Case Study Intl Business

http://ojica.fiu.
edu
`▪
McDonald’s Ongoing Marketing Challenge:
Social Perception in India
This case was prepared by Dr. Smita Kulkarni (University of Miami) and Dr. Walfried Lassar (Florida
International University) with assistance from Chandan Sridhar (Florida International University) and
Akhila Venkitachalam (Aditya Birla Centre, London Business School) as a basis for classroom
discussion rather than to illustrate either effective or ineffective handling of a management situation.
Copyright © 2009. All rights reserved. No part of this case study may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise without written permission of the authors.
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A Story Began……..
It was a busy day at the Mumbai Central Station in India, marked with the usual rush of
passengers. A large group of passengers was ready and anxiously awaiting to board their
respective trains. Porters in their red uniforms were seen carrying baggage to help the
travellers. Food vendors, bookstalls, newspaper sellers... It was a mini marketplace. A
family with two kids arrived in an air conditioned car two hours earlier then their scheduled
departure. After they entered the train station, the humid weather, the typical odour at the
railway station and the crowd made them uncomfortable. With a bored look, the children
looked around and suddenly shrieked with joy. Excited, they indicated a sign to their
parents. It was the Golden Arch of McDonalds. Smiling, the family entered Ronald’s place,
McDonald’s, for a great time before they boarded the train. They were sure that that the
experience would be wonderful like the ones they had during their earlier visits to
McDonald’s at other locations in India and abroad.
In the Indian Railways Food Plaza at Mumbai Central, McDonald’s stood apart from its
other competitors. It promised and delivered the customers an entirely different experience.
This experience was way different from that of other fast food chains serving in Mumbai
and other parts of India. The perceived value of the customers about McDonalds was high
as the evidence of cleanliness, quality and sophistication of service made a lasting
impression on their minds. They were Indian customers who considered McDonald’s as a
symbol of the American culture. Availability of McDonald’s in their country reflected the
beginning of globalization which had brought in western brand influences into the Indian
markets. The impressive aspect was that the intangibles of the fast food service had made
the maximum impact on the customers. The Indian customers had always seen the kitchen
doors of the other restaurants with a sign ‘Restricted Area’ or ‘For Employees’ only. Now in
McDonald’s, they were able to see the operations and hence the conviction in the QSC –
Quality, Service and Cleanliness was quick and lasting.
McDonald’s represented America world wide and was an American icon like basketball and
Coca cola. The Indian market welcomed western brands. Irrespective of the diversities,
Indian culture had always embraced newer cultures and absorbed them within itself.
McDonald’s initiative to adopt the burger to meet the Indian taste was widely appreciated.
In this case, one could visualize the transformation of Big Mac to Maharaja Mac.
Introduction
McDonald’s restaurant in Delhi

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
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Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
few, very rich elite. McDonald’s opened its doors in India in October 1996, demonstrating
what the McDonald’s experience was all about. McDonald’s in India was a 50-50 joint
venture partnership between McDonald’s Corporation (U.S.A.) and two Indian
businessmen. Amit Jatia’s company, Hardcastle Restaurants Pvt. Ltd., owned and
operated McDonald’s restaurants in Western India, while Connaught Plaza Restaurants
Pvt. Ltd., headed by Vikram Bakshi, owned and operated the North Indian operationsi.
These companies signed their joint-venture agreements with McDonald's in April 1995 and
along with their Indian management team trained in McDonald's restaurants in Indonesia
and the U.S.A. before opening the first McDonald’s restaurant in India.
The entry of McDonald’s in India was perfectly timed. The market had begun to open up.
The economy of the country was growing stronger. The customer markets were eager to
acquire newer products and use newer forms of services. Foreign brands were valued and
perceived to be superior in quality. According to a report of AC Neilson, among the world’s
consumers, Latin Americans and Asians were the biggest supporters of globalisation and
the value that it added to the various aspects of their livesii. It was a favourable situation
for McDonald’s because at the time when they entered, India, the Asian Tiger was
awakening to the global call. The Indian customer was enthusiastic about the market
situation which provided them with numerous choices to choose and pick.
In a way McDonald’s revolutionized the food retailing business in India. It introduced the
Indian customers to service standards which were available in the western world for years.
These service standards were visible and noteworthy and hence triggered quick
acceptance within the customers. McDonald’s positioning in India as a family restaurant
further fuelled its success.
India as a market was a unique example of diversity. Divided into 28 states and 7 union
territories, the vegetation, climate, religion, language, clothing, and food varied from one
state to another. With the combination of spices in a unique way, food of these states
reflected their traditions and culture. Hence the biggest challenge to any food business in
India definitely was about balancing the diversity and the product offerings. McDonald’s got
clearance from Foreign Investment Promotion Board (FIPB) of India in 1991. But it was
only after five years of preparation, that the first restaurant became operational in 1996. It
worked on developing local relationships with local partners to facilitate the raw material.
Indian companies for their operational convenience had divided the Indian subcontinent
into four zones, the progressive West, the powerful North, the traditional and culturally rich,
South and East. McDonald’s opened their first restaurant in the capital of India which is
Delhi. The second restaurant was opened in the financial capital of India, Mumbai.
McDonald initially concentrated in the West and North regions. Later the company
exhibited ambitious plans for expansion in Eastern and Southern regions.
