McDonalds in India

International Business final project

Submitted by:-

Amrita Das

Ayesha Jahan

Khushboo Jain

Pallav Gurupanchayan

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Introduction

In 1996, McDonald's opened in India for the first time, a country where the majority of the

population was Hindu and vegetarian, and the cow was sacred. Many saw it as just another

example of the relentless spread of Western corporations into every nation, creating a global

system in which wealth was drained out of local economies into the hands of a very few, very

rich elite. McDonalds opened its doors in India in October 1996, demonstrating what the

McDonalds experience was all about. McDonalds in India was a 50-50 joint venture

partnership between McDonalds Corporation (U.S.A.) and two Indian businessmen. Amit

Jatias company, Hardcastle Restaurants Pvt. Ltd., owned and operated McDonalds

restaurants in Western India, while Connaught Plaza Restaurants Pvt. Ltd., headed by Vikram

Bakshi, owned and operated the North Indian operations.

Only 15% of the total number of restaurants is owned by the Company. The remaining 85%

is operated by franchisees. The company follows a comprehensive framework of training and

monitoring of its franchises to ensure that they adhere to the Quality, Service, Cleanliness and

Value propositions offered by the company to its customers.

To enter a market where consuming beef is off limits was very challenging and ambitious.

McDonalds objective was to be inspired by the culture of India and to deliver the greatest of

food experiences to the customers in India bringing in the splice of life. They were aiming for

to change the local perception of the new product being American and remove the fear of

unknown, where family dining in was a custom for centuries. The management wanted to

advertise McDonalds as a stimulator and advocate of family and culture values. The

diversity in language and communication is one of the greatest components of the culture.

Until 2000, McDonalds advertised their brand mainly by putting the main focus on the outlet

design and tailor made food menu for the needs and desires of the diverse Indian population.

McDonalds entry into India was met with stiff opposition. Members of the Hindu

organization, the Bajrang Dal, the militant arm of one of the dominant fundamentalist

political parties in India, the Bharatiya Janata Part (BJP) openly protested against the

company by attacking its branches across India on May 4th, 2001. The members of the

Bajrang Dal demolished the restaurant in Thane, a northeastern Bombay suburb. In southern

Bombay, a McDonalds store was besieged by protestors from the leading Bharatiya Janata

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Party, who shouted slogans and stained the restaurants mascot with cow dung. SHIV SENA

another Hindu alliance also threatened to protest outside the McDonalds corporate office

after reports of a lawsuit being filed against McDonalds in Seattle.

The biggest problem McDonald faced was during the launch of its product in India was the

public image it was carrying as an International food chain and not matching Indian

standards. There were concerns raised about how the burgers are made in McDonalds.

Offering the cheapest burger in the world was not easy. In India, McDonalds offered a menu

that did not had any beef or pork items as well as special product formulations for

accommodating Indian culture and palate. Furthermore, all the vegetarian products, even the

mayonnaise in vegetable burgers, were egg-less and 100% vegetarian. Additions to the menu

have been a regular feature of McDonalds in India. The company in India conducted regular

qualitative as well as quantitative studies, which tracked the target consumer lifestyle in

India, a practice that had followed internationally as well.

It was under these circumstances that McDonalds India went about creating the cold chain

infrastructure for its restaurants in the country. As McDonalds always considers the quality

of all its products to be of primary importance, it sets high standards for its suppliers that are

amongst the biggest in the food industry. World over, McDonalds always believed in

development of close relationships with suppliers and this is precisely what it has done in

India.

Fast food industry in India

As per new research report Indian Fast Food Market Analysis, India is blessed with

one of the fastest growing fast-food markets in the world. The Indian fast food market

is growing at an annual growth rate of 30-35%.

Although the market has witnessed robust growth in the past couple of years, it

remains largely under penetrated and concentrated in the metropolitan cities.

In 2013, the global fast food market is forecasted to have a value of $200 billion, an

increase of 29.3% and a volume of 94.7 billion transactions, an increase of 10.4%

since 2008.

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It is estimated through credit Suisse Emerging Consumer Survey, that the average

Indian spends just $11 as compared to his Chinese counterpart who would ideally

spend $20 on fast food. Yet, if we see the Indian spending on food in totality, they

spend 23% of their earnings on the same while the Chinese spending is 20%.

Almost all big fast food brands of the world have succeeded in making their presence

felt in the country and most of them are posting appreciable growth.

