October 25, 2010
McDonald's has ambitious plans to become a breakfast destination
After wooing customers with happy meals and extra-value meals,
Big Mac has added breakfast to its menu, which it believes will
keep the chain "ahead of competition".
After trial runs in a few Mumbai and Delhi restaurants, McDonald's
has taken over two years to formally launch the breakfast category,
which both the chain and analysts call a challenging segment to
be in, given the Indian habit of having breakfast at home.
"Most Indians prefer to have their breakfast at home and
it is a challenging job to change that habit. But we clearly see
an opportunity in this segment. We feel breakfast will see the
kind of success we have seen in burgers," says Amit Jatia,
managing director, McDonald's India, west and south.
And that opportunity is big. Globally, breakfast contributes
25 per cent to McDonald's revenues, and in south east Asia, it
accounts for 12-15 per cent.
So, the chain is gearing up for the launch of its breakfast menu
"patch by patch" in all metros and then Tier-II cities.
For starters, the 14-year old McDonald's India runs 192 restaurants
in the country. In the next three years, the chain plans to sell
its breakfast menu in nearly 70 per cent of its restaurants.
It has introduced a dozen items such as chicken Mexican wrap,
egg muffin, paneer salsa wrap and salad sandwich, priced between
Rs 20 and Rs 72.
Retail consultants say McDonald's bet may pay off given the
changing food habits. "The shift from Indian breakfast to
western has been happening for a while as people are getting used
to western snacks and the number of those who are eating out is
increasing," says Devangshu Dutta, chief executive, Third
Eyesight, a business consultancy. The acceptability of western
breakfast is enough to give McDonald's a critical mass in this
segment, says Dutta.
Adds Debashish Mukherjee, principal at retail consultancy AT
Kearney: "Though the breakfast concept is ahead of its times,
I think it is a step in the right direction."
But isn't two years a long time for experimenting in a market
which is very dynamic? Jatia does not think so. "We wanted
to make sure the pricing, menu and offering is right and match
the taste of our customers," Jatia says.
Further, the chain has been making its restaurants "breakfast-ready"
over the last six months, investing around Rs 10-15 lakh on new
equipment per restaurant and changing the layouts of the kitchens,
and Rs 1 crore on the supply chain.
Other than supply chain, Jatia says the chain is investing Rs
40 crore in the next one or two years to be able to offer breakfast
across all its restaurants.
Though consultants endorse the success of McDonald's as a value
for money restaurant with right pricing, location, branding and
delivery strategies, they also point out the growth of other quick
service restaurants (QSR) such as KFC, Pizza Hut, Dominos which
can pose a tough competition.
"Though McDonalds had a head start, how the competition
plays out will be a critical factor," says Mukherjee. The
QSR market has a lot of unbranded players.
Jatia says the chain has many aces up its sleeve. For example,
pricing, which is the chain's biggest USP. Even when food inflation
was at its highest, prices were almost flat at McDonald's. "We
had increased prices in three-four items, but quickly brought
them down,'' he says.
He recalls how the chain brought down the prices of extra meals
- McVeggie and McChicken - to Rs 85 and Rs 96 from Rs 110 and
Rs 120 respectively in September last year.
Apart from breakfast, Jatia says Big Mac has big plans on expanding
the chain and introducing new items in the menu over the next
three years. The chain plans to open 250 new restaurants in the
next three to four years with an investment of Rs 750 crore on
the front end, excluding the real estate charges, and Rs 250 crore
on the back end.
Around 20 per cent of the new restaurants will be drive-through.
The current num ber is 40.
But unlike other chains, McDonald's is focusing on a cluster
strategy. For instance, in 2006, Bangalore had two stores; today
it has 29. "I don't want to enter a new region until we have
serviced the current territories fully. It helps us in getting
better economies, better branding, consumer connect and so on,"
Analysts believe the new stores will help the chain in achieving
its stated target of doubling turnover every three years. The
chain is also working on bringing McCafe, its chain of coffee
shops, to India in the next couple of years.
On the menu front, plans are to add new categories such as desserts,
beverages and products at premium price points. McDonald's is
also launching its MFY (made for you) system across all stores.
In MFY, whenever a customer orders at the counter, it goes live
to the kitchen, and it has to be delivered within a minute.
Jatia says the chain is running a profitable business and delivering
a high double digit same store growth consistently for the last
six years. It broke even two years ago at the store level.
(This article originally appeared in Business
Standard on October 25, 2010)