History
McDonald's expansion worldwide was mind boggling. It operated over 31,000 restaurants
worldwide and employed more than 1.5 million people. With their presence in more than
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119 countries in six continents a global traveler saw them everywhere . This perception
was the result of the most extensive, expensive and systematic mass marketing strategy of
recent times. The first store opened near Chicago on April 15, 1955. McDonald’s since
then has expanded phenomenally.
McDonald's real influence had been in establishing organizational systems of complete
control at every stage from raw product to factory, from worker to consumer - backed by
incessant media hype. McDonald's had been a successful global food corporation at
refining, co-coordinating, standardizing and developing such processes into a total system.
It had set up these practices in every country it had moved into, and many other companies
followed their suit. What Ford Motor Company did for cars, travel and the urban
environment; McDonald's had done for food and eating habits. McDonald's expansion was
criticized and resisted by trade unionists, local residents, nutritionists and many others in
almost every town and country where they planned a new store - despite their highly
developed and expensive marketing effort about being a benefit for the community. They
were resisted for what they represented, and remained a focus of controversy.
Challenges for McDonald’s in India:
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. McDonald’s accepted the challenge and created the Aloo – Tikki Burger known
as McAloo TikkiTM 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.
McDonald’s even separated the non vegetarian cooking process and the vegetarian
cooking 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 apronsiv. McDonald’s 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, McDonald’s made attempts to clarify their stand about beef in India.
So the world famous hamburger was without meat. This was indeed a classic case of
product adaptation, to gain foothold in a new market.
Competition from Local Food Retailers:
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The competition from the local food retailers was intense. The food retailers had been
doing business for years. Their familiarity with the market and the understanding of the
local taste gave them a competitive edge. There were numerous eating joints which offered
snacks and meals with affordable price tags.
Organized food retailing was dominated by the north Indian style and the south Indian style
restaurant chains. The metropolitan cities and some developed urban areas offered
superior dining experience through the existence of some fine, classic restaurants. But
the price was expensive and only a select group of customers could afford to make visits
there. On the other hand, the size of the unorganized food retailing was larger and
comprised of roadside food vendors, dhabas (the eateries on the highways) and on the
outskirts of the cities and a plethora of small eateries. Local food in a large assortment was
widely available within acceptable price ranges. It was observed that food choices made by
consumers were impulsive. Aroma, taste, habits and visibility worked on the subconscious
level and played a major role in affective decision making. The local food business exactly
understood the psychology of the customers and operated accordingly. The mass markets
in India had their own set of preferences.
Target Marketing:
Value propositions had to be directed to the right target market to establish a new product.
An interesting question was who would eat at McDonald’s? In order to develop the
marketing strategy, it was important for any company to understand the consumer market.
The more one knew and understood about consumers, the more effectively one could
communicate and market to themv.
Four aspects of consumer behaviour which needed to be examined to understand a
consumer market were the ability of the people to buy, consumer needs, buying motives
and the buying processvi. The initial attempt of McDonald’s was to induce trials and get the
customers into the restaurants. Word of mouth and advertising was expected to reveal the
experience of eating at McDonald’s.
McDonalds Value Meal addressed the price sensitivity of the Indian consumer market.
However, irrespective of this effort, McDonalds was affordable to select customers only.
These were the ambitious middle, upper middle and affluent classes who were keen to
combine eating with fun. Children were the major influencers. McDonald’s advertisement
put forth an attractive proposition to the children segment that played a major role in the
decision making as regards the choice of a restaurant. Happy MealTM was used to reflect
the fun element of the experience at McDonald’s. Happy MealsTM were all about the
simple pleasures of childhood, a time of excitement, joy, and being treated special. Each
Happy Meal™ was themed and had on offer, a set of collectible toys from that particular
theme. One theme typically was used for duration of 4 – 6 weeksvii. In this deal the
customer got a choice of a burger, a drink and a toy. Happy MealsTM were a huge success.
The rising income levels in India increased the disposable income. Fun and entertainment
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assumed importance in the financially stable families. McDonald’s was perceived to be a
fun place with special areas marked for kids, toy gifts and of all the attraction of a burger.
Subsequently, McDonald introduced newer menus appealing to the India taste. Children in
India preferred a burger over pizza and McDonald, the king of burgers was announced as
the number one in a survey titled India’s most respected companies by Business Week in
India for Food retailing in 2006viii. Youngsters valued McDonald’s for the trendy
environment and the joint acted as an interesting meeting place.
In United States, two thirds of the business of McDonalds was done at the drive through
windowsix. In India, because of unavailability of space and lack of proper infrastructure, the
company could not do so. However, home delivery was an area of consideration. In March
2007, McDonalds announced that it would invest about Rs 3 crore (US $0.75 million) over
the next three years to strengthen its home delivery services. It launched an all-India single
home delivery number — 66-000-666 to facilitate this service. In March 2007, the
company's Managing Director Mr.Vikram Bakshi said “Mc Delivery currently accounts for
almost 5 per cent of the overall sales and with the introduction of the new system; the
company is looking at a substantial share of 7.5 per cent in the turnover by next year”x.
