Global Fast Food Giants Enter Indian Market: Uncovering Fascinating Trends

Introduction

Many multinational fast food chains (MFFC) like McDonald’s and KFC are opening outlets in India. A fascinating aspect of these companies is the intricate marketing process they employ to gain a stronghold on the market. The marketing process becomes even more involved due to the behaviour of Indian customer being different from that of the western countries, where these chains have typically been operating. Even with several outlets in various locations in India, the marketing process of a new outlet typically has to be thought from scratch due to the wide diversity across the country.

Recently, McDonalds has decided to expand into Bangalore in a big way. Praveen Bose Bangalore Burger chain McDonalds plans to invest Rs 50 crore annually in India. It has already brought in Rs 500 crore of FDI on the 56 outlets it has in India. “We are here for the long haul,” Amit Jatia, joint venture partner, McDonalds India (western region) said while announcing the opening of its Bangalore outlet.

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McDonalds is finally up and running in Bangalore, trying to seduce Bangaloreans with their offerings after conquering the people of 115 countries.

The world’s largest restaurant chain has opened its 57th restaurant in India and the first restaurant in Bangalore, at the Forum. The investments will be towards launching new restaurants and building up the supply chain. The chain has had to improvise on their way to India and Bangalore will be served the same fare as in the other 56 restaurants. So out goes beef and pork from their US and European offerings.

It has added some Indianised items. The location at the Forum mall was chosen after a study of about one year. People from the chain studied the footfalls at different malls and then decided to set up shop there.

The footfalls recorded at the Forum are 18,000 on weekdays and 40,000 on weekends and the licensee hopes to win over many of them. Now that McDonalds is here in a big way, how will it impact the Indian fast food chains? So far, various local chains of fast food restaurants such Udupi and Adigas are flourishing. But, these chains have neither the financial backing of a big parent company nor the marketing savvy usually associated with McDonalds. However these chains employ widely different marketing techniques, which seem to be worthwhile to compare and contrast.

An analysis of MFFC shall give interesting insights on the effects of Consumer Behaviour on Marketing and vice versa. A comparative analysis of the two shall provide with valuable insights, which maybe cross-transplanted for better efficiency of the marketing process. Scope of Project This project aims to analyse the fast food market, with specific reference to India. We aim to profile the market, the kind of people who visit the fast food chains, the reason why they choose the specific chains that they frequent and what the brand means to them.

We also aim to study the commonalities and differences among the people who frequent these chains. In essence, we will identify the Segments considered by the two chains, the Target audience and the Positioning strategies of these chains. There are two kinds of fast food chains operating- broadly classified into the those run by multinationals and those that are tailored to serve people interested in traditional Indian snacks. 1)The project will study the kind of segmentation that McDonalds adopts for the Indian market and how this segmentation differs from the one adopted in Europe and the United States. )The project will cover the market segment that McDonald’s targets and in the manner in which they position themselves to appeal to this segment. 3)A parallel will be drawn with an Indian fast food chain (Adiga’s). The project will cover the segmentation and targeting adopted by Adiga’s and the manner in which they position themselves in the market. 4)Data would be collected through a structured market research. The data would be categorized under various groups based on various profile parameters such as age, income etc. 5)There would also be a substantial amount of secondary research, some of which is presented in this report.

The secondary research serves the purpose of creating a background for this project and provides data that cannot be obtained from primary research. 6)While the two fast food chains cater to different, an attempt will be made to study which marketing strategy is more effective and why. Literature Survey The first McDonald’s restaurant was founded in 1940 by brothers Dick and Mac McDonald in San Bernardino, California. The McDonald’s restaurant gained fame after 1948, when the brothers implemented their innovative “Speedee Service System”, an assembly-line hamburger construction and self-serve operation.

In 1954, entrepreneur and milkshake-mixer salesman Ray Kroc became interested in the McDonald’s restaurant when he learned of its extraordinary capacity. Upon seeing the restaurant in operation, he approached the McDonald brothers with a proposition to open new McDonald’s restaurants, with himself as the first franchisee. Kroc worked hard to sell McDonald’s. He even attempted to prevail on his wartime acquaintance with Walt Disney, in the failed hope of opening a McDonald’s at the soon-to-be-opened Disneyland. Eventually he opened his first restaurant in Des Plaines, Illinois.

