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McDonald's adapts to India

McDonald's strategy in IndiaBy Alick Gordon, Arvind Deshmukh, Deviki Gupta, Sam Hung and Chul Won Baek

Like many young men his age, Rohan was a bit nervous about his first date with Neha. They had been friends for many years, but this was the first time they had been out on their own together. After ordering their food, the waitress responded with the ubiquitous question, “Would you like fries with that?” “Yes please,” responded Rohan before paying and carrying his and Neha’s trays of food back to their table.

Unlike in the United States, where most young adults would never think of going on a date to McDonald’s, in India it is a widely accepted and welcomed destination. McDonald’s India has carved a niche for itself in an increasingly competitive Indian fast food market by adapting itself in ways uncommon for the company in other parts of the globe. Through the company’s focus on teenagers and young adults as well as a highly specialized menu, McDonald’s has found success in India when many people said it could not be done.

When most of us think of McDonald’s, we think of cheap fast food and little children racing around the restaurant with their happy meal toys.  While this is much the same wherever you go in the world, upon closer inspection, McDonald’s India retains some major differences.  The most noticeable difference is the menu.  McDonald’s is known worldwide for its Big Mac.  However more than 80% of India’s population of 1.17 billion does not eat beef (CIA).  So to have any chance of success in the country, McDonald’s recognized that the company would have to spend a lot of time and effort developing a menu that catered to India’s enormous Hindu and Muslim communities.  Elsewhere in the world, McDonald’s maintains a strict 70% original 30% local menu.  In India however, McDonald’s inverted those numbers maintaining a 30% original 70% local menu.  Stricken from the menu were the Big Mac and Quarter Pounder, the hamburgers that made McDonald’s famous.  Gone also was the McRib.  After all, Muslims do not eat pork.  In their places, McDonald’s unveiled its potato, lamb, and chicken based menu featuring such delectable treats as the Mc Aloo Tikki Burger and Maharaja Mac (see appendix 1).  But not to worry McDonald’s fans, you can still get your French fries and Chicken McNuggets.

McDonald’s also represents something different to the youth of India.  The company has been accused of cultural imperialism by numerous sources but this is not really true.  McDonald’s has had to Indianize itself in order to be accepted by the population (Singhal).  Even so, McDonald’s has retained many of its key western elements and this has made the restaurant that much more popular.  Thinking of our own experiences at McDonald’s, few of us would remember all the great times we had with our friends at that cool American style restaurant.  Yet this is exactly the memory that Indian youth associate with McDonald’s.  They see the restaurant as something different, unique, and fun.  They see it as a great place where they can get out of the house and away from their parents.   This is where India’s youths go to hang out with their friends and treat themselves to some great tasting reasonably priced food.

McDonald’s has cultivated this image and built brand loyalty with young Indians through advertisements specifically targeted towards young adults (see appendix 2).  The restaurant recognizes that this age bracket, more so than in the US, influences the purchases of the entire family.  And as such, by capturing the youth market, McDonald’s can capture the rest of the family as well.  Additionally, due to the recent increases in FDI and the abundance of call centers, India’s youth have more money than previous generations did.  And without the families and other obligations that drain the wallets of their elders, these nouveau wealthy youth are free to exercise more discretionary spending than previous generations.

Through the company’s operating model of targeting the teen and young adult populations of India, the company has enjoyed great success, capturing 39% of fast food sales in the country (Fast Food – India), this despite the fact that McDonald’s does not even have the most restaurants.  That honor lies with Baskin-Robbins.  Meanwhile the market is expected to grow nearly 50% by the year 2014 (Fast Food in India).  All of which makes McDonald’s and its competitors salivate.  In total, McDonald’s has more than 160 restaurants concentrated primarily in the northern and western districts of the country (McDonald’s India website).  In addition to their traditional restaurants, the company also operates many ice cream kiosks.  These are small stores located primarily in shopping districts where customers can take a break from their day to sit and enjoy an ice cream cone (see appendix 3).The company has also chosen to forgo its usual franchising model.  Instead choosing to start two joint ventures and establish two master franchisees that are responsible for managing every restaurant in the country.  This joint venture model helps the company exercise stronger control over the individual restaurants and ensures that each one meets the company’s strict QSCV (Quality, Service, Cleanliness, and Value) motto.

Foreign Failures:

But while McDonald’s has made success in India seem easy, many other companies have found out that in reality it is not.  Häagen-Dazs learned this the hard way.  In a country with a sweet tooth, where not only the young people, but the older generations as well, love ice cream (Dash Interview).  It was assumed that Häagen-Dazs would be a great success.  In an effort to drum up publicity and brand itself as another cool foreign company, Häagen-Dazs held a preview event for the international community the day before the company was to open its first outlet.  To advertise the event, the company displayed a sign featuring the phase, “Entry restricted only to holders of International passports.”  On the day of the preview event, an Indian student was refused entry.  The company claimed that the young man was refused not because of his nationality, but only because of overcrowding.  However the message had already been sent.  The student took a photograph of the sign and sent it to each of the major newspapers in India. Häagen-Dazs’s promotion backfired because it reminded India’s population of the ‘No Dogs and Indians allowed’ slogan that was common during the British Rule.  Because of a poor choice of words, an event that was supposed to brand Häagen-Dazs as cool and popular ended up embroiling the company in a massive controversy.  While Häagen-Dazs’s poor choice in advertising made its shop in New Delhi world famous, it did not win the appreciation of the Indian market. Häagen-Dazs still has not expanded beyond its single store in New Delhi (Dasgupta).