Pricing
Food pricing was a sensitive issue in India. An ideal strategy was to focus on customer’s
ability to pay and tap the rich and upper middleclass population in India. Although
McDonald’s strategy was to increase sales volumes by making products available at
affordable price, its products were perceived to be expensive. The company outlets in Delhi
and Mumbai initially were opened due to the increased affordability of people with western
exposure and brand recognition factors in metros. Additionally, people in the metros were
open to experiment with variety of foods. Absorption of newer cultures was faster in the
Metros than other areas.
The mass markets in India were price sensitive.The positive factors were the growth in
consumer markets with rapid growth in disposable incomes, development of modern urban
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lifestyles and the demand for value .
Eating Habits
Eating out was a special occasion to many Indian families. Meals had been an essential
medium for social sharing and relationshipxii.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. McDonald’s 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
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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
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eating habits . The market situation called for focus on the environment within the
restaurant and western association.
Issues
McDonald’s had been accused of destruction of vast areas of the rainforest for the
production of cattle to produce beef, promoting unhealthy food with a risk of cancer and
heart disease, taking advantage of children with its advertising and marketing, and cruelty
to animalsxiv. There had been complaints as regards the nutrition, hygiene etc……..
Animals
Vegetarians and animal welfare campaigners were not too wholehearted about McDonald's
xv
- for obvious reasons. As the world's largest user of beef , they were responsible for the
slaughter of countless cows every year. In Europe alone they used half a million chickens
xvi
every week, all from windowless factory farms . This meant that these animals suffered
great cruelty during their unnatural, painful and short lives, many being kept inside with no
access to fresh air and sunshine, and no freedom of movement.
A major consideration for the fast food industry was whether it was acceptable for the food
industry to exploit animals at all. McDonald's argued that it stuck to the letter of the law
and if there were any problems, it would be a matter concerned with the government.
Although meat eating had a long history, it was only in recent decades that factory farming
and intensive methods had been applied on a vast scale. This mass production process
was primarily to benefit the food companies' drive for greater profits, backed by their
promotional campaigns. McDonald’s corporation was the world's largest promoter of meat-
based products, the largest user of beef and the second largest user of chicken.
Environment
Conservationists had often focused on McDonald's as an industry leader promoting
business practices detrimental to the environment. But the company spent a fortune
promoting itself as environmentally friendly. They annually produced over a million ton of
packaging, used for just a few minutes before being discarded. The environmental effect
of the production and disposal of all this needed to be taken into account. Multinational
companies operating on such a scale contributed to global warming, ozone destruction,
depletion of mineral resources and the destruction of natural habitats.
The modern industrial system, with transnational corporations in particular, had callously
taken advantage of the natural resources globally, damaging forests and other eco-
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systems, reducing biodiversity, adding to land, and sea and air pollution while adversely
affecting the global climate. McDonald's contribution to these were mainly through the
effects of cattle ranching (as the world's foremost promoter of a beef-based diet), through
the growing and transportation of cash crops, and through the production and disposal of
thousands of tons of packaging material.
Nutrition and Health
One of the most fundamental and enjoyable aspects of the day-to-day lives of people had
been eating food of their choice and the circumstances in which it was eaten. For most
people this generally meant eating the healthiest possible food (bearing in mind constraints
of time and poverty), usually cooked on site and then eaten communally - either in a family
or home setting, or with others while at work or in school. But there were rapid changes as
the pace and nature of society had shifted. An industrial or service infrastructure
increasingly dominated the local neighborhoods and people's lives, undermining existing
patterns of human interaction, whether among families, friends, neighbors or in the
community in general.
Mass-produced, processed food gradually and increasingly replaced fresh and healthy
foods in people's diets over the course of the twentieth century. In recent decades,
McDonald’s capitalized on this situation by promoting quick meals to be eaten outside the
home. This change in eating habits brought serious consequences to human relations and
health. These consequences sparked a debate about healthy food. They also brought out
a whole range of new campaigns and movements dedicated to encouraging healthy eating
and healthy lifestyles. Macro environmental factors affected McDonald’s, forced it to
become defensive, and they had to resort to lip service to try and deflect public criticism.
In the health debate, food industry was heavily criticized for creating products that are high
xvii
in fat, sugar and salt . Health consciousness was rising amongst people with the obesity
crisis hitting the world. The concern was serious as it was children who were the most
affected. Nutrition and exercise issues which were important and needed to be reviewed
earlier, now were considered, discussed, and debated only after witnessing the frightening
consequences. Many critics blamed McDonalds like businesses for public health concerns,
contending that fast food menus and portion sizes contribute to obesity, diabetes and heart
disease and a variety of other diet related problemsxviii. But at the same time, it was
worthwhile to note that the type of demand exhibited by the market initiated the processes
within the companies. As long as the demand for fast food continued, nutritional issues
would continue to be argued and deliberated upon. India also had its own set of so called
nutritious and non-nutritious food. People in India appeared to prefer food for its taste. Bhel
Puri, Samosas and Potato Wada which were some of the very popular Indian snacks were
weak in terms of nutrition. However, a large level of population savored them for the spicy
taste ignoring the hygiene and the value in terms of nutrition.