It was an immediate success. Kroc’s new company was originally named “McDonald’s Systems Inc. “, and was founded March 2, 1955. In 1960, the company was renamed “McDonald’s Corporation”. One of Kroc’s marketing insights was his decision to market McDonald’s hamburgers to families, and particularly to children. In the early 1960s, a Washington, DC McDonald’s franchisee named Oscar Goldstein sponsored a children’s show called Bozo’s Circus, starring a clown played by Willard Scott. When the show was cancelled, Goldstein hired Scott as McDonald’s new mascot, “Ronald McDonald”.

The character was eventually spread to the rest of the country via an advertising campaign, although it was decided that Scott was too plump for the role. An entire cast of McDonald land characters was developed. Over the next few decades, McDonald’s used controlled experimentation to maintain the McDonald’s experience, all the while expanding the menu to appeal to a broader range of consumers. For example, in June 1976, McDonald’s introduced a breakfast menu as a way to more fully utilize the physical plant. In 1980, the company rolled out Chicken McNuggets Since that time, McDonald’s has opened restaurants in countries throughout the world.

On January 31, 1990 the first McDonald’s Restaurant opened in Moscow, Russia. In contrast to the stereotype of McDonalds in the United States in which McDonalds is seen as the purveyor of cheap, inferior, and unhealthy food, in some parts of the world such as Russia and China, McDonald’s food is seen as a status symbol and the restaurants are admired for their atmosphere and cleanliness. The price of the Big Mac hamburger sold by McDonald’s has been used by The Economist as an informal measure of purchasing power parity between two currencies, called “Big Mac Index. In the late 1980s, McDonald’s began recognizing the importance of maintaining an ecologically correct posture with the public, which was becoming more concerned about the environment It’s no surprise, then, that McDonald’s sought a way to reduce its solid waste while providing a more environmentally acceptable face to the public. Beginning in 1989, it partnered with the Environmental Defense Fund, a leading organization devoted to protecting the environment, to seek ways to ease the company’s environmental burden on the landscape.

McDonald’s considered its impact on a wide range of stakeholders–customers, suppliers, franchisees, and the environment. The company gave its franchisees much autonomy in finding ways to eliminate environmental blight. The company’s hope was that from these divergent approaches, it stood a greater chance of finding solutions with broad applicability than if it had tried to pursue a one-size-fits-all approach from the outset. Business Model The McDonald’s Corporation’s business model is slightly different from that of most other fast-food chains.

In addition to ordinary franchise fees, supplies and percentage of sales, McDonald’s also collects rent. As a condition of the franchise agreement, McDonald’s owns the property on which most McDonald’s franchises are located. The corporation extracts income from the franchises in the form of rents, which are only partially linked to sales. As Harry J. Sonneborne, one of McDonald’s founders put it, “We are in the real estate business. The only reason we sell hamburgers is because they are the greatest producer of revenue from which our tenants can pay us rent. McDonald’s restaurants are mainly one of three varieties: Most locations allow guests to order inside, with the option of eating inside the restaurant (“for here”), or doing take out (“to go”). Most locations have Drive-Thru windows; customers drive around the building to different stations, ordering, paying for and picking up their food from their car. Some of these normal locations have terraces at which customers can eat at. These locations are in urban and suburban areas, small towns along highways, at pit-stops along major highways. McDrive” locations, near highways. These locations are simply drive-thrus, to which there is no restaurant area connected. Customers may eat while driving, or in the parking lot. Select locations in the heart of cities are essentially set up as drive-thrus, except for pedestrian traffic. These locations offer no seating area. Specially themed restaurants also exists, such as Rock and Roll McDonald’s, 50’s themed restaurants. Many newer McDonald’s in suburban areas feature large indoor or outdoor playgrounds, called McDonald’s Playland.

The yellow “Golden Arches” form the logo of McDonald’s, often put on high poles to mark a restaurant. A red and yellow are in the color schemes used most often by the company in advertising. McDonald’s India There are 56 McDonald’s restaurants in India employing around 2,000 Indians. McDonald’s in India is a joint-venture partnership run by Indian. Last year 52 million customers turned up at its 48 restaurants around the country. Franchising in India McDonald’s India does not offer a franchise. Instead McDonald’s is a joint-venture company managed by Indians.

