Abstract
McDonald’s Corporation, established in 1948, carries one of the world’s most well-known and valuable brands and dominates the global market in quick service restaurant segment. The company has more than 30,000 restaurants in 119 countries serving 68 million customers each day (McDonalds, 2012) Each country poses a new challenge for McDonalds in maintaining or improving their position. The purpose of this paper is to examine the entry and establishment of McDonald’s in the emerging market of India. The biggest challenge for a multinational is to maintain its global strategy in the stint of diversity as they hit different foreign lands. The same was the biggest challenge for McDonalds when they launched into India. They faced severe Public relation crisis and it was a very difficult to come up with a solution in such a country. Some of the key variables in this relation were the suppliers, customers, government and the Global Brand image of the company itself.
McDonalds Entry Strategies in India
Introduction
The purpose of this paper is to examine the entry and establishment of McDonald’s in the emerging market of India. For research purposes, I will utilize diverse sources such as journal articles, books, websites and peer review articles. McDonald’s has a new corporate mission statement – They focus on providing consumers with tasty and nutritious food and beverages that is consumed from morning to night. They want to be for their customers the “favorite place and way to eat. Our worldwide operations are aligned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to continuously improving our operations and enhancing our customer’s experience” (McDonalds, 2012)
This was the concept that attracted students and office goers of all ages to patronize it. The other and singularly most important item was the soft drinks, milk shakes and their irresistible desserts. The quality standards of McDonalds’s have become stringent and towards the rise. This has attracted more customers to their operations across the globe. In March 1998 the company has introduced a new food processing platform “Made for You” – McDonald’s intention to preserve the food safety, freshness, hygiene and quality standards (Smith, 2011). However, this also meant a bit “slower” fast food.
When McDonalds started their operations in 1948 the menu consisted of cheese burgers and hamburgers, pie, potato chips and beverages like milk, soft drinks, coffee. The cost of hamburger at that time was mere 15 cents. Now it is the largest food chain all over the world. By 1965 McDonalds had 700 restaurants. McDonalds all over the worlds are aligned by Global strategy of plan to win. This strategy focuses on price, people, customer experience, promotion and place. (McDonald’s History, 2012)
It is a publicly traded company and around 80% of the McDonalds restaurants all over the world are operating on franchisee basis. Its competitors consist of Sub Way, Burger King, Wendy’s and YUM which run some of the very famous brands like KFC, A&W, Pizza Hut and Taco Bell. McDonalds is the industry leader in terms of sales, market cap, employees, gross and net margins. The main cited reason of McDonald’s success is the quality standards they have been able to maintain all over the world despite having location constraints at some of the places. They have consistently developed new menu items thereby always attracting new sets of customer and giving enough reasons to old customer to be attached. With this challenging cut throat competition, public relations are becoming very critical for quick restaurant industry. A psychological competition right now in US is the criticism this industry is facing from large obese population. This is especially true for the concept of value meals, which provide extra large portion of unhealthy foods. The nutritional value of the quick restaurant segment has sparked many a campaigns and few legal actions. According to New York City department of Health a law was passed in 2008 making it mandatory for quick restaurant to post all the calorie related information against the food item on the menu boards. One of the biggest outcries has been the promotion of this food habits among the socio economic classes and the direct correlation of the obesity among the people. In response McDonalds introduced new and healthier item in the menu and shifted its marketing. With this background McDonalds entered into Singapore as a very famous brand to cater.
Literature Review
The “think global and act local” strategy brought McDonald’s competitive advantage in the fast-food industry. They customized their marketing strategies based on the cultural, economical and sociopolitical factors of different nations (Cooper & Edgett, 2009). Adapting and executing this strategy, the company is capable of adjusting their products and services to the preference of their local consumers. This is also why you see difference in their global branches in prices, atmosphere, advertisement tools and even the architecture.