Trans- fats and their use in food also had been a major controversial issue. It had been
established scientifically that artificial trans- fats were bad for human health. In United
States, New York City was the first city to announce a ban on all restaurants from using
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artificial Trans fats with the deadline on July 1, 2007. When the legal system imposed bans
and developed a regulatory framework, the food industry was compelled to respond. In
January 2007, McDonald’s picked new Trans fat free oil for cooking its famous French fries
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after years of testing .
In view of the health risks and dangers, it was important that food service did not just
confine to respond to the basic need of hunger. Food industry was required to innovate
and work on introducing healthy eating options and making them available. This would
create a situation where the final choice would then be made by the consumers. A healthy
lifestyle only would help overcome the health problems gripping the society. Awareness
about health needed to be built up and somewhere the responsibility definitely lay with
companies which were into the food business. Health concern was a global call and
responding to this was the need of the hour.
Employment
McDonald's Corporation created a global, highly standardized and fast production-line
system, geared to maximum turnover of products and profits. McDonald's employed more
than a million mostly young people around the world and provided them with work
opportunities.
The fast food giant helped pioneer employment that was low-pay, non-union, temporary or
part-time with few guaranteed rights and conditions. McDonald's worldwide employed over
one and a half million workers, over half of them under 21 years old. It had been calculated
that a staggering 10% of all workers in the USA got their first job at McDonald's! Outlets
like McDonald’s provided job opportunities to youngsters in India pursuing their education.
The franchisee model of McDonald’s was a significant source of employment for many
people in India. Sources at McDonald’s reported that they were an equal opportunity
employer, providing not just employment but long-term careers as well. The average
McDonald’s restaurant employed as many as 50 people- from crew to restaurant manager.
The chain planned to invest in the improvement of supply chain management and new
outlets in the country which in turn would generate employment.
Advertising and Marketing Initiatives at McDonald’s
Advertising was known to have an impact on the minds and the hearts of the consumers.
But product and the value offered needed to be attractive and powerful to maintain
consistency in sales and build customer loyalty. Advertising was the backbone of
McDonald’s marketing strategy in India. The positioning had been directed towards
establishing McDonald’s as a family restaurant. Special efforts were made to not allow it to
get converted into a typical teenage hangout. Advertisements were created using storylines
with focus on emotions. Through a variety of advertisements, the visit to McDonald was
portrayed as a special occasion providing excitement and satisfaction to the customers
who comprised of families with kids and the youngsters.
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Advertising helped in building brand recall, but advertising alone was not able to sustain
the brand. Despite the fact that McDonald's was a fast food chain of restaurants, in India it
was positioned as the family restaurant and outlets were called “McDonalds Family
Restaurant”. Extra care was taken to make the restaurants child friendly, by providing play
areas wherever possible so that the parents could relax and have a good time while visiting
McDonald's. The counters were low, tables were rounded so that children did not hurt
themselves in the restaurant and the menus are pictorially depicted so that a child could
order a meal without bothering parents. The entire restaurant was attractive and child
friendly.
When operations in India began, initially McDonald’s positioned itself as a place to visit with
the baseline "McDonald's mein hain kuch baat" (“There’s definitely something about
McDonald’s”) in their advertisements. People were encouraged to try the McDonald's
experience. However, over the years, after McDonald's had been hugely accepted by
Indian customers, there was a need to evolve the communication strategy and move on
from trying to encourage and motivate people to visit for the first time to making
McDonald's a regular experience. After McDonald’s established itself and people knew
what McDonald's was all about, the baseline was changed to “Toh aaj McDonald's ho jaye"
(“Let it be McDonald’s for today”), which talked about an everyday experience. The
objective was to continue positioning McDonald's as a comfort zone for familiesxx.
The brand’s media strategy focused more on the electronic media. The advertising
continued to use emotional appeal to display family ties and fun at McDonald’s. Indians
being emotional found it easier to correlate themselves with such types of emotional
messages. Advertisements with audio –visual appeal created more impact on the viewers.
So McDonald’s narrated the fun filled environment at their fast food outlet using electronic
media. McDonald’s did have enough repeat customers. The customer base increased
substantially since they started operations.
The strength of McDonald's as a brand in India was that it was the most recognizable
brand world over amongst all age groups. It was the ‘Indianization’ of the brand that
helped McDonald’s establish in a new market successfully. The brand’s success was
attributed to its promise of a great fun filled experience delivered at its outlets.
McDonald's executed promotional campaigns involving children. McDonald’s used kids as
an entry strategy to the family. World over McDonalds was a family restaurant and children
were an integral part of a family. During the last few decades, kids had become the target
audience for most categories including consumer durables. In the 1990's, India saw a
major shift to nuclear families. When joint-extended families existed, the head of the family
made most decisions. In smaller-nuclear families, individual opinions had become more
dominant, whether it was buying a refrigerator or a TV or whether it was about eating out.
Children were an integral part of the decision making process for buying things and played
an influential role. Word of mouth and peer pressure worked effectively for this age group.
Children influenced the decisions of parents, and McDonald’s realized that this group could
no longer be ignored.
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McDonald’s “Happy Meals” were often accompanied with Lego toys to attract children and
the restaurant maintained several ‘Play-Zones’ to provide children with a fun experience.
The restaurants hosted birthday parties, played latest pop-music hits and became a
favorite place even for the new generation of jean-clad ‘Americanized’ teenagers of India.
