This case was prepared by Dr. Smita Kulkarni (University of Miami) and Dr. Walfried Lassar (FloridaInternational University) with assistance from Chandan Sridhar (Florida International University) andAkhila Venkitachalam (Aditya Birla Centre, London Business School) as a basis for classroomdiscussion rather than to illustrate either effective or ineffective handling of a management situation.
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
2
A Story Began……..
It was a busy day at the Mumbai Central Station in India, marked with the usual rush ofpassengers. A large group of passengers was ready and anxiously awaiting to board theirrespective trains. Porters in their red uniforms were seen carrying baggage to help the
travellers. Food vendors, bookstalls, newspaper sellers... It was a mini marketplace. Afamily with two kids arrived in an air conditioned car two hours earlier then their scheduleddeparture. After they entered the train station, the humid weather, the typical odour at therailway station and the crowd made them uncomfortable. With a bored look, the childrenlooked around and suddenly shrieked with joy. Excited, they indicated a sign to theirparents. 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 theexperience would be wonderful like the ones they had during their earlier visits toMcDonald’s at other locations in India and abroad.
In the Indian Railways Food Plaza at Mumbai Central, McDonald’s stood apart from itsother 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 Mumbaiand other parts of India. The perceived value of the customers about McDonalds was highas the evidence of cleanliness, quality and sophistication of service made a lastingimpression on their minds. They were Indian customers who considered McDonald’s as asymbol of the American culture. Availability of McDonald’s in their country reflected thebeginning of globalization which had brought in western brand influences into the Indianmarkets. The impressive aspect was that the intangibles of the fast food service had madethe maximum impact on the customers. The Indian customers had always seen the kitchendoors of the other restaurants with a sign ‘Restricted Area’ or ‘For Employees’ only. Now inMcDonald’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 andCoca 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 DelhiIn 1996, McDonald's opened in India for the first time, a country where the majority of thepopulation was Hindu and vegetarian, and the cow was sacred. Many saw it as just anotherexample of the relentless spread of Western corporations into every nation, creating aglobal system in which wealth was drained out of local economies into the hands of a very
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
3
few, very rich elite. McDonald’s opened its doors in India in October 1996, demonstratingwhat the McDonald’s experience was all about. McDonald’s in India was a 50-50 jointventure partnership between McDonald’s Corporation (U.S.A.) and two Indianbusinessmen. Amit Jatia’s company, Hardcastle Restaurants Pvt. Ltd., owned and
operated McDonald’s restaurants in Western India, while Connaught Plaza RestaurantsPvt. 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 andalong with their Indian management team trained in McDonald's restaurants in Indonesiaand 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 toacquire newer products and use newer forms of services. Foreign brands were valued andperceived to be superior in quality. According to a report of AC Neilson, among the world’sconsumers, Latin Americans and Asians were the biggest supporters of globalisation andthe value that it added to the various aspects of their lives
ii. It was a favourable situation
for McDonald’s because at the time when they entered, India, the Asian Tiger wasawakening to the global call. The Indian customer was enthusiastic about the marketsituation which provided them with numerous choices to choose and pick.
In a way McDonald’s revolutionized the food retailing business in India. It introduced theIndian customers to service standards which were available in the western world for years.These service standards were visible and noteworthy and hence triggered quickacceptance within the customers. McDonald’s positioning in India as a family restaurantfurther fuelled its success.
India as a market was a unique example of diversity. Divided into 28 states and 7 unionterritories, 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 statesreflected their traditions and culture. Hence the biggest challenge to any food business inIndia definitely was about balancing the diversity and the product offerings. McDonald’s gotclearance from Foreign Investment Promotion Board (FIPB) of India in 1991. But it wasonly after five years of preparation, that the first restaurant became operational in 1996. Itworked on developing local relationships with local partners to facilitate the raw material.