McDonalds Business Model

Franchise Model :- Only 15% of the total number of restaurants are owned by the

Company. The remaining 85% is operated by franchises. The company follows a

comprehensive framework of training and monitoring of its franchises to ensure that

they adhere to the Quality, Service, Cleanliness and Value propositions offered by the

company to its customers.

Product Consistency :- by developing a sophisticated supplier networked operation

and distribution system, the company has been able to achieve consistent product taste

and quality across geographies.

Act like a retailer and think like a brand :- McDonalds focuses not only on

delivering sales for the immediate present, but also protecting its long-term brand

reputation.

Target Market Segment

McDonalds has segmented their products according to 3 different bases. They have

segmented their products and positioned their products according to kids, students and

family. But they havent segmented their products according to the Adult target group.

The 3 bases for segmentation are:

Demographic Segmentation

Psychographic Segmentation

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Behavioral Segmentation

Demographic Segmentation :- (Kids, family and students.) McDonalds offers

different products like Happy Meal which includes a free toy for kids. For family it

has made different outlets and meals which are suitable for takeaways and drive-thru.

McDonalds has made its environment suitable for school/college students to hangout

with their friends and grab their lunch at McDonalds.

Psychographic Segmentation :- (Convenience and lifestyle )McDonalds has adapted

itself according to the convenience and lifestyle of the Indian consumers, as India has

a huge vegetarian population so McDonalds came up with a different and new

product line which includes items like Mc Veggie burger and Mc Aloo tikki Burger.

Behavioral Segmentation :- (Occasions, for e.g. Birthday parties for kids).

McDonalds at several outlets also provides facilities like Play Place where children

can play arcade games, air hockey etc. This helps McDonalds to attract the young

urban families wanting to spend some quality time while their children have fun at the

outlet.

Target Segment What is McDonalds for me?

A Family with children A treat to children, a fun place to be for the children.

Urban customer on the

move.

Great taste, quick service without affecting the work schedule

Teenager Hangout with friends, but keep it affordable.

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The environmental factors in India

As India being a very ancient country and one of the lands of the ancient river valley

civilizations, McDonalds had to consider the cultural, economical and sociopolitical

factors in India. The Indian population is very diverse and complex as nation is split

between different communities, religions (e.g. Hinduism, Buddhism, Sikhism, Islam,

Jainism and Christianity), beliefs and value systems. All these factors play a significant

role in nations preference for food and dining in general.

80% of the entire population of India practice Hindu which forbids non-vegetarian food

(Indian Mirror, no date). Because of this, McDonalds initially only offered a vegetarian

menu. Later they understood that this wasnt the correct approach. To honor the cultural

differences between religions, the company categorized the cooking tools as well as

employees in vegetarian and non-vegetarian category. The cultural factor had to be taken

into consideration in such market, as any omission can destroy the reputation globally

which may limit the chances of business expansion (Rappa, A., 2007). The change in

menu came also because of competitors like KFC, whom entered the market first with

non-vegetarian products.

McDonalds formulated a suitable pricing strategy that can facilitate the high volume of

consumers, targeting mainly the lower and middle class. The majority of the Indian

population falls into this category.

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Market share of McDonalds in India

The market in India is totally different from that of the USA. Here the family dining

concept works. This led to concept of breakfast combos. The restaurant was also projected

this as a fine dining restaurant.

This became the USP of McDonalds in India. The television commercials of Toh Aaj

McDonalds Ho Jaye and McDonalds Mein Hai Kuch Baat and the happy price menu

is what attracts Indian people to McDonalds. The new advertising of Prices of the

Yesteryears, attracted the teenager crowd too.

Strategies in India

In order to capitalize on the highly price sensitive economy, and the Indian mentality of

liking anything that is foreign, McDonalds strategy was market penetration and the three

circles strategy. This led to localization ND branding of the company. The entry of almost

all the international brands into India happened at the same time, while others closed

down due to various strategies. McDonalds survived only due to keen understanding of

the Indian economy.

The massive and aggressive expansion strategies that McDonalds took up in India was

with the sole objective of establishing its presence indelibly in the sub continent and to

prove to the world that if anything can sell in India it can sell anywhere. Today

McDonalds has become a household name and finds its kiosks in almost many schools

colleges and corporate. It can be said that there is no food court without a McDonalds

and almost every Indian has tasted McDonalds fast food. This is indeed a great

breakthrough for a very orthodox community that has very rigid and fixed eating habits

and traditionally very Indian.