McDonalds even introduced unusual ice-cream flavors such as bubblegum, green apple
and berry to entice the curious youngsters.
Using collectable toys, television commercials, promotional schemes in schools and figures
such as Ronald McDonald, McDonald’s pursued its main target group – children. Many
parents objected strongly to the influence this had over their own children. McDonald’s
adhered to all the advertising codes in each country. But some argued that it still amounted
to exploitation of children, sponsoring so many school events and learning programs out of
publicity, not philanthropy. In view of this criticism, McDonald with some other companies
vowed to devote at least half of their radio, print, television and internet advertising to
promoting more healthful products and healthy lifestyle. Mary Dillon, McDonald’s Chief
Marketing Officer said that McDonalds planned to put more emphasis on physical activity in
ads and was reviewing how it could use licensed characters. Disney characters were used
extensively by McDonald’s at one time but the entertainment company decided to allow its
characters to push products that met certain nutritional guidelines’xxi.
Ethics and Social Responsibility
In India, Mrs. Maneka Gandhi, a popular environmental activist and her supporters
launched an aggressive campaign against fast food chains which contributed in the
destruction of the ecological balance and promoted unhealthy food. To respond to such
campaigns, McDonald’s launched several pro-green advertisements such as “We love
Green” and funded community related activities including “Keep our city clean”. McDonalds
sponsored “Olympic Day Run” in 2005 and offered baked potatoes and McCurry Pan
instead of fries.
As a part of its Corporate-Citizenship strategy and to help its own brand and reputation in
India, McDonald’s participated in community-related projects targeting children.
McDonald’s in India hosted interschool arts competition and raised funds for charity on
World Children’s Day. The restaurant celebrated Children’s week every year from
November 14-20 and tactfully supported educational programs for girl-child to promote
goodwill among community organizations who worked towards improving status of women
in India. McDonald’s also partnered with local health organizations to make India Polio-free
by helping to set up Pulse-Polio program to provide free vaccine to children.
In November 2006, McDonald's India announced the completion of its annual fundraiser,
McDonald's World Children's Week 2006 `Each One Contribute One'. The month-long
campaign garnered proceeds for vision correction of the visually and economically
challenged children. As part of `Each One Contribute One' programme, Re 1 was
contributed on the sales of all meals sold from October 13 - November 20, towards the
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corrective eye surgeries of the needy children .
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According to Mr Vikram Bakshi, Joint Venture Partner and Managing Director, McDonald's
India (North and East Region), McDonalds had come a long way since 2002 and the
results were encouraging. Over 390 children were treated at the pediatric centre at Dr
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Shroff's Charity Eye Hospital with the support of NGO ORBIS .
McDonald's did not offer any beef or pork items in India, and even created egg less
products for their vegetarian customers. French Fries in India were not beef flavoured as in
the US. During popular religious festivals in India, McDonald’s introduced more vegetarian
selections.
Supply Chain
McDonald’s stated that Rs. 50,000 crore (about U.S. $12.5 billion) worth of food produce
was “wasted” in India, mainly because of the lack of proper infrastructure for storage and
transportation under controlled conditionsxxiv. In it’s commitment to providing quality
products while supporting Indian businesses, McDonald’s spent a few years setting up a
unique supply chain, even before opening it’s first restaurant in India. McDonald’s stated
that it was critical to go beyond one’s immediate suppliers and customers to encompass
the entire chain, since hidden value often emerged once the entire chain was visualizedxxv.
Understanding the value to the downstream customer was a part of the supply chain
management process. The supply chain connected McDonald’s throughout India and
made McDonald’s ‘Indian.’. McDonalds in India focused on making a successful supply
chain strategy to implement its QSCV principle (Quality, Service, Cleanliness and Value),
pricing flexibility and new product launches from time to time.
Local Sourcing
McDonald's sourced its requirements from local suppliers and farmers, and maintained its
adherence to Indian Government regulations on food, health and hygiene. McDonald's
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India purchased more than 96% of its products and supplies from Indian suppliers , even
constructing restaurants using local architects, contractors, local material (wherever
possible), and hired local personnel for all positions within the restaurants and contributed
a portion of its success to communities in the form of municipal taxes and reinvestment.
McDonald’s described the relationships between itself and its Indian suppliers as mutually
beneficial, reasoning that as McDonald's expanded in India, suppliers would continue to
get the opportunity to expand their businesses, access to the latest in food technology,
exposure to advanced agricultural practices and the ability to grow or to export.
Cold Chain
The Cold Chain was necessary to maintain the integrity of food products and retain their
freshness and nutritional value. The Cold Chain was an integral part of the Supply Chain.
Setting up the Cold Chain involved the transfer of food processing technology by
McDonald's and its international suppliers to Indian entrepreneurs, who had become an
integral part of the Cold Chain. The term Cold Chain described the network for the
procurement, warehousing, transportation and retailing of food products under controlled
temperatures. McDonald’s restaurants stored products to be used on a daily basis, within a
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temperature range of –18ºC to 4ºC. About 52% of its food products needed to be stored
under these conditions before they were usedxxvii.
As the ingredients moved from farms to processing plants to the restaurant, McDonald's
Quality Inspection Program (QIP) carried out quality checks at over 36 different points in
xxviii
the Cold Chain system till it reached the customer . Setting up of the Cold Chain enabled
McDonald’s to cut down on operational wastage.