Indian companies for their operational convenience had divided the Indian subcontinentinto 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 isDelhi. 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 restaurantsworldwide and employed more than 1.5 million people. With their presence in more than
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
4
119 countries in six continents a global traveler saw them everywhere3iii
. This perceptionwas the result of the most extensive, expensive and systematic mass marketing strategy ofrecent times. The first store opened near Chicago on April 15, 1955. McDonald’s sincethen has expanded phenomenally.
McDonald's real influence had been in establishing organizational systems of completecontrol at every stage from raw product to factory, from worker to consumer - backed byincessant media hype. McDonald's had been a successful global food corporation atrefining, 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 companiesfollowed their suit. What Ford Motor Company did for cars, travel and the urbanenvironment; McDonald's had done for food and eating habits. McDonald's expansion wascriticized and resisted by trade unionists, local residents, nutritionists and many others inalmost every town and country where they planned a new store - despite their highlydeveloped and expensive marketing effort about being a benefit for the community. Theywere 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 popularHamburger to make an entry into India. With 25-30% of the population being lactovegetarian 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 internationalcompany. McDonald’s accepted the challenge and created the Aloo – Tikki Burger knownas McAloo Tikki
TMespecially 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 vegetariancooking process to convince the customers of the “Shudh Shakahari Experience’ whichmeans pure vegetarian experience. In addition, the crew cooking vegetarian food wereasked to wear green aprons
iv. 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 theburgers 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 ofproduct adaptation, to gain foothold in a new market.
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
5
The competition from the local food retailers was intense. The food retailers had beendoing business for years. Their familiarity with the market and the understanding of thelocal taste gave them a competitive edge. There were numerous eating joints which offeredsnacks and meals with affordable price tags.
Organized food retailing was dominated by the north Indian style and the south Indian stylerestaurant chains. The metropolitan cities and some developed urban areas offeredsuperior dining experience through the existence of some fine, classic restaurants. Butthe price was expensive and only a select group of customers could afford to make visitsthere. On the other hand, the size of the unorganized food retailing was larger andcomprised of roadside food vendors, dhabas (the eateries on the highways) and on theoutskirts of the cities and a plethora of small eateries. Local food in a large assortment waswidely available within acceptable price ranges. It was observed that food choices made byconsumers were impulsive. Aroma, taste, habits and visibility worked on the subconsciouslevel and played a major role in affective decision making. The local food business exactlyunderstood 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 themarketing strategy, it was important for any company to understand the consumer market. The more one knew and understood about consumers, the more effectively one couldcommunicate and market to them
v.
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 motivesand 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 theexperience 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 tocombine eating with fun. Children were the major influencers. McDonald’s advertisementput forth an attractive proposition to the children segment that played a major role in thedecision making as regards the choice of a restaurant. Happy Meal
TMwas 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. EachHappy Meal™ was themed and had on offer, a set of collectible toys from that particulartheme. One theme typically was used for duration of 4 – 6 weeks
vii. 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
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
6
assumed importance in the financially stable families. McDonald’s was perceived to be afun 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 inIndia 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 inIndia for Food retailing in 2006viii
. Youngsters valued McDonald’s for the trendyenvironment and the joint acted as an interesting meeting place.
In United States, two thirds of the business of McDonalds was done at the drive throughwindowsix. In India, because of unavailability of space and lack of proper infrastructure, thecompany could not do so. However, home delivery was an area of consideration. In March2007, McDonalds announced that it would invest about Rs 3 crore (US $0.75 million) overthe next three years to strengthen its home delivery services. It launched an all-India singlehome delivery number — 66-000-666 to facilitate this service. In March 2007, thecompany's Managing Director Mr.Vikram Bakshi said “Mc Delivery currently accounts foralmost 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’sability to pay and tap the rich and upper middleclass population in India. AlthoughMcDonald’s strategy was to increase sales volumes by making products available ataffordable price, its products were perceived to be expensive. The company outlets in Delhiand Mumbai initially were opened due to the increased affordability of people with westernexposure and brand recognition factors in metros. Additionally, people in the metros wereopen to experiment with variety of foods. Absorption of newer cultures was faster in theMetros than other areas.
