McDonald's Entry into India

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Your Best BRIC Opportunities Toda Ho! to Capitali"e on India#s $ro!in% &'ono( &)plorin% India B *ridu +hullar Relph O't,-./How McDonalds broke into the lucrati e Indian !arket" In /0012 *'Donald3s set up operations in India throu%h a 4oint venture partnership !ith t!o lo'al Indian 'o(panies5Hard'astle Restaurants Private 6i(ited in the !est and south re%ion and Connau%ht Pla"a Restaurants Private 6i(ited in the north. Ba'7 then2 the suppl 'hain in8rastru'ture2 9ualit 8ood suppliers and the retail environ(ent as a !hole !ere seriousl underdeveloped2 sa s A(it :atia2 vi'e 'hair(an o8 *'Donald3s India2 West ; <outh =HRP6>. ?&ven prior to its entr into India2 *'Donald3s !as 'o((itted to !or7in% !ith lo'al suppliers and 8ar(ers to sour'e all its re9uire(ents2@ he sa s. ?The 'o(pan there8ore spent si) ears and around AB/.0 (illion to set up the 8ood suppl 'hain even be8ore openin% its 8irst restaurant in the 'ountr .@ India2 despite bein% the !orld3s se'ond lar%est produ'er o8 8ood2 loses nearl A0./ billion !orth o8 8ood produ'e due to !asta%e at various levels2 espe'iall the la'7 o8 proper in8rastru'ture 8or stora%e and transportation2 :atia e)plains. ?*'Donald3s India has pioneered its uni9ue 'old 'hain (ana%e(ent s ste( that has been able to both 'ut do!n on its operational !asta%e and retain the 8reshness and nutritional value o8 ra! and pro'essed 8ood produ'ts. This i((ensel bene8ited the 8ar(ers at one end and

enabled 'usto(ers to %et the hi%hest 9ualit 8ood produ'ts2 absolutel 8resh and at a %reat value.@ When the 'o(pan entered India2 it !as 9ui'7 to note that its bi%%est 'hallen%e !ould be to 'ater to the lo'al tastes and pre8eren'es. In addition2 (ost 'usto(ers initiall per'eived *'Donald3s to be an e)pensive restaurant that 'atered onl to the outh. The 'hallen%e !as to brea7 that per'eption and %ain a''eptan'e as a 8a(il restaurant2 !hi'h it did. ?We (ade a 'o((it(ent o8 not servin% an bee8 or por7 ite(s to the 'usto(ers2 7eepin% in (ind Indian sensitivities and our respe't 8or the(2@ sa s :atia. The 'o(pan 'han%ed the %lobal 8avorite5the Bi% *a'5to a 'hi'7en bur%er 'alled the *ahara4a *a' and started usin% e%%less and 'o(pletel ve%etarian (a onnaise and 'oo7in% onl in ve%etable oil. It also introdu'ed a uni9uel Indian produ't5the *'Aloo Ti77i5a 8irst o8 its t pe in the *'Donald3s s ste(. :atia sa s that ne! businesses enterin% India need to re(e(ber that retail toda has 'han%ed 8ro( sellin% a produ't or a servi'e to sellin% a hope2 an aspiration and2 above all2 an e)perien'e that a 'onsu(er !ould li7e to repeat. ?As 'onsu(er behavior 'ontinues to evolve2 so (ust the !a s in !hi'h (ar7eters and brands appeal to the(.@ Mridu Khullar Relph is a freelance writer, based in Delhi. Her credits include Ti(e magazine, The Ce! Yor7 Ti(es, theInternational Herald Tribune2 $lobalPost2 &lle (India edition), *s. and The Christian <'ien'e *onitor.

1. 4 REASONS WHY MCDONALDS IS SUCCEEDING IN INDIA Prof. Sameer Mathur, Ph.D.