Suppliers
Trikaya Agriculture – Supplier of Iceberg Lettuce
Implementation of certain agricultural practices enabled Trikaya to successfully grow
specialty crops such as iceberg lettuce, specific herbs and many Asian vegetables.
Initially lettuce was grown only during the winter months, but with McDonald's assistance in
the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, were able to grow the
crop all the year round. McDonald's provided assistance in the selection of high quality
seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a
refrigerated transportation system allowing a small agri-business in Maharashtra to provide
fresh, high-quality lettuce to McDonald's urban restaurant locations thousands of
kilometers away. With this cold chain infrastructure in place, Trikaya Agriculture planned to
export this high value product to other international markets, especially to McDonald's
Middle East and Asia Pacific operations, and had done shipments to the Gulf successfully
It also shipped a large amount of snow peas to Austrian markets. In addition to export,
McDonald's assistance enabled Trikaya Agriculture to supply this crop to a number of
hotels, clubs, flight kitchens and offshore catering companies all over India.
Vista Process Foods Pvt. Ltd. – Supplier of Chicken and Vegetable Products
As a joint venture with OSI Industries Inc., USA, and McDonald's India Pvt. Ltd., Vista
Processed Foods Pvt. Ltd. produced a range of frozen chicken and vegetable foods. The
infrastructure at its plant at Taloja, Maharashtra, had:
• Separate processing lines for chicken and vegetable foods.
• Capability to produce frozen foods at temperature as low as -35 degree Celsius to
retain freshness.
• International standards, procedures and support services.
Technical and financial support extended by OSI Industries and McDonald’s India enabled
Vista to set up a better infrastructure and support services. This included hi-tech
refrigeration plants for production of frozen food at temperatures as low as - 35° C. This
was vital to ensure that the frozen food retained it freshness for a long time and the 'cold
chain' was maintained. These products, besides being supplied to McDonald's, were also
13
offered to institutions such as hospitals, project sites, caterers, corporate canteens, schools
and colleges, restaurants, food service establishments and coffee shopsxxix.
Dynamix Dairy – Supplier of Cheese
Dynamix set up a network of milk collection centers equipped with bulk coolers in Baramati,
Maharashtra. Easy accessibility enabled farmers to augment their income by finding a new
market for surplus milk. The factory had:
• Fully automatic international standard processing facility.
• Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose,
casein & whey protein and humanized baby food.
• Stringent quality control measures and continuous research & development.
To encourage the improvements in quality standards and manufacturing capabilities at
Dynamix, McDonald’s introduced Dynamix to two of its global suppliers – Schreiber Foods,
USA and Erie Foods, USA. This resulted in a joint venture with one company and an
export order from the other company. It also helped Dynamix in acquiring technology to
xxx
market a large number of high quality, value-added milk products .
Amrit Food – Supplier of long life UHT Milk and Milk Products for Frozen Desserts to
McDonalds
Amrit Food, an ISO 9000 company, manufactured widely popular brands - Gagan Milk and
Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh. Its plant had:
• State-of-the-art fully automatic machinery which did not require human contact with
product, for total hygiene.
• Installed capacity of 6000 liters/hour for producing homogenized UHT (Ultra High
Temperature) processed milk and milk products.
• Strict quality control supported by a fully equipped quality control laboratory.
Radhakrishna Foodland – Distribution Center
McDonald's local supply networked through Radhakrishna Foodland, which operated
distribution centers for McDonald's restaurants in Mumbai and Delhi. An integral part of
the Radhakrishna Group, Foodland specialized in handling large volumes, providing the
entire range of services including procurement, quality inspection, storage, inventory
management, deliveries, data collection, recording and reporting. The most important
strengths were:
• A one-stop shop for all distribution management services.
• Dry and cold storage facility to store and transport perishable products at
temperatures up to - 22 degrees Celsius.
• Effective process control for minimum distribution cost.
14
The distribution centers focused all their resources to meet McDonald's expectation of
cold, clean, and on-time delivery and played a vital role in maintaining the integrity of the
products throughout the entire 'cold chain'. Ranging from liquid products coming from
Punjab to lettuce from Pune, the distribution center received items from different parts of
the country. These items were stored in rooms with different temperature zones and were
finally dispatched to the McDonald's restaurants on the basis of their requirements.
McDonald’s introduced Foodland to F. J. Walkers of Australia, which resulted in an
affiliation between the two companies to develop the distribution set-up in India.
Buns were sourced from from Cremica in Phillaur, Punjab and Mrs. Bector and Sons in
Khopoli, Maharashtra. Cremica Industries worked with one of McDonald's suppliers from
Europe to develop technology and expertise, which allowed Cremica to expand its
businesses from baking to also providing breading and batters to McDonald's India and
other companies. Sauce came from Bector Foods in Phillaur, Punjab and Hindustan Lever
Limited-Best Foods Division in Thane, Maharashtraxxxi.
Potato Farming in Gujarat
In 1991, McDonald's looked for a particular variety of potato to make its French fries. One
of McDonald’s suppliers, Lamb Weston, invested heavily in setting up production lines to
process these potatoes and make the fries. However, the production was discontinued, as
the right quality of potatoes could not be sourced.