The mass markets in India were price sensitive.The positive factors were the growth inconsumer markets with rapid growth in disposable incomes, development of modern urbanlifestyles and the demand for value
xi.
Eating Habits
Eating out was a special occasion to many Indian families. Meals had been an essentialmedium for social sharing and relationship
xii.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 andreadymade food was growing. The needs of the growing working population stimulated theneed for new products and services. Indian culture was relatively new to the use oftechnology and streamlined process in food service. McDonald’s needed to find ways andmethods to motivate the customers opt for initial trials and acceptance. The conventionaleating pattern of Indians involved breakfast, lunch and dinner. Lunch and dinner menus
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
7
were complete meals providing the right balance in terms of nutrition. Breakfast wasconventional as per the family culture and upbringing. Burgers were likely to be slotted inthe category of snacks. But globally burgers and beverage brands were linked with pooreating habits
xiii. 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 theproduction of cattle to produce beef, promoting unhealthy food with a risk of cancer andheart disease, taking advantage of children with its advertising and marketing, and crueltyto animals
xiv. There had been complaints as regards the nutrition, hygiene etc……..
Animals
Vegetarians and animal welfare campaigners were not too wholehearted about McDonald's- for obvious reasons. As the world's largest user of beef
xv, they were responsible for the
slaughter of countless cows every year. In Europe alone they used half a million chickensevery week, all from windowless factory farms
xvi. This meant that these animals suffered
great cruelty during their unnatural, painful and short lives, many being kept inside with noaccess 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 foodindustry to exploit animals at all. McDonald's argued that it stuck to the letter of the lawand 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 farmingand intensive methods had been applied on a vast scale. This mass production processwas primarily to benefit the food companies' drive for greater profits, backed by theirpromotional 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 promotingbusiness practices detrimental to the environment. But the company spent a fortunepromoting itself as environmentally friendly. They annually produced over a million ton ofpackaging, used for just a few minutes before being discarded. The environmental effectof the production and disposal of all this needed to be taken into account. Multinationalcompanies 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 callouslytaken advantage of the natural resources globally, damaging forests and other eco-
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
8
systems, reducing biodiversity, adding to land, and sea and air pollution while adverselyaffecting the global climate. McDonald's contribution to these were mainly through theeffects of cattle ranching (as the world's foremost promoter of a beef-based diet), throughthe 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 hadbeen eating food of their choice and the circumstances in which it was eaten. For mostpeople this generally meant eating the healthiest possible food (bearing in mind constraintsof time and poverty), usually cooked on site and then eaten communally - either in a familyor home setting, or with others while at work or in school. But there were rapid changes asthe pace and nature of society had shifted. An industrial or service infrastructureincreasingly dominated the local neighborhoods and people's lives, undermining existingpatterns of human interaction, whether among families, friends, neighbors or in thecommunity in general.
Mass-produced, processed food gradually and increasingly replaced fresh and healthyfoods 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 thehome. This change in eating habits brought serious consequences to human relations andhealth. These consequences sparked a debate about healthy food. They also brought outa whole range of new campaigns and movements dedicated to encouraging healthy eatingand healthy lifestyles. Macro environmental factors affected McDonald’s, forced it tobecome 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 highin fat, sugar and salt
xvii. Health consciousness was rising amongst people with the obesity
crisis hitting the world. The concern was serious as it was children who were the mostaffected. Nutrition and exercise issues which were important and needed to be reviewedearlier, now were considered, discussed, and debated only after witnessing the frighteningconsequences. Many critics blamed McDonalds like businesses for public health concerns,contending that fast food menus and portion sizes contribute to obesity, diabetes and heartdisease and a variety of other diet related problems
xviii. But at the same time, it was
worthwhile to note that the type of demand exhibited by the market initiated the processeswithin the companies. As long as the demand for fast food continued, nutritional issueswould continue to be argued and deliberated upon. India also had its own set of so callednutritious and non-nutritious food. People in India appeared to prefer food for its taste. BhelPuri, 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 spicytaste 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 beenestablished scientifically that artificial trans- fats were bad for human health. In UnitedStates, New York City was the first city to announce a ban on all restaurants from using
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
9
artificial Trans fats with the deadline on July 1, 2007. When the legal system imposed bansand developed a regulatory framework, the food industry was compelled to respond. InJanuary 2007, McDonald’s picked new Trans fat free oil for cooking its famous French friesafter years of testing
xix.