McDonalds had to make it clear to the authorities that their products in India neither

contain beef nor pork in it. They had to suit their burgers to Indian taste and Indian market

which was a hyper price sensitive market. The introduction of breakfast combos and

budget meals made market penetration possible. Aloo Tikki Burger was McDonalds

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priced product in India. Their quick turnaround times made new inroads into the fast food

industry.

As providing value to the customer is the key, price sensitivity studies are conducted

before determining the pricing. The rate of inflation is also reviewed. McDonalds

definition of value was far broader than of most of the restaurants in its competition.

The People and the Training-Critical to

Employee Relations

Service is the key element of McDonalds operations. Every employee strived in

providing 100% customer satisfaction for every customer in every visit. This included

friendly service, along with accuracy of an order taking and anticipations of customers

demand.

When the Indian joint venture was formalized, the MTs were given extensive job training

in Indonesia. MTs in human resources, real estate and buildings were hired and global

directors worked with them to train them in the necessary areas. This was done through

interactions as well as through exposure with the customer through operation training

within the restaurants for a fixed period of time. The organization also provides ample

opportunities of overseas training to those displaying potential.

The People and the Training

When the Indian joint venture was formalized, the MTs were given extensive job training

in Indonesia. MTs in human resources, real estate and buildings were hired and global

directors worked with them to train them in the necessary areas. The projected sales of

each restaurant determined its staffing requirements. On the average, every restaurant has

a staff of 40-60 people, including managers. Induction training was conducted at the time

of an employees joining the organization. This was done through interactions as well as

through exposure with the customer through operation training within the restaurants for a

fixed period of time. The organization also provided numerous opportunities of overseas

training to those displaying potential.

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Developing the Supply Chain

World over, McDonalds believed in development of close relationships with suppliers

and this is precisely what it has done in India.

In the process, McDonalds actually encouraged entrepreneurship, by introducing the

local suppliers to its global suppliers. This association involved transfer of state-of-the-art

food processing technology, thereby leading to an improvement in quality standards and

helping create world class manufacturing facilities in India. This was the first step towards

creating the unique cold chain.

McDonald's unique 'cold chain', on which the QSR major has spent more than six

years setting up in India, has brought about a veritable revolution, immensely

benefiting the farmers at one end and enabling customers at retail counters to get the

highest quality food products, absolutely fresh and at great value.

McDonald's, through its unique cold chain, has been able to, both cut down on its

operational wastage, as well as maintain the freshness and nutritional value of raw

and processed food products. This has involved procurement, warehousing,

transportation and retailing of perishable food products, all under controlled

temperatures.

Supply Chain Process

A McDonald's burger is not just a burger but an outcome of dedicated efforts by

farmers, its suppliers, distribution center and a firm promise by McDonald's.

McDonald's contributes a great back end process which enables you to enjoy your

favorite burger fresh & hot, and for that, the supply chain truly acts as a backbone of

the business.

The supply chain begins at the grass root level, with the suppliers receiving the crop

from the farmers. The crop is then processed and dispatched to the Distribution

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centers in special temperature controlled trucks, which ensures that the quality of the

items is not compromised.

These items are stored in rooms with different temperature zones and are finally

dispatched to the McDonald's restaurants on the basis of their requirements.

McDonald's expectation of 'Cold, Clean, and On-Time Delivery' plays a very vital

role in maintaining the integrity of the products throughout the entire 'cold chain'.

Sourcing and Storage

Setting up this extensive cold chain distribution system has involved the transfer of

state-of- the-art food processing technology by McDonald's and its international

suppliers to pioneering Indian enterprises who, today, are an integral part of the

McDonald's cold chain.

McDonald's Supply Chain's distribution partner ensures that all requirements

ranging from liquid products coming from Punjab, to lettuce from Pune, is received

from different parts of the country.

McDonald's India has around 40 suppliers and all the suppliers are HACCP

certified, ensuring highest level of quality. They work cohesively to ensure that the

final product reaches the customer consistently each time and every time

McDonald's India has ensured that this dedicated supply chain enables the Indian

supplier an accesses to latest in food processing technology, management practices

and advanced agricultural inputs with significant investment at the back end. This

has proved to be a great advantage in serving the customers better.

Supply Chain: Cost Management

The tremendous value benefit is enabled by McDonald's renowned supplychain

management system and by leveraging economies, which helps minimize costs while

maximizing value to customers.

McDonald's strong back ward integration connects it directly with various aspects of the

business right up to the farm level, which helps in increasing the productivity in terms of

yields and helps the brand manage costs.