The variety of potato required by McDonald’s had to have a certain length, high solids
content and low moisture content while the ones that were available were of the table-
grade variety. Nonetheless, as per its initial commitment to local sourcing, McDonald's and
its supplier partner, McCain Foods Pvt. Ltd. (the world’s largest French fries company),
worked closely with farmers in Gujarat and Maharashtra to develop process-grade potato
varieties. Gujarat potato crop was utilized to make McDonald’s ‘Chatpatey’ Potato
Wedgesxxxii.
McDonald's broke even on operations around December 2003 and expanded to 80 outlets
that same year, concentrating on cities where their cold chain facilities had reached. They
had ambitious plans for growth in various cities and also on national highways. With the
Golden Quadrilateral Highway Project connecting four corners of India nearing completion,
highway traffic was expected to increase multifold. This created new business opportunities
for marketers who were keen on tapping travelers on the highways.
Growth Plans
In 2006, McDonald’s celebrated its tenth anniversary in India. McDonald’s India planned to
invest Rs.300 crores- 400 crores (US$ 75 Million - US$ 100 Million) in the next three years
to add 100-125 restaurants in the country as against the then existing number of 94xxxiii.
15
After establishing itself in the Northern and the Western India, McDonald’s opened their
first restaurant in Eastern India at Kolkata. Out of the total investment, Rs.100 crore (US $
25 Million) was to be spent to concentrate on the new Eastern region. The focus was on
expansion of the brands presence and introduction of new formats. The company adopted
a cluster approach to identify key locations in a 500-700 km radius of the city for further
expansion. McDonald set up a regional distribution centre in Kolkata. In South India, the
company planned to open more stores in one city than one store in many citiesxxxiv.
McDonalds partnered with BPCL (Bharat Petroleum Corporation Limited) and HPCL
(Hindustan Petroleum Corporation Limited) to set up restaurants targeting the automobile
driving consumers. The plan was to set up drive through eateries at the fuel stations. Petro-
retailing was evolving in India. Petroleum bigwigs proposed to upgrade the service
experience to the customers at the gas stations. Partnership with McDonald’s was a
strategic decision to highlight the value added services.
In order to target the shopping mall and cinema lovers, the company setup outlets in new
shopping malls and new multiplexes in the country’s metros. In order to tap the potential
among the middle-class Indians, the company partnered with railway stations and bus
stations.
McDonald’s also introduced the concept of ‘Litter Patrols’ where the employees of
McDonald’s would go around the market every day picking up garbage left behind not only
by customers from McDonald’s restaurants but also by other visitors in the area, resulting
in a cleaner neighbourhood.
Future
In 2007, a report by McKinsey Global Institute revealed that India would join the premier
league of the world’s consumer markets by 2025. With the middleclass growing by 12
times from 50 million to 583 million, the market potential was hugexxxv. Companies with long
term plans for the Indian markets needed to understand the hidden potential and prepare
themselves to accept the challenge.
With 63% of its population in the age group of 15-64 years and 31.8% in the age group of
0-14 years, the opportunities were very attractivexxxvi. In 2006, India achieved an 8.5% GDP
growth. The middle class formed the backbone of the Indian market and it was the rising
income of young middle class that fueled its growth. 56 million households in India earned
US$4400 – US $21,800 a yearxxxvii. In its pursuit for better living and improving the quality
of life, middle class in India exhibited strong aspirations to grow financially stronger. This
key factor made India an active potential market for companies into areas such as food
retailing, consumer durables, automobiles etc.
McDonald’s was very positive on the Indian market scenario. With the parent company
making huge investments in supply chain and media communication, the company was
16
helping the back-end supplier through direct investments in the joint ventures with them.
According to Mr.Vikram Bakshi, “even when India is the youngest market for the Big Mac in
the Asia Pacific region, the penetration it has achieved in the country matches most of the
xxxviii
countries, where the chain is 20-30 years old” . Despite the fact that globally
McDonald’s slowed down its expansion, there were no restrictions on the Indian
operations. This fact revealed the company’s perspectives and plans for India. India was
identified as one of the top 10 markets for McDonald’s.
McDonald’s India operated around 100 restaurants across the country which includeed 11
“drive thru” restaurants, a new concept to the Indian market. With 5000 employees
working, the company intended to hire another 10,000 to 15,000 people in the next few
years. On an average it employed 50 people per outlet, depending upon the seating
xxxix
capacity .
McDonald’s strategy revolved around customizing the taste of their menu to suit the Indian
palate. Only time would tell if McDonald’s localization strategies and positioning as a family
restaurant would continue to appeal Indian population. The company faced charges in the
US for allegedly using beef extract on its French Fries at Indiaxl. In some states like
Gujarat, McDonald’s was strongly viewed as a symbol of American Cultural Imperialism.
McDonald’s was associated with its high prices in India and therefore, expansion outside
the metros was unthinkable due to affordability issues. However the company management
explained that it was incorrect to perceive McDonald’s as expensive. Although the
company had done well catering to India’s taste preferences, the country’s regional
cultures were so varied that the company needed to bring new products regularly, which
was an expensive strategy despite its successful supply chain initiatives. Further a bigger
challenge was about translating the McDonald’s experience to the Indian masses and
maintaining consistency in the delivery of services. Competition from other fast food giants
like Pizza Hut, KFC and local food chains was intense on the basis of pricing and the
menu. McDonald’s India worked with great effort to establish in India. Will the middle class
and the affluent continue to favor McDonald’s? Would Maharaja Mac expand deeper into
the markets of India? Will the global image of a fatty food company affect McDonald’s
future in India? Will McDonald’s continue to succeed in India in the years to come?