In view of the health risks and dangers, it was important that food service did not justconfine to respond to the basic need of hunger. Food industry was required to innovateand work on introducing healthy eating options and making them available. This wouldcreate a situation where the final choice would then be made by the consumers. A healthylifestyle only would help overcome the health problems gripping the society. Awarenessabout health needed to be built up and somewhere the responsibility definitely lay withcompanies which were into the food business. Health concern was a global call andresponding 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 morethan a million mostly young people around the world and provided them with workopportunities.
The fast food giant helped pioneer employment that was low-pay, non-union, temporary orpart-time with few guaranteed rights and conditions. McDonald's worldwide employed overone and a half million workers, over half of them under 21 years old. It had been calculatedthat a staggering 10% of all workers in the USA got their first job at McDonald's! Outletslike 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 manypeople 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 averageMcDonald’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 newoutlets 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 maintainconsistency in sales and build customer loyalty. Advertising was the backbone ofMcDonald’s marketing strategy in India. The positioning had been directed towardsestablishing 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 storylineswith focus on emotions. Through a variety of advertisements, the visit to McDonald wasportrayed as a special occasion providing excitement and satisfaction to the customerswho comprised of families with kids and the youngsters.
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
10
Advertising helped in building brand recall, but advertising alone was not able to sustainthe brand. Despite the fact that McDonald's was a fast food chain of restaurants, in India itwas positioned as the family restaurant and outlets were called “McDonalds FamilyRestaurant”. 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 visitingMcDonald's. The counters were low, tables were rounded so that children did not hurtthemselves in the restaurant and the menus are pictorially depicted so that a child couldorder a meal without bothering parents. The entire restaurant was attractive and childfriendly.
When operations in India began, initially McDonald’s positioned itself as a place to visit withthe baseline "McDonald's mein hain kuch baat" (“There’s definitely something aboutMcDonald’s”) in their advertisements. People were encouraged to try the McDonald'sexperience. However, over the years, after McDonald's had been hugely accepted byIndian customers, there was a need to evolve the communication strategy and move onfrom 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 knewwhat 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. Theobjective was to continue positioning McDonald's as a comfort zone for families
xx.
The brand’s media strategy focused more on the electronic media. The advertisingcontinued to use emotional appeal to display family ties and fun at McDonald’s. Indiansbeing emotional found it easier to correlate themselves with such types of emotionalmessages. 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 electronicmedia. McDonald’s did have enough repeat customers. The customer base increasedsubstantially since they started operations.
The strength of McDonald's as a brand in India was that it was the most recognizablebrand world over amongst all age groups. It was the ‘Indianization’ of the brand thathelped McDonald’s establish in a new market successfully. The brand’s success wasattributed to its promise of a great fun filled experience delivered at its outlets.
McDonald's executed promotional campaigns involving children. McDonald’s used kids asan entry strategy to the family. World over McDonalds was a family restaurant and childrenwere an integral part of a family. During the last few decades, kids had become the targetaudience for most categories including consumer durables. In the 1990's, India saw amajor shift to nuclear families. When joint-extended families existed, the head of the familymade 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 playedan 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 couldno longer be ignored.
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
11
McDonald’s “Happy Meals” were often accompanied with Lego toys to attract children andthe restaurant maintained several ‘Play-Zones’ to provide children with a fun experience.The restaurants hosted birthday parties, played latest pop-music hits and became afavorite place even for the new generation of jean-clad ‘Americanized’ teenagers of India.
McDonalds even introduced unusual ice-cream flavors such as bubblegum, green appleand berry to entice the curious youngsters.
