide appeal. Unlike other multi nationals they were flexible enough to suit their products to the local palette. Today at any McDonald's restaurant in India, it is not uncommon to find a McAloo Tikki Burger, McCurry Pan or Spicy Potato Wedges. This is no surprise considering that McDonald's already have a similar history in other countries. The Teriyaki Burger in Japan, Croque McDo in France, the Maharani Burger in Malaysia, a green pepper burger in Singapore, a Thai burger with a Thai curry paste, Spaghetti in the Philippines, spicy chicken with rice in Indonesia, and spicy seafood noodle in China are some of the examples of its localization strategy. However, McDonald's cut two of their largest selling items world wide, namely, Hamburger (Pork based) and the Big Mac (Beef based), considering that majority of the population in India comprises of Hindus and Muslims.
The menu, though desirable, could not possibly be the single important reason for their popularity in India. McDonald's story in India is one of a gradual change of marketing and promotion strategy, which has completely overhauled their image in the minds of the urban consumer over the last ten years. In 1996 when McDonald's opened in India, only the elite had access to the Internet, people in suburbs had to travel to the Central areas to catch the latest movie and the idea of having to pay Rs. 40 for a burger, which is hardly a filling breakfast by Indian standards, was alien. McDonald's though had a USP. They represented the one thing that most urban Indians desperately yearned for, "The American Experience". Standing in the line, being served by waiters who spoke English, getting the food in minutes if not seconds, clean and chic surroundings, etc. were all a part of the "McDonald's Experience". Hence it did not come as a surprise to see queues in McDonald's outlets. The "Indianised" menu meant that the food taste did not cause too much culture shock as it suited the spicy Indian taste. McDonald’s thus started off in India targeting the affluent and upper middle class brackets.
In the late 1990's the boom in the Indian economy started with the growth of the service sector. This prompted a change in demographics as far as McDonald's were concerned. There was a considerable population with people in their mid -20's, relatively less responsibility and money to spend. At around this time McDonald's started promoting themselves as a friendly neighborhood restaurant where a young family could dine, reduced their prices to suit the budget of this new market and introduced India centric dishes. They started advertising on satellite channels dedicated to children and thus had a sizable portion of young urban children think that McDonald's was the place to go. Most young urban families had both the husband and wife work, thus contributing to the guilt factor of not spending enough time for the kids. This contributed to the increase in purchasing power in the children. Hence it is no surprise that McDonald's still have a family-centric and child-centric strategy. Its outlets are called “McDonald’s Family Restaurants”, as opposed to simply McDonald’s as in other parts of the world. Employees make it a point to pamper children.
Thus over the last ten years, McDonald's have evolved from a status symbol to a friendly neighborhood restaurant which serves clean - hygienic food at affordable rates.
However, financially the results are not so pretty. Nine years after McDonald’s first set up in India, the burger giant has yet to make any net profit. According to McDonald’s management, each McDonald’s store in India takes about five to seven years to break even. Part of the reason for this long break-even period has to do with the investments required per store in terms of expensive process control equipment (that the company imports from abroad) and acquiring prime location real estate properties. However, compared to 12-13 years that McDonald’s takes to break even in any new country the company enters, India’s break-even time is actually more favorable. McDonald's in India have also achieved an impressive 50% annual revenue growth since 1997 and growing popularity. In a survey by Synovate, a global market research agency, 20% of young Indians between the ages of 8 and 24 reported their preference for McDonald’s products, followed by Pizza Hut (11%) and then KFC (2%). No amount of advertising and brilliant promotions could have done the trick alone. In India, McDonald’s did not create a market where none existed. It merely responded to an opportunity presented by the changing Indian socio-cultural values and sustained economic liberalization.
- Potential Opportunities and Threats
McDonald’s current strategy of positioning itself as a family restaurant with an emphasis on local menus and local values is working well in India. But the future represents a lot of uncertainties.
McDonald’s is more than just another American fast food chain. It carries a symbolic load of American domination and cultural imperialism. For this reason alone, McDonald’s operations in India, like other parts of the world, will continue to face opposition from religious fundamentalists, environmentalists, protectionists, animal rights activists, and ant globalization protestors. There have already cases of McDonald’s outlets in Delhi and Thane (on the outskirts of Mumbai) being targeted by the Shiv Sena (the right-wing Hindu nationalist group) after the company was sued in the United States over the use of beef extract on its French fries. McDonald’s public assurance that it does not use any animal extract in vegetarian foods in India and the clearance certificate the company got from the government agency Brihanmumbai Municipal Corporation (BMC) took the steam out of this kind of politically motivated violent protests for the time being. In March 2005, McDonald’s outlet in Ahmedabad in the western state of Gujrat became a target of protest from the ruling BJP (Bharatiya Janata Party) party workers, following the U.S. decision to deny the BJP party’s leader and the Chief Minister of Gujrat Narendra Modi a diplomatic visa on the ground of his alleged involvement in the after math of the Godhra train carnage, where hundreds of people were killed as a result of Hindu-Muslim communal riots. Denouncing the U.S. decision as an insult to India’s sovereignty, the BJP party workers organized protest rallies in Ahmedabad with placards like, “Throw out all American goods and Americans from Gujrat.” With increased deployment of police force and the central BJP leaders’ advice not to attack the American companies, the protest fizzled out. But it may erupt again.
Also, India as an economy is developing very fast and the single largest market of McDonald's i.e. the urban middle-class is the fore front of this change. This represents a continuous change in preferences of the consumer. For example, the so called Chinese food, with its Shezwan Noodles, Veg. Manchurian, etc. is no longer the "in thing". McDonald’s is likely to face constant pressure to increase its product range. Until now, the company has responded well to varying customers’ tastes and preferences by introducing new products. But given India’s fragmented regional cultures, where no single food preference predominates, McDonald’s needs to develop new products on a regular basis. Developing new products adds complexity and cost and raises the risk of error. It also runs counter to McDonald’s culture and history. Yet, if McDonald’s does not do it on a regular basis, the company’s popularity will be short-lived. It will be difficult for the company to meet the range of different competitors.
McDonald’s also needs to expand to other cities and towns in India rather than concentrating in Delhi, Mumbai, and a few other metropolitan cities. This would mean an overhaul of the excellent supply chain system they use currently to offset the poor transportation infrastructure in India. There are opportunities to open kiosks in railway stations and airports to serve the travelers. Finally, there is 70% population who will have a sizable number uplifted in the next 20 years. This represents a huge opportunity.
McDonald's may or may not integrate completely in the mind of the Indian consumer. But one thing is for certain - It is here to stay.
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