April 28, 2011
Bose and Neha Singh
McDonald's made its name serving up hamburgers fast, but it took
the world's biggest hamburger chain four years to enter India
-- without its signature dish.
A number of fast-food and cafe chains -- Starbucks and Dunkin
Donuts to name just two -- that are flocking to India would do
well to take away lessons learned by established rivals such as
McDonald's in navigating a market beset with obstacles.
Industry experts say patience and flexibility in a country where
dietary traditions rule may well define successful global restaurant
brands in India.
The stakes are high, with India's quick-service restaurant market
worth $13 billion and growing roughly 25-30 percent a year, according
to Euromonitor and market research firm RNCOS. India's entire
food-service market is estimated at $64 billion.
Adapting menus to cater to local dietary needs may be a winning
strategy, analysts say. This is not as easy as it seems - Burger
King had looked to enter India in 2007-2008, but hit roadblocks
when trying to tweak its menu to suit local tastes, according
to analysts and several local media reports.
"If you're a global food retailer, you need to have an offering
for the Indian consumer ... you cannot push global products,"
says Pinakiranjan Mishra, partner and national leader for consumer
products and retail at Ernst & Young in Mumbai.
"For a select group of consumers you can, but not if you
are looking at building a mass presence."
India is the first country where McDonald's decided not to offer
beef or pork items. Instead it sells chicken and vegetarian variants
to cater to a significant portion of the population that is vegetarian.
Some of its newer competitors such as Denny's Corp, which plans
to enter India by mid-2012, are following suit.
"We have had to strip beef and pork out of our menu. We
have had to customise it completely," said William Edwards,
chief executive of EGS, which is handling the international expansion
of Denny's, well known for its all-day menu featuring eggs, sausages
YOUNG AND TRENDY
Analysts estimate that China's fast-food market is nearly six
times as big as India's and foreign chains are targeting both
markets to take advantage of rapidly growing economies.
Driving the growth in India's fast-food sector is a generation
of young and increasingly wealthy consumers with an appetite for
More than 60 percent of India's population, or 700 million people,
are under the age of 30 -- a prime target for fast-food.
"It's a lot easier to grab a burger at McDonald's than order
a vada sambar (savoury doughnut in lentil soup) at an Udipi which
is time consuming," said Bidisha Mukerjea, a 24-year-old
content writer from Mumbai, referring to Indian local fast-food
restaurants. "Udipi food is cheaper but it's about foreign
brand attraction, it's just fancy to eat at these new places."
It's no surprise that a host of foreign chains have their sights
on India. Starbucks is expected to open its first India store
in July or August. Others wanting a foothold include Applebee's,
Pollo Tropical, a unit of Carrols Restaurant Group (TAST.O),
and hamburger chain Johnny Rockets.
Existing foreign brands know the competition is heating up and
have expansion plans of their own.
Yum! Brands, which owns the KFC, Taco Bell and Pizza Hut chains,
plans to invest $100-$120 million in India this fiscal year. It
runs about 108 KFC outlets in India, compared with 2,800 KFC outlets
"The market here is competitive. There is competition
among the existing foreign chains and the ones who will clearly
benefit are the ones who have scale," said Devangshu Dutta,
chief executive at retail consultancy Third Eyesight.
"This inflow of western chains does not pose a threat
to local players such as Udipis because the market is big enough
for both sides to grow."
India caps foreign ownership in single brand retail at 51 percent,
forcing all foreign chains to seek partnerships to do business
in Asia's third-largest economy.
Denny's plans to operate through regional licenses in India and
Starbucks has signed a pact with Tata Coffee Ltd (TACO.NS).
Dunkin Donuts said in February it planned to launch its brand
in India, partnering with fast-food operator Jubilant Foodworks
Ltd that runs the Dominos Pizza chain in India.
Analysts say that keeping menus affordable is crucial in a country
where incomes remain low by global standards, and lunch from a
street stall can cost less than 50 U.S. cents.
By comparison, a McVeggie meal at McDonald's, which entered India
in 1996, costs 94 rupees ($2.1) in Mumbai.
Low unit consumption and high attrition makes targeted turnover
that much more difficult to achieve.
"When you train someone to make pizza or coffee, the
skills needed are far more than what is needed to sell clothes
at a retail shop," said Third Eyesight's Dutta. "So
it is much more difficult for these companies to find people who
have the necessary skills."
Foreign chains face other problems such as underdeveloped real
estate for the retail market and food inflation, which has been
in double digits for the much of the past year.
"Milk leading to cheese is our key ingredient and milk prices
are shooting up," said Ajay Kaul, chief executive of Jubilant
Foodworks. "Maintaining margins in an inflationary environment
is definitely a concern."
Amit Jatia, vice-chairman for McDonald India's west and south
regions says that supply chains are an issue, although they are
better then they were 15 years ago.
"India still lacks an effective cold chain network and storage
systems are not very efficient," he said.
Roughly 30 percent of produce in India goes to waste due to transportation,
warehousing and cold storage bottlenecks.
Still, the vast potential from entering India's fast-food sector
outweigh the risks, analysts say.
"As a consumer market, India has everything going for itself.
From strong GDP growth to rising income, increasing urbanisation
etc.," Ernst and Young's' Mishra said.
"Problems such as inflation and supply chain bottlenecks
will be a deterrent, but only in the short term."
($1 = 44.275 Indian Rupees)
(Editing by Tony Munroe and Dhara Ranasinghe)
(This article originally appeared on Reuters
on April 28, 2011)