A story continued…..
17
References
i
McDonald’s creating an ecosystem, www.just-food.com
ii
www.asiapacific.acneilson.com/news/200060821.html
iii
www.mcdonald.ca/en/aboutus
iv
www.mcdonaldsindia .com
v
Plummer Joseph T., The concept and application of life style segmentation, Journal of marketing, January 1974,
p.33
vi
Jeanett Jean-Pierre and Hennessey David, Global Marketing Strategies, Biztantra and Houghton Miffin, 2005, page
164
vii
http://www.mcdonaldsindia.com/funzone/happymeal.html
viii
http://www.businessworldindia.com/June0506/index.asp - 06/05/2006
ix
McDonald’s 24/7, Business Week, The McGraw Hill companies, February 2007, pp 69
x
http://www.thehindubusinessline.com/2007/03/16/stories/2007031603340500.htm
xi
Consumer Markets in India, www.kpmg.fi/Binary
xii
Visset, Margaret, Food and Culture: Interconnections, Social research, Spring 99, Vol.66, Issue 1, pp 117-130
,14p
xiii
Gupta Divesh, Media Asia, 2/10/2006, 0 15-15
xiv
The Verdict, http://www.mcspotlight.org/case/trial/verdict/verdict4_sum.html
xv
BBC.co.uk (2001), “McDonald’s”, http://www.bbc.co.uk/dna/h2g2/A593525
xvi
McDonald’s and Animals, http://www.mcspotlight.org/issues/rants/animals.html
xvii
Benady David, Precision Marketing, 2/23/2007, Vol. 19, issue 9, p23-24, 2p
xviii
Adams, Ronald, Fast Food, Obesity and Tort reform: An examination of industry responsibility for public health,
Business and Society review, Blackwell Publishing, 110:3, 297-320
xix
McDonald finally picks trans- fat free oil
www.cbsnews.com/stories/2007/01/30/business/main2411777.shtml
xx
Advertising does help in building brand recall, but advertising alone does not sustain a brand", Brand Speak
(2004)
xxi
Wall Street Journal
www.http://www.wsjclassroomedition.com/advertise/mlbpa/health_foodmarketing.pdf
xxii
McDonald contributes for a cause
http://www.blonnet.com/2006/11/22/stories/2006112202721200.htm
xxiii
ibid
xxiv
A taste of freshness from all over India’ http://www.mcdonaldsindia.com/supchain.htm
xxv
Supply Chain Overview, http://www.mcdonaldsindia.com/aboutus/supplychain/index.html
xxvi
The Wisdom of Local Sourcing, http://www.mcdonaldsindia.com/locsour.htm and Pooja Kothari, “Brand-Equity-
Shaking it Up at McDonald’s”, The Economic Times, October 13, 2004.
xxvii
Cold Chain, http://www.mcdonaldsindia.com/aboutus/supplychain/coldchain.html
18
xxviii
Food Safety & Hygiene
http://www.mcdonaldsindia.com/ourfood/quality_hygiene.html
xxix
McDonalds India’s Cold Chain (2004),
http://www.mcdonaldsindia.com/aboutus/presskit/04%20Cold%20Chain.pdf
xxx
Dynamix Dairy http://www.mcdonaldsindia.com/aboutus/presskit/09%20Dynamix%20Dairies.pdf
xxxi
Radhakrishna Foodland (P) Ltd. http://www.mcdonaldsindia.com/aboutus/presskit/07%20RKHS.pdf
xxxii
Potato Farming in Gujarat
http://www.mcdonaldsindia.com/aboutus/presskit/06%20Potato%20Farming.pdf
xxxiii
McDonald’s India plans to expand in South
http://www.blonnet.com/2006/09/15/stories/2006091504191900.htm
xxxiv
www.hindubusinessonline.com/2007/03/09/stories/2007030905190500.htm
xxxv
India on course to become fifth largest market by 2025
www.rediff.com/money/2007/may/04india.htm
xxxvi
CIA Factbook, www.cia.gov/cia/publications/factbook
xxxvii
Consumer Markets, April 2007
www.ibef.org
xxxviii
McDonald’s gears up for home run
http://economictimes.indiatimes.com/News/CompaniesA-
Z/M_Companies_/McDonalds/McDonalds_gears_up_for_home
xxxix
McDonald’s get set to park at petrol pumps
http://economictimes.indiatimes.com/News/CompaniesA-
Z/M_Companies_/McDonalds/McDonalds_gets_set_to_park_at_
xl
Animal Flavouring-McDonald’s Indian Arm Says It’s Clear”, Business Line, March 9, 2002.
19

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McDonald’s Ongoing Marketing Challenge:

Social Perception in India

McDonald’s restaurant in Delhi

Challenges for McDonald’s in India:

The population of a billion was undoubtedly a promising opportunity for an international

Competition from Local Food Retailers:

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