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Aniruddh Agarwal[Roll Number : GMAY16IT52 | Global Awareness Reflective Paper

McDonald’s in INDIA

Problem Statement: What are the factors that contributed to the

success of McDonald’s in Indian market?

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Table of Contents

Introduction ......................................................................... Error! Bookmark not defined.

Business Model - McDonald’s entry and expansion strategy in India………………………………

Prahalad and Doz Model……………………………………………………………………………………………2

Upsalla Model ................................................................................................................ 3

McDonald’s Pricing Strategy ............................................................................................... 6

McDonald's Marketing Strategy……………………………………………………………………………………..7

Conclusion...........................................................................................................................8

References……………………………………………………………………………………………..…………………(8-9)

Appendix………………………………………………………………………………………………………………………9

PAGE 1

1. Introduction

McDonald’s -the world’s largest chain of hamburger fast food restaurants entered

into India market in the year 1996 as a joint venture(JV) between Oak Brook III

and 2 local associations - Connaught Plaza Restaurants Private Ltd and Hardcastle

Restaurants Private Ltd when the fast food retail market in Indian was still at

initial stage. Indians consumers are food lovers and have great preferences for new

taste and food items. McDonald’s have very successfully customized their food

items to the taste, likings and preferences of Indian consumers. McDonald’s in

India have designed their menu keeping in consideration the religious sentiments

of people. The menu doesn’t contain any beef related food items as it is not

considered religiously correct to eat cow’s meat in India.

The objective behind the paper is to study, evaluate and analyze the entry and

formation of McDonald’s in India and determine factors that contributed to the

growth of McDonald’s in Indian market. The paper also focuses on how

localization strategy, franchisee business model and low pricing strategy helped

them enter into one of the biggest and complex market in the world and gain

market share (Exhibit 3). Today, McDonald stands at top in Indian fast food

market but still faces tough competition from local fast food retailers and other

multinational companies. The basis of the paper is to evaluate how McDonald’s

maintained its dominant status and factors that led to success of McDonald’s in

Indian market.

2.Business Model:

2.1 International Business Model by Prahalad and Doz Model

High

Low

Global Strategy

Multidomestic

Strategy

Home Strategy

Transnational

Strategy

Need for

standardization and

central location

Pressure for local responsiveness Low High

PAGE 2

McDonald’s has moved from having a Global strategy to adopt a

Multidomestic strategy in India. There is high pressure to adopt to local

responsiveness and low need for standardization.

In India, McDonalds came up with menu with no beef and pork food items

as its consumption might hurt the religious sentiments of people.

McDonalds replaced its core product, the Big Mac with the Maharaja Mac.

The Maharaja Mac had a mutton patty instead of beef patty.

As 40% of Indian population is estimated to vegetarians, the menu included

the low priced McAloo Tikki burger (prepared using potato)

McDonalds also introduced spicier sauces such as McMasala and McImli

(prepared using tamarind)

The localization strategy was restricted not only to menu but covered

various other aspects of the restaurant management system.

In a restaurant McDonalds came up with the idea of having two different

menu boards – green for vegetarian products and red for non- vegetarian

products (Exhibit 2)

The kitchen in the restaurants has separate dedicated preparation areas for

non-veg and veg dishes.

To clearly segregate veg from non veg, the Kitchen staff in McDonalds who

is responsible for preparing the veg dishes has different uniform than those

responsible for preparing the non-veg dishes.

McDonald’s went one extra mile to convince its customers and took them on

kitchen tours

In 2000, McDonald’s included two new Indianised food products to its menu

one each in nonveg and veg category – The Chicken McGrill and Veg Pizza

McPuff. To give Chicken McGrill an Indian flavor, chicken patty was mixed

with onions and mint flavored sauce. The Veg Pizza McPuff was prepared

keeping in as a substitute of very popular Indian Samosa.

PAGE 3

In 2000, the 75% of the menu in India was unique and different from rest of

the standardized McDonald’s system.

2.2 Upsalla Model

McDonald’s Expansion Strategy is Indian market is explained with the help

of Upsalla Model.

Experience in Domestic Market (USA)

McDonald’s founded 76 years ago, in its early days (in 1940’s) made most

of their profits selling only hamburgers, cheeseburgers, potato chips,

coffee, soft drinks and apple pie.