2. Sameer Mathur BuddingMarkets.com Marketing Professor 2009 2013 Ph.D. and M.S. (Marketing) 2003 2009 Marketing Professor 2013 Indian Institute of Management, Lucknow

3. Agenda Why is McDonalds succeeding in India, whereas other fast food giants (e.g. KFC) have not done well?

4. 4 Reasons Sensitivity to local taste (no beef or pork) Affordable Prices Promoting a family-dining experience Innovative practices (e.g. Home-Delivery)

5. No beef products Restricted to chicken, fish, lamb and vegetarian products Localization as a Marketing Policy in India

6. It really doesnt make sense to sell beef in a country where 85% of the population doesnt eat it or will even shun a restaurant where beef is served Vikram Bakshi, Managing Director, McDonalds India Common Sense Approach

7. Affordable Prices 1 US$ ~ Rupees 45 8. Indians like eating with families and friends. TV ad: Toh Aaj McDonalds Ho Jaye (Lets go to McDonalds today) Promoting a Family-Dining Experience

9. Quite unlike the United States Innovative: Home Delivery

10. First India McDonalds opened in 1996 Critics were apprehensive: Attracting Indians to American pattern of food consumption appeared daunting. Multinationals: perceived threat to local economy & native culture. Food: a family affair, eating out was less common. The Early Days

11. More Recent Numbers 12. International brands (e.g. KFC) have not done well McDonalds 42% Market Share

13. Summary Why is McDonalds succeeding in India, whereas other fast food giants (e.g. KFC) have not done well?

14. McDonalds is the most successful fast food franchise in India with ~40% market

share 4 Reasons for McDonalds success in India Sensitivity to local taste (no beef or pork) Affordable Prices Promoting a family-dining experience Innovative practices (e.g. HomeDelivery) Summary

15. Recommended Reading 16. Over 600,000 views from more than 100 countries http://www.BuddingMarkets.com/ Sameer Mathur BuddingMarkets .com http://www.facebook.com/BuddingMarkets/

17. Sameer Mathur smathur.com Free to Download Get These Slides Free

http://www.slideshare.net/ProfessorMathur/4-reasons-why-mcdonalds-is-succeeding-inindia

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*'Donald#s adapts to India

#y Alick $ordon% Ar ind Desh!ukh% De iki $u&ta% Sa! Hun'and Chul (on #aek 6i7e (an oun% (en his a%e2 Rohan !as a bit nervous about his 8irst date !ith Ceha. The had been 8riends 8or (an ears2 but this !as the 8irst ti(e the had been out on their o!n to%ether. A8ter orderin% their 8ood2 the !aitress responded !ith the ubi9uitous

9uestion2 ?Would ou li7e 8ries !ith thatE@ ?Yes please2@ responded Rohan be8ore pa in% and 'arr in% his and Ceha3s tra s o8 8ood ba'7 to their table. Fnli7e in the Fnited <tates2 !here (ost oun% adults !ould never thin7 o8 %oin% on a date to *'Donald3s2 in India it is a !idel a''epted and !el'o(ed destination. *'Donald3s India has 'arved a ni'he 8or itsel8 in an in'reasin%l 'o(petitive Indian 8ast 8ood (ar7et b adaptin% itsel8 in !a s un'o((on 8or the 'o(pan in other parts o8 the %lobe. Throu%h the 'o(pan 3s 8o'us on teena%ers and oun% adults as !ell as a hi%hl spe'iali"ed (enu2 *'Donald3s has 8ound su''ess in India !hen (an people said it 'ould not be done. When (ost o8 us thin7 o8 *'Donald3s2 !e thin7 o8 'heap 8ast 8ood and little 'hildren ra'in% around the restaurant !ith their happ (eal to s. While this is (u'h the sa(e !herever ou %o in the !orld2 upon 'loser inspe'tion2 *'Donald3s India retains so(e (a4or di88eren'es. The (ost noti'eable di88eren'e is the (enu. *'Donald3s is 7no!n !orld!ide 8or its Bi% *a'. Ho!ever (ore than B.G o8 India3s population o8 /./H billion does not eat bee8 =CIA>. <o to have an 'han'e o8 su''ess in the 'ountr 2 *'Donald3s re'o%ni"ed that the 'o(pan !ould have to spend a lot o8 ti(e and e88ort developin% a (enu that 'atered to India3s enor(ous Hindu and *usli( 'o((unities. &lse!here in the !orld2 *'Donald3s (aintains a stri't H.G ori%inal I.G lo'al (enu. In India ho!ever2 *'Donald3s inverted those nu(bers (aintainin% a I.G ori%inal H.G lo'al (enu. <tri'7en 8ro( the (enu !ere the Bi% *a' and Juarter Pounder2 the ha(bur%ers that (ade *'Donald3s 8a(ous. $one also !as the *'Rib. A8ter all2 *usli(s do not eat por7. In their pla'es2 *'Donald3s unveiled its potato2 la(b2 and 'hi'7en based (enu 8eaturin% su'h dele'table treats as the *' Aloo Ti77i Bur%er and *ahara4a *a' =see appendi) />. But not to !orr *'Donald3s 8ans2 ou 'an still %et our Kren'h 8ries and Chi'7en *'Cu%%ets. *'Donald3s also represents so(ethin% di88erent to the outh o8 India. The 'o(pan has been a''used o8 'ultural i(perialis( b nu(erous sour'es but this is not reall true. *'Donald3s has had to Indiani"e itsel8 in order to be a''epted b the population =<in%hal>. &ven so2 *'Donald3s has retained (an o8 its 7e !estern ele(ents and this has (ade the restaurant that (u'h (ore popular. Thin7in% o8 our o!n e)perien'es at *'Donald3s2 8e! o8 us !ould re(e(ber all the %reat ti(es !e had !ith our 8riends at that 'ool A(eri'an st le restaurant.