The company spent Rs 800 crore to establish the chain in India. The money has been spent on establishing the supply chain, buying real estate and setting up its outlets Western Segment: “Hardcastle Restaurants Private Limited” owned by Amit Jatia’s company owns and manages McDonald’s restaurants in the west. Northern Segment: In the north, McDonald’s Restaurants are owned and managed by Vikram Bakshi’s “Connaught Plaza Restaurants Private Limited. ” The two companies either buy or take premises on a long-term arrangement Supply Chain

The company spent six years and around Rs 450 crore to set up the food supply chain, before its first restaurant was opened in the country. McDonald’s India today purchases more than 96% of its products and supplies from Indian suppliers. All suppliers adhere to Indian government regulations on food, health and hygiene while continuously maintaining McDonald’s recognized standards. As the ingredients move from farms to processing plants to the restaurant, McDonald’s Quality Inspection Programme (QIP) carries out quality checks at over 20 different points in the Cold Chain system.

Setting up of the Cold Chain has also enabled the company to cut down on operational wastage Suppliers McDonald’s sources its chicken and vegetable range of products from Vista Processed Foods Pvt. Ltd. , and Kitran Foods respectively (both situated at Taloja on the outskirts of Mumbai). Though the support infrastructure is common for both, the chicken and vegetable food processing lines are completely segregated. To ensure internationally accepted quality standards, both companies work on the widely accepted international system – HACCP (Hazard Analysis and Critical Control Points).

The post-harvest facilities at Trikaya Agriculture include a cold chain consisting of a vacuum pre-cooling room to remove field heat, a large cold room and a refrigerated van for transportation where the temperature and the relative humidity of the crop is maintained between 1and 4 degree celsius and 95 per cent respectively, to maintain the freshness of the vegetable Cheese to McDonald’s restaurants in India comes from Dynamix Dairy, Baramati (Maharashtra), the potato for its French fries comes fresh from farms in Gujarat.

To obtain the right quality of potato which had to have a certain length, high solids content and low moisture content they, along with their supplier partner McCain Foods Pvt. Ltd. , started working with the farmers in Gujarat teaching them advanced techniques to grow better quality potatoes as a result of which process-grade potato varieties could be grown in the region. Distribution centers Radhakrishna Foodland Pvt. Ltd. , serves as the McDonald’s distribution centre (DC) for its restaurants in Mumbai and Delhi.

The DC is responsible for procurement, quality inspection programme, storage, inventory management, deliveries to the restaurants and data collection. Ranging from liquid products coming from Punjab to lettuce from Pune, the DC receives items from different parts of the country. 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.

The company has both cold and dry storage facilities with capabilities to store products up to minus 22 degree Celsius as well as delivery trucks to transport products at temperatures ranging from room temperature to frozen state. Explaining the concept of McDonald’s unique cold chain, Amit says, “Every year, Rs 50,000 crore worth of food produce is wasted in India because of lack of proper infrastructure for storage and transportation under controlled conditions.

McDonald’s, through its cold chain has been both able to cut down on its operational wastage, as well as maintain the freshness and nutritional value of raw and processed food products. This involves procurement, warehousing, transportation and retailing of perishable food products under controlled temperatures. ” India specific products and plans McDonald’s does not serve pork/beef food items in its restaurants. The McDonald’s menu consists of chicken, fish and vegetarian products that include milkshakes, soft serves, the world-famous French fries, Chatpatey potato wedges, the wrap and the McCurry.

In the next 12 months it will be moving out of the metros and concentrating its efforts on four mid-sized cities –Chandigarh, Ludhiana, Jallandhar and Agra. McDonald’s has been growing at a compounded growth rate of 40 per cent every year. The company expects this to stabilise at around 30 per cent to 35 per cent in the next few years. There has been a substantial change in the demographics of its consumers . In the beginning about 80 per cent of its customers came from the upper-level SEC A category. Calibrated pricing levels have attracted a different level of society.

Currently, about 43 per cent of its customers come from the less affluent SEC B category. It has put in a huge effort to draw in more adults which have shown dividends. The number of 24-38 year olds walking into outlets has gone up dramatically by over 30 per cent in the last six months. Much of McDonald’s rapid growth should be attributed to moves that it has made after coming here. About half the products up for sale at its counters have been developed by the company’s product development team in India McDonalds is however facing threats from two major areas.