In 1952, the McDonald’s brothers start seeking for franchises. Neil Fox, a

distributor for General Petroleum Corporation was their first franchise.

Today, the Business model of McDonald’s is based on franchise based

model coupled with strong corporate branding.

By 1958, McDonald’s had 34 restaurants across the nation. In 1959, 68 new

restaurants opened, bringing the total to 102 locations

In 1965, McDonald’s corporation went public for the first time. Common

shares were offered @ $22.50 per share. In 1968, McDonald’s opened its

1000th restaurant.

McDonald’s continued to grow in 1970’s. In 1975, McDonald’s came up

with its first drive-thru window in Sierra Vista, Arizona to provide

Experience in

Domestic

Market (USA)

Move to Global

Market

Start operations

in culturally

similar countries

(Indonesia)

Intensive

demanding

operation mode

in India

PAGE 4

American consumers a quick way to grab a quick meal. The Happy Meal, a

combo meal featured with a toy introduced in 1979 was a great hit.

During the 1980’s, McDonald’s further diversified its menu to changing

tastes and preferences of the customers. McChicken was introduced for

the first time in 1980 which was later replaced with Chicken McNuggets a

year later due to sale disappointment.

The company made several notable blunders in the United States in the

1990’s due to which it has to cut back on its US expansion.

Move to Foreign market:

After McDonald’s went public in 1965 in USA, they made efforts to enter

into the international markets as well. The first international franchise

opened was in British Columbia which was followed by another in Costa

Rica in the same year.

Hereafter, within the six-month period in 1971, restaurants were launched

in Japan, Holland and a suburb of Sydney

In 1979, a Brazilian McDonald’s was opened, introducing Ronald

McDonald to the South America for the first time

In 1992 McDonald’s reached its 6th continent with the opening of

restaurant in Casablanca, Morocco

After that there was no looking back for McDonald’s and they claimed to

be opening a new restaurant every 3 hours in some part of the world.

Start foreign operations and experience from culturally similar

countries (In Indonesia):

McDonalds entered into Asian markets knowing the fact that Asians are

food lovers and Asian economy was rapidly growing. While establishing

the stores in Asian market McDonald’s took special consideration of

tastes, likings, preferences, customs, cultural and emotional values.

PAGE 5

In 1991, McDonald’s established its first store in Indonesia with one of the

restaurant becoming one of the highest generating monthly gross revenue

McDonald’s in the world. There are currently about 150 locations in

Indonesia.

Formed the joint venture with Bambang Rachmadia (one who established

McDonald’s in Indonesia in 1991) to further expand the business.

McDonald’s has done product adaption to suit to the local taste and

cultures such as introduction of rice dishes and chill sauce.

The experience gained in the Indonesian market helped McDonald’s setup

the business in similarly cultured country India.

Intensive demanding operation Mode (In India):

McDonald was launched in India in 1996 in New Delhi as a joint venture.

Although McDonald’s had the experience of product adaptation in the

past but the level of product adaptation required in Indian market was

significantly much higher

India is the first McDonald’s market with no beef and pork food items on

its menu. All sauces are egg less and preparation is done keeping in mind

the vegetarian crowd

McDonald’s in India initially targeted metro cities, tourist rich and

business centers. (Exhibit 1)

PAGE 6

3. Pricing Strategy of McDonald’s in India

To fight its premium image in the Indian market and attract consumers to

the store, the company ran periodic offers and reduced price selectively.

In early 2000’s, the company greatly reduced the price of soft serve ice

cream cone from Rs. 16 to Rs. 7 and still managed to earn healthy margin of

40% on cones.

McDonald’s Happy meal, which contains a complimentary toy as well was

priced as low as at Rs. 46.

The prices of McDonald’s in India were lower in comparison to other Asian

economies like SriLanka and Pakistan.

The price of Maharaja Mac was half than the equivalent product in the

United States.

In 2009, McDonald’s reduced the price of it lunch and dinner menu by 25%

The low price strategy at McDonald’s can be explained by two factors: 1)

The pricing strategies of competitors and 2) Low cost and dedicated Supply

chain network.