Using collectable toys, television commercials, promotional schemes in schools and figuressuch as Ronald McDonald, McDonald’s pursued its main target group – children. Manyparents objected strongly to the influence this had over their own children. McDonald’sadhered to all the advertising codes in each country. But some argued that it still amountedto exploitation of children, sponsoring so many school events and learning programs out ofpublicity, not philanthropy. In view of this criticism, McDonald with some other companiesvowed to devote at least half of their radio, print, television and internet advertising topromoting more healthful products and healthy lifestyle. Mary Dillon, McDonald’s ChiefMarketing 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 usedextensively by McDonald’s at one time but the entertainment company decided to allow itscharacters to push products that met certain nutritional guidelines’
xxi.
Ethics and Social Responsibility
In India, Mrs. Maneka Gandhi, a popular environmental activist and her supporterslaunched an aggressive campaign against fast food chains which contributed in thedestruction of the ecological balance and promoted unhealthy food. To respond to suchcampaigns, McDonald’s launched several pro-green advertisements such as “We loveGreen” and funded community related activities including “Keep our city clean”. McDonaldssponsored “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 inIndia, McDonald’s participated in community-related projects targeting children.McDonald’s in India hosted interschool arts competition and raised funds for charity onWorld Children’s Day. The restaurant celebrated Children’s week every year fromNovember 14-20 and tactfully supported educational programs for girl-child to promotegoodwill among community organizations who worked towards improving status of womenin India. McDonald’s also partnered with local health organizations to make India Polio-freeby 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-longcampaign garnered proceeds for vision correction of the visually and economicallychallenged children. As part of `Each One Contribute One' programme, Re 1 wascontributed on the sales of all meals sold from October 13 - November 20, towards thecorrective eye surgeries of the needy children
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
12
According to Mr Vikram Bakshi, Joint Venture Partner and Managing Director, McDonald'sIndia (North and East Region), McDonalds had come a long way since 2002 and theresults were encouraging. Over 390 children were treated at the pediatric centre at DrShroff's Charity Eye Hospital with the support of NGO ORBIS
xxiii.
McDonald's did not offer any beef or pork items in India, and even created egg lessproducts for their vegetarian customers. French Fries in India were not beef flavoured as inthe US. During popular religious festivals in India, McDonald’s introduced more vegetarianselections.
Supply Chain
McDonald’s stated that Rs. 50,000 crore (about U.S. $12.5 billion) worth of food producewas “wasted” in India, mainly because of the lack of proper infrastructure for storage andtransportation under controlled conditions
xxiv. In it’s commitment to providing quality
products while supporting Indian businesses, McDonald’s spent a few years setting up aunique 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 encompassthe entire chain, since hidden value often emerged once the entire chain was visualized
xxv.
Understanding the value to the downstream customer was a part of the supply chainmanagement process. The supply chain connected McDonald’s throughout India andmade McDonald’s ‘Indian.’. McDonalds in India focused on making a successful supplychain 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 itsadherence to Indian Government regulations on food, health and hygiene. McDonald's
India purchased more than 96% of its products and supplies from Indian suppliersxxvi
, evenconstructing restaurants using local architects, contractors, local material (whereverpossible), and hired local personnel for all positions within the restaurants and contributeda 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 mutuallybeneficial, reasoning that as McDonald's expanded in India, suppliers would continue toget 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 byMcDonald's and its international suppliers to Indian entrepreneurs, who had become anintegral part of the Cold Chain. The term Cold Chain described the network for theprocurement, warehousing, transportation and retailing of food products under controlledtemperatures. McDonald’s restaurants stored products to be used on a daily basis, within a
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
13
temperature range of –18ºC to 4ºC. About 52% of its food products needed to be storedunder these conditions before they were used
xxvii.
As the ingredients moved from farms to processing plants to the restaurant, McDonald'sQuality Inspection Program (QIP) carried out quality checks at over 36 different points in
the Cold Chain system till it reached the customerxxviii. Setting up of the Cold Chain enabledMcDonald’s to cut down on operational wastage.