The localization strategy is beneficial for anticipating the changing needs and preferences of the consumers within the industry. It also creates such operational efficiency, which enables to absorb changes frequently (Barnes, 2008). If any changes occur in one country – McDonald’s has to adjust only that country specific strategy rather than entire global strategy.
The franchise business model brought structure and organizational unity as it provides a platform for business opportunities for individuals in emerging markets. It creates new employment opportunities and personal growth for local people. The local employees assist in establishing a friendly and “local” corporate image and adding to the success of the company. This model also provides significant help and assistance in formulation of marketing plan for local market (Minniti, Zacharakis, Spinelli, Rice, 2007).
Quality is the mirror of any organization, customers could judge about the organization based on the level of the organization quality, therefore the first step to attract customers is through quality objective which is in somehow is to guarantee that customers will return back again, in this part McDonald’s provided high quality products and services though standardize all its branches, and therefore McDonald’s obtained customers satisfaction additional to made the operation more easy for the staff, for example McDonald’s deal with over 20 bakeries to standardize the products in all the united states in terms of color, flavor etc , the target of standardization is not only to aim to standardize the food in all restaurants but also to reduce the possibility of mistakes and therefore reduce costs too, another part of the quality objective that McDonald’s provided which consider as rare in front of many restaurants is providing customers with nutrition information, thus customers can select the meal that applicable to their health. Speed is the core of McDonald’s objectives, to achieve speed objective McDonald’s provide set of order channels such as drive-thru, home delivery etc, according to McDonald’s CEO “McDonald’s that put the “fast” in fast food, and its speed continues to be a major factor in the iconic restaurant chain’s profits” (Restaurant news/Online). Flexibility which consider the secret of McDonald’s Success in front of its traditional competitors, McDonald’s almost managed to be flexible in all the markets its entered, the flexibility of McDonald’s made kind of loyalty among customers and McDonald’s due to the changes that McDonald’s made it based on the customers cultures and taste, additional to the flexibility to supply from local suppliers of the host country, for example McDonald’s added corn soup to the food menu in China, adopted slaughter by Islamic method in GCC countries etc, flexibility to reflect positively inside the operation through the readiness to response to any increase in the demands.
McDonald’s is one of the rare organization that succeed to balance between its operation strategic and customer demands, McDonald’s combined order-winning and qualifying factors, in terms of order-winning which refer to the “customer as key reason of purchasing the product or service” (A case of McDonalds, 2010), McDonald’s as we clarified previously its ability to be flexible for any changes based on the host county culture, in terms of the qualifying factors which refer to that “operation performance has to be above a particular level just to be consider by the customer (A case of McDonalds, 2010), McDonald’s paid attention to the quality aspect, and strive to make all its brunches standardized, therefore McDonald’s built hamburger university to teach the franchisers how to be on the standard. Therefore McDonald’s operation process aligned with the strategic objectives successfully.
Main competitive advantages
One of the main competitive advantages of McDonald’s is its high brand recognition. The brand itself has become an idiosyncrasy for high quality and well appreciated goods as well as a symbol of American Business. The affiliation of McDonald’s with American business created a great advantage. Nations with positive attitude towards the American business applying the same attitude towards McDonald’s. It is perceived as an admired food service company (Facella, Genn, 2008).
⁃ Establishing play areas for children is another advantage McDonald’s utilizes to gain trust and loyalty of its consumers.
⁃ McDonald’s and its global advertising increased the visibility and name recognition of the company which encourages consumers worldwide to experience McDonald’s. These factors, combined with maintaining the high standards of food and quality have put McDonald’s on the top of the fast food industry. The introduction of healthy food with overview of consumed calories (salads, wraps, fruit, etc.) in the “junk food” chain has captivated the ‘calorie counting” consumers and created an image of socially and environmentally responsible company. Also because of projects like Ronald McDonald’s House where families with children needing extensive hospital care, can board for free or a minimum price a day (Ronald McDonald’s House Charities, no date).