PAGE 7

4.McDonald’s Marketing Strategy in India over a period of time

(1997 -2016)

Time period - (1997-2000)

Objective: Brand Building

Introduce themselves as

an Indian restaurant and

not as a foreign

restaurant

Regular connect and

interaction with the

consumers with the

intent to educate them

about their products

Emphasis on separate

installation of veg and

non veg preparation area

Smart use of famous

mascot - Ronald

McDonald to connect

with the kids

Time period - (2000-2009)

Objective: Increase Brand

Recall

Use of aggressive

television advertising

with a humor appeal

Introduction of Happy

price menu as a cost

leadership strategy move

Targeted Indian youth

more than Indian family

Introduction of the

delivery service to further

expand their service

model

Time period - (2010 onwards)

Objective: Create brand

differentiation

Current advertisements

have an emotional appeal

to connect with the Indian

consumers

Expansion of menu

offerings is their current

strategy

Brand reinforcement

through advertisements

with the classic

McDonald’s “I’m lovin it”

PAGE 8

5.Conclusion

McDonald’s in India is one of the most successful franchise and growing

consistently over the period of time (Exhibit 3). The main reasons for McDonald’s

success in the Indian market can be summed up as below:

High sensitivity towards local taste, preferences and likings of Indian

consumers.

Affordable pricing was another key factor behind their success considering

the fact people are very price sensitive and going out for lunch or dinner is

not that a common practice as compared to west.

Promoting the family dining experience worked in their favor as people in

India love to eat with their friends and families.

Time to time Innovation practices like home delivery, introduction of

breakfast menu served from 7.00 am to 11.00 am has always keep them

ahead in the competition.

McDonald’s strong dedicated supply chain network, quick service

restaurants, MFY (Made for You) food preparation, cluster wise expansion

strategies all played crucial role in determining success of McDonald’s.

If McDonald’s can continue to overcome all it challenges, make proper use of advantages and opportunities and employ right strategies at the right time and innovate, it will continue to be ahead of its competitors (KFC, Burger King, Subway etc.) and grow in the Indian market for the next share 10 years at least.

With people becoming more health conscious, McDonald’s should consider to

launch healthy products in their menu like soup, salads, whole wheat breads,

honey oat breads and convert their image to healthy food provider.

6. References

Pangarkar, N., & Subhramanyan, S. (n.d.). Beefing up the Beefless Mac: McDonald’s expansion strategies in India. Retrieved from http://www.mi.rei.ase.ro/Site MI/AI/Studiu de caz 4_McDonald's.pdf

PAGE 9

S., & Kaur, S. (2012, September). Strategy and Repositioning the Brand McDonald’s in India. International Journal of Scientific and Research Publications, 2(9). Retrieved from http://www.ijsrp.org/research-paper-0912/ijsrp-p0935.pdf

Essays, UK. (November 2013). McDonald Adaptation in India Marketing

Essay. Retrieved from

https://www.ukessays.com/essays/marketing/mcdonald-adaptation-in-

india-marketing-essay.php?cref=1

Kanan, S. (2014, November 19). How McDonald's conquered India. Retrieved from http://www.bbc.com/news/business-30115555

Gordon, A., Deshmukh, A., Gupta, D., Hung, S., & Baek, C. W. (n.d.). McDonald's adapts to India. Retrieved from http://connect.mheducation.com/connect/hmStudentSectionHomePortal.do?sectionId=61147440.

7 Appendix

Exhibit 1 - Profile of the Indian Cities targeted by

McDonald’s in Initial days (around year 2000)

City Remarks

Delhi Capital of India, seat of the central

government and a metropolitan city

Bangalore India’s Software hub/Silicon Valley

of India

Mumbai Financial Capital of India

Ahmedabad A major Business center of western

India

Pune Manufacturing center and satellite

town of Mumbai

Jaipur A major tourist place

PAGE 10

Agra Tourist place; home to one of the

seven wonders of the world- Taj

Mahal

Exhibit 2: Vegetarian (In green) and Non vegetarian menu

(in Red) at McDonalds

A-LA -CARTE MENU

VEG Non-Veg

Veg Pizza McPuff Rs 25/- Chicken Mcgrill Burger Rs 44/-

McAloo Tiki Rs 29/- Masala Grill Chicken RS 56/-

Masala Grill Veg Rs 51/- Filet-o-Fish Rs 96/-

McVeggie Burger Rs 67/- Chicken Maharaja Mac Rs 100/-

McSpicy Paneer Rs 116 BigSpicy Chicken Wrap Rs 149/-

Exhibit 3: Comparative study of McDonald’s India with

other competitors (KFC India and Dominos India)