Yet this is e)a'tl the (e(or that Indian outh asso'iate !ith *'Donald3s. The see the restaurant as so(ethin% di88erent2 uni9ue2 and 8un. The see it as a %reat pla'e !here the 'an %et out o8 the house and a!a 8ro( their parents. This is !here India3s ouths %o to han% out !ith their 8riends and treat the(selves to so(e %reat tastin% reasonabl pri'ed 8ood. *'Donald3s has 'ultivated this i(a%e and built brand lo alt !ith oun% Indians throu%h advertise(ents spe'i8i'all tar%eted to!ards oun% adults =see appendi) ->. The restaurant re'o%ni"es that this a%e bra'7et2 (ore so than in the F<2 in8luen'es the pur'hases o8 the entire 8a(il . And as su'h2 b 'apturin% the outh (ar7et2 *'Donald3s 'an 'apture the rest o8 the 8a(il as !ell. Additionall 2 due to the re'ent in'reases in KDI and the abundan'e o8 'all 'enters2 India3s outh have (ore (one than previous %enerations did. And !ithout the 8a(ilies and other obli%ations that drain the !allets o8 their elders2 these nouveau !ealth outh are 8ree to e)er'ise (ore dis'retionar spendin% than previous %enerations. Throu%h the 'o(pan 3s operatin% (odel o8 tar%etin% the teen and oun% adult populations o8 India2 the 'o(pan has en4o ed %reat su''ess2 'apturin% I0G o8 8ast 8ood sales in the 'ountr =Kast Kood L India>2 this despite the 8a't that *'Donald3s does not even have the (ost restaurants. That honor lies !ith Bas7in,Robbins. *ean!hile the (ar7et is e)pe'ted to %ro! nearl M.G b the ear -./N =Kast Kood in India>. All o8 !hi'h (a7es *'Donald3s and its 'o(petitors salivate. In total2 *'Donald3s has (ore than /1. restaurants 'on'entrated pri(aril in the northern and !estern distri'ts o8 the 'ountr =*'Donald3s India !ebsite>. In addition to their traditional restaurants2 the 'o(pan also operates (an i'e 'rea( 7ios7s. These are s(all stores lo'ated pri(aril in shoppin% distri'ts !here 'usto(ers 'an ta7e a brea7 8ro( their da to sit and en4o an i'e 'rea( 'one =see appendi) I>.The 'o(pan has also 'hosen to 8or%o its usual 8ran'hisin% (odel. Instead 'hoosin% to start t!o 4oint ventures and establish t!o (aster 8ran'hisees that are responsible 8or (ana%in% ever restaurant in the 'ountr . This 4oint venture (odel helps the 'o(pan e)er'ise stron%er 'ontrol over the individual restaurants and ensures that ea'h one (eets the 'o(pan 3s stri't J<CO =Jualit 2 <ervi'e2 Cleanliness2 and Oalue> (otto. )orei'n )ailures*