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A well entrenched process driven production system ensures high levels of

standardization and quality, which also keeps wastage and costs in check

Supply Chain: Menu Management

Menu innovations are a constant practice at McDonald's. McDonald's introduced

global core products like McNuggets and have also re-engineered the product range

to suit the Indian palate. This menu innovation has been possible due to robust

supply chain network right up to farm level.

Every new product requires a special treatment and the backend process needs to be

upgraded to meet the requirements.

Pricing Strategy

Success of McDonalds has been mainly due to its value for money offering to the Indian

Consumers. The prices offered are in the range of lower middle section of the society.

Moreover it customization in accordance with the taste of Indian consumers has also

worked in its favor. McDonalds Pricing Strategies are as follows:-

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Value Pricing.

Product line Pricing.

Promotional Pricing.

Penetration Pricing.

Value Pricing

McDonalds came with the concept of value pricing for Indian consumers where in it came

out with various combos in form of

Happy meals comprising of small burgers, coke + toy.

Medium meal combo that consisted of burger, medium fries and medium coke with

the price of Rs. 75

Maharaja Mac Meal Rs. 94

Famil Dines under Rs. 300.

Product line Pricing

McDonalds has a unique price strategy which falls soley on many of their product lines.

Their Value Meals fall into the category of Product Line Pricing. where there is a range

of product or services the pricing reflect the benefits of parts of the rang. For example,

you can order Two Cheeseburger Value Meal that comes with a medium drink and fries

for around Rs. 75 (prices may vary). You can Super size this meal to get a large drink and

fries for a little money or you can go with another value meal that might include different

items for different price.

Promotional Pricing

If you have driven past a McDonalds, you will notice that somewhere on their property,

whether it is a banner on their building or spelled out on their sign, they are always

offering some sort of promotional pricing. This promotion can be seen as a large banner

draped across the building on many restaurants. This promotion changes weekly and may

consist of different menu items packaged together

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Penetration Pricing

When McDonalds first began to break into the coffee market, they ran a large marketing

campaign in order to gain some market share in the industry. For a limited time frame,

you could get a free small coffee every morning from 4-7 am. This was to promote their

new coffee partnership with Green Mountain coffee and helped spread the word that

McDonalds was now offering coffee.

Building the Brand

McDonalds had positioned its restaurant as a family restaurant that barred smoking as

well as serving of alcohol on its restaurant. The results were apparent and resulted in a

48% increase in footfalls along with 30% hike in the sales.

In the same year, the company aired its 1V commercial for the Rs. 7/- soft serve cone

campaign, thereby establishing the value proposition of the company. However, this

research indicated that the people are unaware of the quality of food served by the

McDonalds. This had led to creation of the advertising campaign by the company which

started its focus on familiarizing customers with the quality of food served at

McDonalds. Consumer research had also pointed that a large mix of offerings were

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required in the vegetarian menu of McDonald and the company consciously addressed

this need of its customers. The company had also become aware of the fact that eating out,

though gaining frequency was still primarily a family affair. Hence, it was attributed

mainly to evenings and weekends.

The Happy Price Menu had come closer on the heels of the marketing initiative by the

company im lovin it which McDonalds had launched in October 2003. The

communication about this new offering was funky and funny and tells that McDonalds is

overall a great place, and at a best price which restricted not only to its product, but also

the experience. At the same time, it aims to make the service hassle-free and easy to use.

Cultural challenges

The biggest problem McDonald faced was during the launch of its product in India

was the public image it was carrying as an International food chain and not matching

Indian standards. There were concerns raised about how the burgers are made in

McDonalds.

Vegetarianism: The major issue was beef. Cow being sacred and worshipped, beef

could not be served. Muslims did not eat pork. The challenge was to change the form

of the worldwide popular Hamburger to make an entry into India. With 25-30% of the

population being lacto vegetarian and a large majority eating meat, an alternative to

beef and pork was necessary. The population of a billion was undoubtedly a

promising opportunity for an international company. McDonalds accepted the

challenge and created the Aloo Tikki Burger known as McAloo Tikki especially for

the Indian vegetarian customers. Aloo- Tikki was a potato patty with spices. It also

made a chicken and fish option available for the non vegetarians. McDonalds even

separated the non vegetarian cooking process and the vegetarian process to convince

the customers of the Shudh Shakahari Experience which means pure vegetarian

experience. In addition, the crew cooking vegetarian food were asked to wear green

aprons. McDonalds in India was one of its kinds as it did not offer beef at all. In

order to convince and change the perception of the customers about the burgers they

offered, McDonalds made attempts to clarify their stand about beef in India. So the

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world famous hamburger was without meat. This was indeed a classic case of product

adaptation, to gain foothold in a new market.