⁃ More recently, in 2009, McDonald’s added a new line of premium coffee to their menu which led to creation of McCafe. In 2010 McCafe added to their menu Real Fruit Smoothies to broaden their reach. (McDonalds, 2010).
⁃ The numerous awards and recognitions such as “2011 most Innovative Food Companies”, “2010 Most Inspiring Brand” speak for themselves (McDonald’s, 2012)
Internal weaknesses
⁃ Among the internal weaknesses of McDonald’s is the high turnover of its employees. Compensation and benefits are not as competitive as the brand itself, so the employees are not able to stay motivated for a long time. This fact forces the company to invest a considerable amount of money and time on training the new employees (Harris, 2009).
⁃ The other weaknesses is the fact that despite the “healthy menu” McDonald’s is targeting mainly children and it is perceived as a company that helps obesity expanding. Another problem is that some of the new products are not appealing to the customers e.g. McLean Deluxe and McSoup. We can say, that the biggest flop was the Arch Deluxe burger. Another weakness is for the company not be able to completely grasp the new hip concept of organic food which is causing loss of a big market. Introducing new items specified for the host country is creating confusion among the consumer who “already know what they want to order before entering McDonald’s. (Haig, 2003)
⁃ The slow growth of the revenue indicates financial weakness of the company when compared to Burger King of Yum (Stock Analysis, 2011)
Opportunities
⁃ Nowadays we live in a culture of more health focused consumers. Thus to be a first fast food chain with the FDA approval on marketing a low fat calorie hamburger would be a great advantage. Their current low fat products do not include any of the hamburgers.
⁃ More opulent restaurant setting such as the one in New York City, would appeal to a more “sophisticated” audience. (Lohmeyer, 2002)
⁃ Offering allergen free items (gluten and peanut free, lactose free. etc.)
⁃ Slowing down the global expansion would increase the profitability of the brand
⁃ Offer new products which would fit into the “digitalized” environment (text alerts, etc.)
Threats
⁃ Criticism on “cradle to grave” marketing forms a great threat to McDonald’s. They were several lawsuits against the brand with regards to trademark issues, obesity causing legal cases and the famous coffee burn case (Lectlaw, 2005)
⁃ Foreign currency and exchange rate are causing loss of revenue as the company uses standard pricing for its products
⁃ Significant investments on marketing campaigns are leading to decreasing of the market share (Associated Press, 2009)
⁃ Highly competitive environment including rapidly growing brands such as Burger King, KFC, Wendy’s, Starbucks, etc.
McDonald’s Entry to India
McDonald’s entered the Indian market in 1996 as a joint venture (JV) between Oak Brook III. and 2 local partners – Hardcastle Restaurants Private Ltd. in western India, and Connaught Plaza Restaurants Private Ltd. in northern India. (Chaturvedi, P.)
To enter a market where consuming beef is “off limits” was very challenging and ambitious. McDonald’s objective was to be inspired by the culture of India and to deliver the greatest of food experiences to the customers in India bringing in the splice of life. They were aiming for to change the local perception of the new product being “American” and remove the fear of unknown, where family “dining in” was a custom for centuries. The management wanted to advertise McDonald’s as a stimulator and advocate of family and culture values. The diversity in language and communication is one of the greatest components of the culture. Until 2000, McDonalds advertised their brand mainly by putting the main focus on the outlet design and tailor made food menu for the needs and desires of the diverse Indian population. (Chaturvedi, P.)