But !hile *'Donald3s has (ade su''ess in India see( eas 2 (an other 'o(panies have 8ound out that in realit it is not. HPa%en,Da"s learned this the hard !a . In a 'ountr !ith a s!eet tooth2 !here not onl the oun% people2 but the older %enerations as !ell2 love i'e 'rea( =Dash Intervie!>. It !as assu(ed that HPa%en,Da"s !ould be a %reat su''ess. In an e88ort to dru( up publi'it and brand itsel8 as another 'ool 8orei%n 'o(pan 2 HPa%en,Da"s held a previe! event 8or the international 'o((unit the da be8ore the 'o(pan !as to open its 8irst outlet. To advertise the event2 the 'o(pan displa ed a si%n 8eaturin% the phase2 ?&ntr restri'ted onl to holders o8 International passports.@ On the da o8 the previe! event2 an Indian student !as re8used entr . The 'o(pan 'lai(ed that the oun% (an !as re8used not be'ause o8 his nationalit 2 but onl be'ause o8 over'ro!din%. Ho!ever the (essa%e had alread been sent. The student too7 a photo%raph o8 the si%n and sent it to ea'h o8 the (a4or ne!spapers in India. HPa%en,Da"s3s pro(otion ba'78ired be'ause it re(inded India3s population o8 the QCo Do%s and Indians allo!ed3 slo%an that !as 'o((on durin% the British Rule. Be'ause o8 a poor 'hoi'e o8 !ords2 an event that !as supposed to brand HPa%en,Da"s as 'ool and popular ended up e(broilin% the 'o(pan in a (assive 'ontrovers . While HPa%en,Da"s3s poor 'hoi'e in advertisin% (ade its shop in Ce! Delhi !orld 8a(ous2 it did not !in the appre'iation o8 the Indian (ar7et. HPa%en,Da"s still has not e)panded be ond its sin%le store in Ce! Delhi =Das%upta>. *an other 'o(panies have stru%%led be'ause o8 their overesti(ation o8 and un!illin%ness or inabilit to adapt to the Indian (ar7et as !ell. +ello%%3s 8ailed to 'onsider Indian 'onsu(ers3 brea78ast pre8eren'es. 6evi3s tried to sell blue 4eans 8or the sa(e pri'es the 'o(pan 'har%es in the F<. &ven Co'a,Cola stru%%led be'ause the 'o(pan o88ered its soda in bottles that !ere too bi% and too e)pensive. At least in Co'a,Cola3s de8ense2 the 'o(pan re'o%ni"ed its error in 4ud%(ent and 'onverted to sellin% 'heaper2 s(aller bottles and has sin'e rebounded 8ro( its (ista7e =Prasso>. Lookin' Ahead* *'Donald3s has so 8ar been hi%hl su''ess8ul in its e)pansion into India2 but all is not ros 8or the 'o(pan . The sa(e reasons that attra'ted *'Donald3s to the 'ountr have attra'ted (an 'o(petitors as !ell. Yu(R Brands2 o!ners

o8 +KC and Ta'o Bell2 as !ell as lo'al 'o(petitor Cirulas have also %ro!n in si"e and popularit in the (ar7et. These 'o(petitors have the added bene8it o8 seein% !hat strate%ies have !or7ed !ell and !hat strate%ies have 8ailed 8or *'Donald3s and other 'o(panies. Additionall 2 !hile *'Donald3s stresses its J<CO (otto2 ensurin% A(eri'an standards o8 'leanliness and h %iene in a 'ountr !ith (u'h lo!er standards is a 'onstant 'on'ern. Kinall 2 poor in8rastru'ture outside o8 the (a4or 'ities i(pedes *'Donald3s %ro!th into s(aller 'ities as poor roads (a7e (an parts o8 the 'ountr nearl ina''essible. It !ould also be ver di88i'ult 8or the 'o(pan to establish a reliable distribution net!or7 to servi'e those areas. On the bri%ht side2 the $overn(ent o8 India has re'entl passed t!o bills 'allin% 8or a (assive in'rease in in8rastru'ture spendin% to the tune o8 nearl A/ trillion =ICICI Dire't>. These bills !ill enable to 'ountr to build (an ne! roads and up%rade the e)istin% in8rastru'ture. *'Donald3s hopes that b the ti(e the 'o(pan is read to be%in its e)pansion e88orts be ond the (a4or 'ities and into other re%ions o8 the 'ountr 2 the in8rastru'ture !ill be in pla'e to allo! the 'o(pan to do so. The Moral o+ the Story* <o !h has *'Donald3s e)perien'ed so (u'h su''ess in India !hile so (an other 'o(panies have stru%%led thereE The si(ple ans!er is *'Donald3s re'o%ni"ed that its A(eri'an 'orporate strate% !ould never !or7 in India. And althou%h the 'o(pan !as un!illin% to 'o(pletel abandon the (odel that turned it into the one,o8,a,7ind international su''ess that it is toda 2 *'Donald3s !as (ore than !illin% to adapt2 (odi8 2 and s'ulpt it into a (odel that 'ould be su''ess8ull e(plo ed there. *ean!hile other 'o(panies apparentl assu(ed that e)pansion !ould be eas . The 8ailed to 'onsider the 'ultural di88eren'es bet!een the A(eri'an and Indian (ar7ets. Co(panies 'annot a88ord to underesti(ate these (ar7ed di88eren'es. Co(pared to a 'ountr li7e China2 India !ith its &n%lish spea7in% population and British in8luen'es see(s to (an people to be an eas tar%et 8or e)pansion. Ho!ever2 su''ess 'annot be a'hieved si(pl b ?transplantin% business te'hni9ues and produ'ts that !or7 else!here in the !orld@ =Prasso>. We sa! this in the 'ase o8 HPa%en,Da"s as !ell as the other 'o(panies. Kailure to ade9uatel assess and adapt to the (ar7et2 and i%norin% 'ultural sensitivit 'an be a death blo! to an 'o(pan !ishin% to e)pand into India or an other 'ountr . *'Donald3s re'o%ni"ed the