Eating Habits- Eating out was a special occasion to many Indian families. Meals had

been an essential medium for social sharing and relationship. Whenever families

decided to eat out, the choices available were abundant. The trend in metropolitan

cities was however changing. With more nuclear families and dual income

households, the demand for fast and readymade food was growing. The needs of the

growing working population stimulated the need for new products and services.

Indian culture was relatively new to the use of technology and streamlined process in

food service. McDonalds needed to find ways and methods to motivate the customers

opt for initial trials and acceptance. The conventional eating pattern of Indians

involved breakfast, lunch and dinner. Lunch and dinner menus were complete meals

providing the right balance in terms of nutrition. Breakfast was conventional as per

the family culture and upbringing. Burgers were likely to be slotted in the category of

snacks. But globally burgers and beverage brands were linked with poor eating habits.

The market situation called for focus on the environment within the restaurant and

western association.

Glocal Strategy of McDonalds

More than 75% of McDonald's restaurants worldwide are owned and operated by

independent locals.

Global aspects-

1. OFFERING- A brand is an offering from a known source. McDonalds

carries many associations in the minds of people. Hamburger, fun, children,

fast food, Golden Arches. These associations make up the brand image.

2. FOCUS ON PHILOSOPHY- We take the burger business more

seriously than anyone else. When McDonalds founder, Ray Kroc made that

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memorable statement, he was letting the world think about the philosophy and

the secret behind McDonalds phenomenal success.

3. QUALITY, SERVICE, CLEANLINESS AND VALUE- It is an unflinching

McDonalds ideology that the customer must always get quality products,

served quickly and with a smile, in a clean and pleasant environment and all at

a fair price.

Local aspects-

1. RESPECT FOR LOCAL CULTURE- McDonalds India has developed a

special menu with vegetarian selection to suite tastes and preferences.

McDonalds does not offer any Beef or Pork items in India. Only the freshest

chicken, fish and vegetable products find their way into India restaurants.

2. MEETING THE NEEDS OF KEY AUDIENCES- To build long-term

business it is essential to retain people once they have become customers.

Customers are not all the same. Market research identifies different types of

customers. For example:

A Parent with two children might visit. Visits McDonalds to give the

children a treat.

Children want to visit McDonalds. As it is a fun place to eat.

A Business Customer visits McDonalds during the work day. As service is

quick, the food tastes great and can be eaten in the car, without affecting a

busy schedule.

Teenagers visit McDonalds as the menu is affordable, and there is internet

access in some restaurants.

Family centric & child centric strategy

In India, McDonalds has positioned itself as family restaurants unlike in other

countries

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Targets children as they are influenced easily and are also future customers attracts

them by Happy Meals and Lego toys, Fun Zones

Also attracts young adults through promotional events like Music Meal

Provides lounges for senior citizens, opened Cold Kiosks to provide sweet desserts to

customers after a meal

Also provides home delivery services

Major reasons for success in India

1. Sensitivity to local taste: No beef or pork, restricted to chicken, fish, paneer, potatoes.

2. Affordable Prices: Items in the menu starting from Rs 25/- and prices of most items

are in nominal range.

3. Promoting a family-dining experience: Indians like eating with families and friends.

TV ad: Toh Aaj McDonalds Ho Jaye (Lets go to McDonalds today).

4. Innovative practices: Home delivery, breakfast menu, lunch menu, etc.

Future challenges of McDonald

1. Competition in Market: Burger Kings, KFC, Dominos Pizza, Dunkin Donuts

2. Consumer friendly nutrition information and communicate responsibly

3. Effective supply chain management for sub-urban cities in India

4. Major challenge is to maintain a low cost price menu.

Conclusion

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McDonalds continuous product innovation and customer satisfaction through greater

customer reach. In order to sustain in a very competitive market McDonalds has to

continuously think of bringing in new concepts into all its operations especially in

marketing. McDonalds had to bring in something that would help in long sustainability

and that unrivaled position on the market as a foodtailer. The result of a spontaneous

thought led to the introduction of breakfast outlets and a chance encounter with a

technology specialist ended up with online booking orders and birthday parties and

signature outlets. These are signature products of McDonalds and this will in the long run

help McDonalds to improve it already ace services with better customer service and great

shopping experience. The success of McDonalds in India could be measured by its

continuous growth in Indian fast-food market with 210 branches across India.