Suppliers
Trikaya Agriculture – Supplier of Iceberg Lettuce
Implementation of certain agricultural practices enabled Trikaya to successfully growspecialty 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 inthe area of agriculture, Trikaya Farms in Talegaon, Maharashtra, were able to grow thecrop 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 arefrigerated transportation system allowing a small agri-business in Maharashtra to providefresh, high-quality lettuce to McDonald's urban restaurant locations thousands ofkilometers away. With this cold chain infrastructure in place, Trikaya Agriculture planned toexport this high value product to other international markets, especially to McDonald'sMiddle East and Asia Pacific operations, and had done shipments to the Gulf successfullyIt 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 ofhotels, clubs, flight kitchens and offshore catering companies all over India.
Vista Process Foods Pvt. Ltd. – Supplier of Chicken and Vegetable ProductsAs a joint venture with OSI Industries Inc., USA, and McDonald's India Pvt. Ltd., VistaProcessed Foods Pvt. Ltd. produced a range of frozen chicken and vegetable foods. Theinfrastructure 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 toretain 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-techrefrigeration plants for production of frozen food at temperatures as low as - 35° C. Thiswas vital to ensure that the frozen food retained it freshness for a long time and the 'coldchain' was maintained. These products, besides being supplied to McDonald's, were also
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
14
offered to institutions such as hospitals, project sites, caterers, corporate canteens, schoolsand colleges, restaurants, food service establishments and coffee shops
xxix.
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 newmarket 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 atDynamix, 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 anexport order from the other company. It also helped Dynamix in acquiring technology tomarket a large number of high quality, value-added milk products
xxx.
Amrit Food – Supplier of long life UHT Milk and Milk Products for Frozen Desserts toMcDonalds
Amrit Food, an ISO 9000 company, manufactured widely popular brands - Gagan Milk andNandan Ghee at its factory at Ghaziabad, Uttar Pradesh. Its plant had:
• State-of-the-art fully automatic machinery which did not require human contact withproduct, 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 operateddistribution centers for McDonald's restaurants in Mumbai and Delhi. An integral part ofthe Radhakrishna Group, Foodland specialized in handling large volumes, providing theentire range of services including procurement, quality inspection, storage, inventorymanagement, deliveries, data collection, recording and reporting. The most importantstrengths were:
• A one-stop shop for all distribution management services.
• Dry and cold storage facility to store and transport perishable products attemperatures up to - 22 degrees Celsius.
• Effective process control for minimum distribution cost.
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
15
The distribution centers focused all their resources to meet McDonald's expectation ofcold, clean, and on-time delivery and played a vital role in maintaining the integrity of theproducts throughout the entire 'cold chain'. Ranging from liquid products coming from
Punjab to lettuce from Pune, the distribution center received items from different parts ofthe country. These items were stored in rooms with different temperature zones and werefinally 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 anaffiliation 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 inKhopoli, Maharashtra. Cremica Industries worked with one of McDonald's suppliers fromEurope to develop technology and expertise, which allowed Cremica to expand itsbusinesses from baking to also providing breading and batters to McDonald's India andother 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. Oneof McDonald’s suppliers, Lamb Weston, invested heavily in setting up production lines toprocess these potatoes and make the fries. However, the production was discontinued, asthe right quality of potatoes could not be sourced.
The variety of potato required by McDonald’s had to have a certain length, high solidscontent 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 andits 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 potatovarieties. Gujarat potato crop was utilized to make McDonald’s ‘Chatpatey’ PotatoWedges
xxxii.
McDonald's broke even on operations around December 2003 and expanded to 80 outletsthat same year, concentrating on cities where their cold chain facilities had reached. Theyhad ambitious plans for growth in various cities and also on national highways. With theGolden Quadrilateral Highway Project connecting four corners of India nearing completion,highway traffic was expected to increase multifold. This created new business opportunitiesfor 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 toinvest Rs.300 crores- 400 crores (US$ 75 Million - US$ 100 Million) in the next three yearsto add 100-125 restaurants in the country as against the then existing number of 94
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
16
After establishing itself in the Northern and the Western India, McDonald’s opened theirfirst 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 onexpansion 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 furtherexpansion. McDonald set up a regional distribution centre in Kolkata. In South India, thecompany planned to open more stores in one city than one store in many cities
xxxiv.