uni9ue proble(s and opportunities o8 the Indian (ar7et. The 'o(pan then too7 its ti(e2 adaptin% its produ'ts and 4ust as i(portantl its 'orporate strate% 2 and has been hu%el su''ess8ul sin'e. At the sa(e ti(e2 the 'o(pan 'annot a88ord to be'o(e 'o(pla'ent and rest on its laurels. An 8uture (issteps2 ho!ever s(all2 'ould ruin *'Donald3s e88orts and hard 8ou%ht %ains in the 'ountr 2 allo!in% the 'o(pan 3s rivals to 'atapult past the( and onto even %reater su''ess. A&&endi, -

<o(e o8 the 8eatured ite(s on *'Donald3s India3s (enu. A&&endi, .

This advertise(ent translates to2 ?Celebrate ever little happiness@ i(pl in% that at *'Donald3s2 an Indian oun% adult 'an a88ord to 'elebrate !ith his %irl8riend and his e). A&&endi, /

Here !e see a *'Donald3s I'e Crea( 7ios7 in India. #iblio'ra&hy CIA World Ka'tboo7. B De'e(ber -./.. Central Intelli%en'e A%en' . httpsS//!!!.'ia.%ov/librar /publi'ations/the,!orld, 8a'tboo7/%eos/in.ht(l. Das%upta2 Resh(i R. ?Co Indians allo!edT Haa%en Da"s sa s !ron% 'hoi'e o8 !ords@. The Ti(es o8 India. /H De'e(ber -..0. httpS//ti(eso8india.indiati(es.'o(/india/Co,Indians,allo!ed,Haa%en,Da"s, sa s,!ron%,'hoi'e,o8,!ords/arti'lesho!/MIN1B.M.'(s. Dash2 +ishore. *'Donald3s in India. Case <tud . Thunderbird2 The $arvin <'hool o8 International *ana%e(ent. -..M. Dash2 +ishore. Personal Intervie!. 1 De'e(ber -./..

?Kast Kood L India.@ &uro(onitor InternationalS Countr <e'tor Brie8in%. Au%ust -./.. ICICI Dire't. India Constru'tion <e'tor. /- O'tober -./.. httpS//!!!.( iris.'o(/shares/resear'h/ICICI<6/IORCOC<TU-./././-.pd8 *'Donald3s India Corporate Website. -./.. Toni' *edia. httpS//!!!.('donaldsindia.'o(. ?*'Donald3s India L Consu(er Koodservi'e L India.@ &uro(onitor InternationalS 6o'al Co(pan Pro8ile. Au%ust -./.. Prasso2 <heridan. ?6essons 8or the Indian (ar7etS le%ions o8 bi%,na(e 'o(panies have 8ailed in India. Here3s ho! to avoid 4oinin% the(.@ &ntrepreneur. Apri L *a -..B. Online. httpS//!!!.entrepreneur.'o(/trade4ournals/arti'le//H0-II0II.ht(l. <in%hal2 Arvind. The 6iberalised $enerationS A Di88erent Consu(er. Business Toda 2/MN. =-..H2 :anuar >. Retrieved 8ro( ABI/ICKOR* $lobal. =Do'u(ent IDS //0/IB/../>. This report !as a %roup pro4e't 8or the $lobal <trate% 'lass o8 Thunderbird <'hool o8 $lobal *ana%e(ent Pro8essor Cathan Washburn2 Ph.D.