McDonald’s entry into India was met with stiff opposition. Members of the Hindu organization, the Bajrang Dal, the militant arm of one of the dominant fundamentalist political parties in India, the Bharatiya Janata Part (BJP) openly protested against the company by attacking it’s branches across India on May 4th, 2001. The members of the Bajrang Dal demolished the restaurant in Thane, a northeastern Bombay suburb. In southern Bombay, a McDonald’s store was besieged by protestors from the leading Bharatiya Janata Party, who shouted slogans and stained the restaurant’s mascot with cow dung. SHIV SENA – another Hindu alliance also threatened to protest outside the McDonald’s corporate office after reports of a lawsuit being filed against McDonald’s in Seattle. (NationMaster.com)
The biggest problem McDonald faced was during the launch of its product in India was the public image it was carrying as an International food chain and not matching Indian standards. There were concerns raised about how the burgers are made in McDonalds.
Offering the cheapest burger in the world was not easy. In India, McDonald’s offered a menu that did not had any beef or pork items as well as special product formulations for accommodating Indian culture and palate. Furthermore, all the vegetarian products, even the mayonnaise in vegetable burgers, were egg-less and 100% vegetarian. Additions to the menu have been a regular feature of McDonald’s in India. The company in India conducted regular qualitative as well as quantitative studies, which tracked the target consumer lifestyle in India, a practice that had followed internationally as well.
It was under these circumstances that McDonald’s India went about creating the cold chain infrastructure for its restaurants in the country. As McDonald’s always considers the quality of all its products to be of primary importance, it sets high standards for its suppliers that are amongst the biggest in the food industry. World over, McDonald’s always believed in development of close relationships with suppliers and this is precisely what it has done in India.
The environmental factors in India
As India being a very ancient country and one of the lands of the ancient river valley civilizations, McDonald’s had to consider the cultural, economical and sociopolitical factors in India. The Indian population is very diverse and complex as nation is split between different communities, religions (e.g. Hinduism, Buddhism, Sikhism, Islam, Jainism and Christianity), beliefs and value systems. All these factors play a significant role in nations’ preference for food and dining in general.
80% of the entire population of India practice Hindu which forbids non-vegetarian food (Indian Mirror, no date). Because of this, McDonald’s initially only offered a vegetarian menu. Later they understood that this wasn’t the correct approach. To honor the cultural differences between religions, the company categorized the cooking tools as well as employees in vegetarian and non-vegetarian category. The cultural factor had to be taken into consideration in such market, as any omission can destroy the reputation globally which may limit the chances of business expansion (Rappa, A., 2007). The change in menu came also because of competitors like KFC, whom entered the market first with non-vegetarian products.
McDonald’s formulated a suitable pricing strategy that can facilitate the high volume of consumers, targeting mainly the lower and middle class. The majority of the Indian population falls into this category.
Market share of McDonald’s’s in India
The market in India is totally different from that of the USA. Here the family dining concept works. This led to concept of breakfast combos. The restaurant was also projected this as a fine dining restaurant.
This became the USP of McDonald’s in India. The television commercials of ‘Toh Aaj McDonald’s Ho Jaye’ and ‘McDonald’s Mein Hai Kuch Baat’ and the happy price menu is what attracts Indian people to McDonald’s. The new advertising of Prices of the Yesteryears, attracted the teenager crowd too. (Mathur, S., 2011)
Strategies in India
In order to capitalize on the highly price sensitive economy, and the Indian mentality of liking anything that is foreign, McDonald’s strategy was market penetration and the three circles strategy. This led to localization ND branding of the company. The entry of almost all the international brands into India happened at the same time, while others closed down due to various strategies. McDonald’s survived only due to keen understanding of the Indian economy.
The massive and aggressive expansion strategies that McDonald’s took up in India was with the sole objective of establishing its presence indelibly in the sub continent and to prove to the world that if anything can sell in India it can sell anywhere. Today McDonald’s has become a household name and finds its kiosks in almost many schools colleges and corporate. It can be said that there is no food court without a McDonald’s and almost every Indian has tasted McDonald’s fast food. This is indeed a great breakthrough for a very orthodox community that has very rigid and fixed eating habits and traditionally very Indian.