McDonalds partnered with BPCL (Bharat Petroleum Corporation Limited) and HPCL(Hindustan Petroleum Corporation Limited) to set up restaurants targeting the automobiledriving 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 serviceexperience to the customers at the gas stations. Partnership with McDonald’s was astrategic decision to highlight the value added services.
In order to target the shopping mall and cinema lovers, the company setup outlets in newshopping malls and new multiplexes in the country’s metros. In order to tap the potentialamong the middle-class Indians, the company partnered with railway stations and busstations.
McDonald’s also introduced the concept of ‘Litter Patrols’ where the employees ofMcDonald’s would go around the market every day picking up garbage left behind not onlyby customers from McDonald’s restaurants but also by other visitors in the area, resultingin 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 12times from 50 million to 583 million, the market potential was huge
xxxv. Companies with long
term plans for the Indian markets needed to understand the hidden potential and preparethemselves to accept the challenge.
With 63% of its population in the age group of 15-64 years and 31.8% in the age group of0-14 years, the opportunities were very attractive
xxxvi. In 2006, India achieved an 8.5% GDP
growth. The middle class formed the backbone of the Indian market and it was the risingincome of young middle class that fueled its growth. 56 million households in India earnedUS$4400 – US $21,800 a year
xxxvii. In its pursuit for better living and improving the quality
of life, middle class in India exhibited strong aspirations to grow financially stronger. Thiskey factor made India an active potential market for companies into areas such as foodretailing, consumer durables, automobiles etc.
McDonald’s was very positive on the Indian market scenario. With the parent companymaking huge investments in supply chain and media communication, the company was
Volume 1, Issue 2 (Jan. 31, 2009) OJICA-Online Journal of International Case Analysis
17
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 inthe Asia Pacific region, the penetration it has achieved in the country matches most of the
countries, where the chain is 20-30 years old”
xxxviii
. Despite the fact that globallyMcDonald’s slowed down its expansion, there were no restrictions on the Indianoperations. This fact revealed the company’s perspectives and plans for India. India wasidentified 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 employeesworking, the company intended to hire another 10,000 to 15,000 people in the next fewyears. On an average it employed 50 people per outlet, depending upon the seatingcapacity
xxxix.
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 familyrestaurant would continue to appeal Indian population. The company faced charges in theUS for allegedly using beef extract on its French Fries at India
xl. 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 outsidethe metros was unthinkable due to affordability issues. However the company managementexplained that it was incorrect to perceive McDonald’s as expensive. Although thecompany had done well catering to India’s taste preferences, the country’s regionalcultures were so varied that the company needed to bring new products regularly, whichwas an expensive strategy despite its successful supply chain initiatives. Further a biggerchallenge was about translating the McDonald’s experience to the Indian masses andmaintaining consistency in the delivery of services. Competition from other fast food giantslike Pizza Hut, KFC and local food chains was intense on the basis of pricing and themenu. McDonald’s India worked with great effort to establish in India. Will the middle classand the affluent continue to favor McDonald’s? Would Maharaja Mac expand deeper intothe markets of India? Will the global image of a fatty food company affect McDonald’sfuture in India? Will McDonald’s continue to succeed in India in the years to come?
McDonald’s 24/7, Business Week, The McGraw Hill companies, February 2007, pp 69xhttp://www.thehindubusinessline.com/2007/03/16/stories/2007031603340500.htm
xiConsumer Markets in India, www.kpmg.fi/Binary
xiiVisset, Margaret, Food and Culture: Interconnections, Social research, Spring 99, Vol.66, Issue 1, pp 117-130
,14pxiii
Gupta Divesh, Media Asia, 2/10/2006, 0 15-15xiv
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
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, 297-320xix