Firstly, they are faced with comparatively low revenues per customer. Barista, for example, gets about Rs 110 per customer by contrast, McDonald’s figures are far below Rs 100. Also steep real estate prices, which are amongst the highest in the world, tend to drive down margins. So while the only cost that is lower for operating a retail chain in India is labour, all other costs are similar or more. Methodology We wish to achieve our project objectives in the following modules 1. Study and Analysis of branding and advertising Strategies of McDonalds in India, specifically Bangalore. . Analyze the process and impact of STP on customization of new offerings to meet local tastes and preferences. 3. Analyze the changes in existing product offerings to meet the changing customer preferences. 4. To find out the behavioral reasons behind overlapping tastes of Customers and its relation to marketing process. For example, a customer might visit both McDonald’s and Udupi. 5. Comparative study of steps 1-3 with Local Fast Food Restaurants in order to contrast and compare the two types of chain of restaurants. 6. Focus group discussion with customers. 7.

Design a Questionnaire, perform field research and quantitative analysis to identify the parameters that affect consumer choice. Secondary Research McDonald’s Sustained Prosperity The secret of McDonald’s success is its willingness to innovate, even while striving to achieve consistency in the operation of its many outlets. For example, its breakfast menu, salads, McTikka, and the McAloo were all examples of how the company tried to appeal to a wider range of consumers. The company has also made convenience its watchword, not only through how fast it serves customers, but also in the location of its outlets.

Freestanding restaurants are positioned so that you are never more than a few minutes away by foot in the city or by car in the suburbs. Plus McDonald’s is tucking restaurants into schools, stores, and more. Key Threats The existing food joints, both traditional upscale restaurants and India fast food chains will serve as a threat. Promoting Flexibility Through Its Operating Strategy The key thing that McDonald’s operations strategy has to support is experimentation. Now somewhat long in the tooth, McDonald’s needs a breakthrough that will provide new avenues of growth.

It has a long history of such experimentation, which has resulted in some new profit centers like Chicken McNuggets and the breakfast menu. Some later turn out to be duds like the McLean Deluxe, but inevitably experimentation in limited outlets offers McDonald’s a way to retain its key strengths–quality and consistency–while continuing to evolve for new palates and pocket books. Dealing With the Product Range Explosion McDonald’s had done well with a fairly limited product range. But falling per unit sales is a danger sign for the firm.

With competitors gaining ground on McDonald’s, it may indicate a need to refresh its product line. Perhaps the best way to do that is by rotating in a couple highly promoted new menu items. This would have the effect of enlivening the product menu, without the need to go head to head with competitors on price. This slackening of per unit sales might also indicate that McDonald’s critical success factors have changed. Perhaps in the new environment, fast, convenient service is no longer enough to distinguish the firm.

At this time, a new critical success factor may be emerging: the need to create a rich, satisfying experience for dinner consumers. To maintain consistency in new products as it expands the product line, McDonald’s must rely on test marketing new menu items in pilot locations. This approach will let the firm identify which items are likely to prove popular with consumers while ensuring that the company can deliver new products with consistent quality nationwide. McDonald’s already has a history of doing this so it will not require major changes to its operations strategy–at least initially.

If the product line-up gets too large, then the task of maintaining quality becomes exponentially harder. The trick is to consider how to eliminate some of the existing menu items when you introduce new ones, while making sure the staff is fully trained in how to execute these products successfully. Because McDonald’s has pretty well saturated the U. S. market, it’s only real opportunities for growth lie abroad, where the competition is not so cutthroat or by introducing new restaurant concepts under brands other than McDonald’s. After all, McDonald’s is known for fast food.

It’s not really a pleasant dining experience, just a cheap and convenient one. I feel that McDonald’s has reached the point of diminishing returns with the McDonald’s brand and now needs to roll out new types of restaurants. Indeed, McDonald’s has the opportunity to apply its core competencies–scrupulous adherence to quality standards and continual promotion of experimentation–in new venues. Imagine, if you will, McDonald’s opening a new casual dining restaurant under the name of Splendor. It could then franchise that concept nationwide and get some of the dollars from consumers who have grown past fast food.