Many other companies have struggled because of their overestimation of and unwillingness or inability to adapt to the Indian market as well.  Kellogg’s failed to consider Indian consumers’ breakfast preferences.  Levi’s tried to sell blue jeans for the same prices the company charges in the US.  Even Coca-Cola struggled because the company offered its soda in bottles that were too big and too expensive. At least in Coca-Cola’s defense, the company recognized its error in judgment and converted to selling cheaper, smaller bottles and has since rebounded from its mistake (Prasso).

Looking Ahead:

McDonald’s has so far been highly successful in its expansion into India, but all is not rosy for the company.  The same reasons that attracted McDonald’s to the country have attracted many competitors as well.  Yum! Brands, owners of KFC and Taco Bell, as well as local competitor Nirulas have also grown in size and popularity in the market.  These competitors have the added benefit of seeing what strategies have worked well and what strategies have failed for McDonald’s and other companies.  Additionally, while McDonald’s stresses its QSCV motto, ensuring American standards of cleanliness and hygiene in a country with much lower standards is a constant concern.  Finally, poor infrastructure outside of the major cities impedes McDonald’s growth into smaller cities as poor roads make many parts of the country nearly inaccessible.  It would also be very difficult for the company to establish a reliable distribution network to service those areas. On the bright side, the Government of India has recently passed two bills calling for a massive increase in infrastructure spending to the tune of nearly $1 trillion (ICICI Direct).  These bills will enable to country to build many new roads and upgrade the existing infrastructure.  McDonald’s hopes that by the time the company is ready to begin its expansion efforts beyond the major cities and into other regions of the country, the infrastructure will be in place to allow the company to do so.

The Moral of the Story:

So why has McDonald’s experienced so much success in India while so many other companies have struggled there?  The simple answer is McDonald’s recognized that its American corporate strategy would never work in India.  And although the company was unwilling to completely abandon the model that turned it into the one-of-a-kind international success that it is today, McDonald’s was more than willing to adapt, modify, and sculpt it into a model that could be successfully employed there.  Meanwhile other companies apparently assumed that expansion would be easy.  They failed to consider the cultural differences between the American and Indian markets.  Companies cannot afford to underestimate these marked differences.  Compared to a country like China, India with its English speaking population and British influences seems to many people to be an easy target for expansion.  However, success cannot be achieved simply by “transplanting business techniques and products that work elsewhere in the world” (Prasso).  We saw this in the case of Häagen-Dazs as well as the other companies.  Failure to adequately assess and adapt to the market, and ignoring cultural sensitivity can be a death blow to any company wishing to expand into India or any other country.  McDonald’s recognized the unique problems and opportunities of the Indian market.  The company then took its time, adapting its products and just as importantly its corporate strategy, and has been hugely successful since.  At the same time, the company cannot afford to become complacent and rest on its laurels.  Any future missteps, however small, could ruin McDonald’s efforts and hard fought gains in the country, allowing the company’s rivals to catapult past them and onto even greater success.

Appendix 1

McDonald's India Menu

Some of the featured items on McDonald’s India’s menu.

Appendix 2

Youth Advertisement

This advertisement translates to, “Celebrate every little happiness” implying that at McDonald’s, an Indian young adult can afford to celebrate with his girlfriend and his ex.

Appendix 3

McDonald

Here we see a McDonald’s Ice Cream kiosk in India.

Bibliography

CIA World Factbook. 8 December 2010.  Central Intelligence Agency.   https://www.cia.gov/library/publications/the-world-factbook/geos/in.html.

Dasgupta, Reshmi R.  “No Indians allowed; Haagen Dazs says wrong choice of words”.  The Times of India.  17 December 2009.  http://timesofindia.indiatimes.com/india/No-Indians-allowed-Haagen-Dazs-says-wrong-choice-of-words/articleshow/5346805.cms.

Dash, Kishore.  McDonald’s in India.  Case Study.  Thunderbird, The Garvin School of International Management.  2005.

Dash, Kishore.  Personal Interview.  6 December 2010.

“Fast Food – India.”  Euromonitor International:  Country Sector Briefing.  August 2010.

ICICI Direct. India Construction Sector. 12 October 2010.  http://www.myiris.com/shares/research/ICICISL/IVRCONST_20101012.pdf

McDonald’s India Corporate Website.  2010.  Tonic Media.  http://www.mcdonaldsindia.com.

“McDonald’s India – Consumer Foodservice – India.”  Euromonitor International:  Local Company Profile.  August 2010.

Prasso, Sheridan.  “Lessons for the Indian market:  legions of big-name companies have failed in India.  Here’s how to avoid joining them.”  Entrepreneur.  Apri – May 2008.  Online.  http://www.entrepreneur.com/tradejournals/article/179233933.html.

Singhal, Arvind.  The Liberalised Generation: A Different Consumer. Business Today,154.  (2007, January). Retrieved from ABI/INFORM Global. (Document ID: 1191381001).

This report was a group project for the Global Strategy class of Thunderbird School of Global Management Professor Nathan Washburn, Ph.D.