McDonald’s had to make it clear to the authorities that their products in India neither contain beef nor pork in it. They had to suit their burgers to Indian taste and Indian market which was a hyper price sensitive market. The introduction of breakfast combos and budget meals made market penetration possible. “Aloo Tikki Burger” was McDonald’s priced product in India. Their quick turnaround times made new inroads into the fast food industry. (Mathur, S., 2011)
As providing value to the customer is the key, price sensitivity studies are conducted before determining the pricing. The rate of inflation is also reviewed. McDonald’s definition of value was far broader than of most of the restaurants in its competition.
The People and the Training-Critical to Employee Relations
Service is the key element of McDonald’s operations. Every employee strived in providing 100% customer satisfaction for every customer in every visit. This included friendly service, along with accuracy of an order taking and anticipations of customer’s demand.
When the Indian joint venture was formalized, the MTs were given extensive job training in Indonesia. MTs in human resources, real estate and buildings were hired and global directors worked with them to train them in the necessary areas. This was done through interactions as well as through exposure with the customer through operation training within the restaurants for a fixed period of time. The organization also provides ample opportunities of overseas training to those displaying potential.
The People and the Training
When the Indian joint venture was formalized, the MTs were given extensive job training in Indonesia. MTs in human resources, real estate and buildings were hired and global directors worked with them to train them in the necessary areas. The projected sales of each restaurant determined its staffing requirements. On the average, every restaurant has a staff of 40-60 people, including managers. Induction training was conducted at the time of an employee’s joining the organization. This was done through interactions as well as through exposure with the customer through operation training within the restaurants for a fixed period of time. The organization also provided numerous opportunities of overseas training to those displaying potential.
Developing the Supply Chain
World over, McDonald’s believed in development of close relationships with suppliers and this is precisely what it has done in India.
In the process, McDonald’s actually encouraged entrepreneurship, by introducing the local suppliers to its global suppliers. This association involved transfer of state-of-the-art food processing technology, thereby leading to an improvement in quality standards and helping create world class manufacturing facilities in India. This was the first step towards creating the unique ‘cold chain’.
Building the Brand
McDonald’s had positioned its restaurant as a family restaurant that barred smoking as well as serving of alcohol on its restaurant. The results were apparent and resulted in a 48% increase in footfalls along with 30% hike in the sales.
In the same year, the company aired its 1V commercial for the Rs. 7/- soft serve cone campaign, thereby establishing the value proposition of the company. However, this research indicated that the people are unaware of the quality of food served by the McDonald’s. This had led to creation of the advertising campaign by the company which started its focus on familiarizing customers with the quality of food served at McDonald’s. Consumer research had also pointed that a large mix of offerings were required in the vegetarian menu of McDonald and the company consciously addressed this need of its customers. The company had also become aware of the fact that eating out, though gaining frequency was still primarily a family affair. Hence, it was attributed mainly to evenings and weekends.
The ‘Happy Price Menu’ had come closer on the heels of the marketing initiative by the company “i’m lovin’ it” which McDonalds had launched in October 2003. The communication about this new offering was funky and funny and tells that McDonald’s is overall a great place, and at a best price – which restricted not only to its product, but also the experience. At the same time, it aims to make the service hassle-free and easy to use.
Conclusion
McDonald’s continuous product innovation and customer satisfaction through greater customer reach. In order to sustain in a very competitive market McDonald’s has to continuously think of bringing in new concepts into all its operations especially in marketing. McDonald’s had to bring in something that would help in long sustainability and that unrivaled position on the market as a “foodtailer”. The result of a spontaneous thought led to the introduction of breakfast outlets and a chance encounter with a technology specialist ended up with online booking orders and birthday parties and signature outlets. These are signature products of McDonald’s and this will in the long run help McDonald’s to improve it already ace services with better customer service and great shopping experience. The success of McDonalds in India could be measured by its continuous growth in Indian fast-food market with 210 branches across India (Nation’s Restaurant News, 2011)
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