But its fastidious approach to operations would ensure that consumers everywhere would experience the same dining experience–a tremendous advantage for consumers who don’t want to be surprised with a bad meal. McDonald’s could try a number of concepts simultaneous in different parts of the country. Those that seemed promising could be rolled out further. The duds could be left to die quickly. While this will be an expensive undertaking, it holds the potential to unleash new areas of growth in a maturing market. Kids are Important Getting kids into the establishment is one of the things McDonalds tries hardest to do.

They get the kids into the restaurant by having the advertisement directed at the kids. They make sure their ads get to the kids by showing them during Saturday morning cartoons and right after school because that is when kids watch television the most. This is all done because the good people at McDonalds know that kids have more than half the decision making cause parents want to keep there kids happy and quite. Once kids are in the store the figured they will get the parents business as well so basically two for the price of one. The product that McDonalds has that attracts the kids is Happy Meals.

In 1979 the Happy Meal was introduced making kids visits more special. Happy meals were originally considered an in connivance. A Happy Meal is comprised of a burger, a small fry, small drink and most important a toy. The Happy Meals are gaining kids at a rapid pace and became very profitable. McDonalds is the largest toy seller in the world that just shows you how successful and important the Happy Meals are to McDonalds. Kids generally don’t even care about the food all they want is the toy. The reason the toys are so desired by the kids is because they are usually related to Disney kids movies.

McDonalds has a 10-year contract with the Walt Disney to use it characters from movies as toys. They also have contract Warner Brothers, Mattel and other movie companies. This is done because it will also bring in the parents in and make a profit on them also Happy Meals will create a life long costumer. Another thing that McDonalds did to make the visit to the establishment extra special was to add Playlands. Playlands were brought in in the early 90s they sometimes help sales almost buy 10% the first two years. Kids would buy their meal get the toy out and run to the Playland.

The kids would play for along time and generally wouldn’t even eat the meal. Showing the kids only wanted to come for the toy and the Playland. They also allowed for parents to eat their meals quietly and would be able to have some alone time, which was a plus for the parents and would encourage them to come more often. The Happy Meal and Playlands were very good marketing strategies for McDonalds. Effective tagline The ad constantly kept reminding consumers of how McDonalds was a unique place where one could enjoy with the entire family. Common Situations The ads depicted situations that consumers could identify with.

The advertisement shows a couple ambling down a sidewalk when the wife shyly informs her husband that a new visitor is expected at home. Surprised at seeing the poster which reads that McDonalds veg surprise is priced at a mere Rs 17. They are now seated inside the restaurant enjoying a burger when the wife breaks the news to him. Simple and effective delivery The advertisement just reinforced the fact that McDonalds was place for the entire family and not for a selected few elite youth as perceived before. The benefits were communicated subtly and very effectively. Cost Efficient

The shorter ads (of 15 seconds) were effective in capturing and retaining mind-share at a significantly lower cost and the special processes of creating corporate brands in the service area emphasizing their differences to fast-moving consumer goods (McDonald et al. 2001). This is because corporate branding brings to marketing the ability to use the vision and culture of the company explicitly as part of its unique selling proposition (Chernatony 1999, Ackerman 1998, Ind 1997) or as suggested by Knox et al. (2000; Knox & Maklan 1998) as part of its unique organizational value proposition.

McDonald’s spends more money on advertising and marketing than any other brand. As a result it has replaced Coca-Cola as the world’s most famous brand. The key to a successful franchise and chain, according to many texts on the subject, can be expressed in one word: “uniformity. ” Franchises and chain stores strive to offer exactly the same product or service at numerous locations. And, according to psychology that Customers are drawn to familiar brands by an instinct to avoid the unknown. A brand offers a feeling of reassurance when its products are always and everywhere the same.

McDonald also success at site selection, it was a pioneer in studying the best places for retail locations. One of the things it did is study very carefully where sprawl was headed. Maybe you have been noticed wherever there’s a McDonald’s there are likely to be other fast-food chains nearby. Basically the goal was to be always just slightly ahead of it because that was where the real estate would be inexpensive. You could get the inexpensive real estate, put up your McDonald’s, and by the time the growth got there you’d have a great location.