1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion,...

 

 

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1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion, ethics, informal institutions, ethical relativism, ethical imperialism, in- group, out-group, 2. Describe how the informal institutions in India (i.e. culture/religion/ethics) were against McDonalds basic products. What McDonalds did to overcome these issues and how was successful nevertheless? (1-2 paragraphs) 3. Explain how McDonalds localized their products to the Indian market and changed their organizational culture to win Indian consumers. Describe which parts of McDonalds strategy remained the same as other parts in the world. (1-2 paragraphs) 4. Do you think McDonalds strategy revolved around ethical relativism or ethical imperialism? Explain. (1-2 paragraphs) 5. Explain how McDonalds worked with suppliers to obtain ingredients such as iceberg lettuce, sesame seed buns and milk. What did McDonalds provide these suppliers with? How was MeDonalds able to influence and work with suppliers and distributions in India, despite being from a different country, cultural and religion? (1-2 paragraphs) Case 8 Beefing up the beefless Mac: McDonald's expansion strategies in India* Nitin Pangarkar Saroja Subrahmanyan National University of Singapore Background In March 2001, the McDonald's Corporation's Indian. operation was at a critical juncture in its evolution. Over the previous few months, the company had expanded its retail base from Mumbai (10 outlets) and Delhi (4 outlets) to Bangalore (one outlet), Pune (one outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001, McDonald's had plans to open 15 more outlets with one each in Ludhiana and Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a map showing their locations in India) and the rest in cities where it already had a presence. By 2003, the company planned to increase the number of outlets to 80 and the cumulative investment in India to more than Rs 10 billion. (The approximate exchange rate in March 2001 was Rs 46.50 USS1J This would represent a threefold increase over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities Agra, Bacoda and Chandigarh) would also have at least one McDonald's outiet by 2003. The Indian venture had been operational for more than four yeas and had recorded healthy growth but no profits. Commenting on the progress until that point in time, Vikram Bakshi (McDonald's partner in Delhi) said Out growth and expansion in India over the last three years has definitely been very encouraging Only a few menths previously, Amis Jatia (MiDonalds other partner in charge of the Mumbai outlets had said: We are stil to recover our invetment. You need a very large base and break-even is normally after seven to ten years. Despite the venture's lack of profits, Jatia also showed his enthusiasm for expansion when he said, "Having cracked the Indian market, MeDonald's is ready to leverage ies initial investmenes in infrastructure to rapidly expand. wandering appropriateness of McDonald's hold stratege move. Was the additional investment wise, especially in view of the lack of profirability of the existing operations? Since many of the new cities to be enrered were less Westernised than Mumhai or Delhi, many observeN doubted whether the demand potential would he sufficient to justify the economic aperanion of outlets The cose and availability of prime real estate in najor Indian cities was another issae. Opening a new outier required an average investment of Rs 30 million. n Mumhai and Delhi, where prime real estare was expensive, tihe investments could be hghen FinallyS some analyss douhted whether McDonald's could afford to spend hig ancunes on advertising to create a strong brand-name reputation f its tlet base and custamer basie remained relatively nartow. Observers were about the McDonald's - the global fast-food powerhouse McDonald's 4, hy fac the world's bigger marketer of fast food. In 2000, operated nearly 0 a00 resraursne and had 15 mlion peopk erving 43 iallion custirbers cach day i 120 ceuntrics The mpany had bult an imoreeive set of fihanclal tu with LSS-40.2 hiliin insyiremide sMick dut n Wuch US524.3 billion was acounted for by hanchiied C-120 McDonalds India.pdf (page 2 of 8) Exhibit 1| Profile of the Indlan cities targeted by McDonald's Anno Populetion Plece 1991 2001 Remars State Nourist attaraction, home to the Ta Mahel Major tourut attraction Capital city of two northern states Punjab A Haryana Major business centre in wwester dia Agra 1076 Uttar (7263 5890 Pradesh Jaipur 1459 Rajasthan 9354 Chandigerh 504 790 Punjab & 19 500 14 457 Haryana Ahmedabed 255 3823 11625 Nadodaraaroda 1454 Busines centre 16 251 9.926 12 901 18365 16 217 16 217 Mumbai Commercal capital of india Maharinhera Pune 1567 Satellite town of Mumba Maharasha 16:365 menufecturing centre Lodhiana 1:043 1482 Textile manufactuning centre in Punjab 119.500 1457 northern India Deih 119 13641 Capital city seat of the central Delh 22 687 19.091 government Bangelore 2640 3637 Indias Silicon Valey Kamataka hin th u (Chemsen Commane a restaurants, USS21.7 billion in assets, USS3.3 hillion in operating profits and USS2 hillion in net profits. (See Exhilt 3 for a geographic analysas of McDanald's operations.) It was also routinely cited by the busines Prw as being a vvy marketer, In June 1999, with a value of LISS26.231 bilion, the McDonald's brand was rated as being the eghth most valuable brand in the world, ahead of well-keown brands such as Sony, Nokia and Topota MeDunaids has had kng history in Asia. t entered the Japanese arket in I471, whch was fellowed by ntry ie ocher ewly ind coon n uch a Singapore and HHung Non amo athers in Asia Ery into Chin urred iny in 190, McDunalN entered India in 16. Se Exhiit for MEDondyMa ate in La Asan d South AviAn cunts. The The Indian market India is a vat suhcontinent with an anea one-quarter of that of the Linited States, and a population aimune four times that of the US. t boct 950milion. The per capita GDF is quite low, at LSS390 in 1999. Howeve pu Kund med unnund aog tuanipe ame ranked the fifth-largest economy in the world iranking abeve Frane, laly, the LK and Russia with she thin largest GDP Asta in 1999.iSee Exhihit S for inetime distrioutnin IndiaAimong enterong economieu India ften coadered wond onis to China India on aversity Is matched bEN diversity. Thene are mure than 20 ajot spoe ind er 200alecs The Inn toncy Jhing 4 Alinsl in therE la the ENTARREINi IniNpopulation veng ihes th bani anan. the nenhauneower of the TWIN nal the Nloved ak of the imim ight ar n an . In the C-121 石 McDonalds India.pdf (page 3 of 8) a poor infrastructure with frequent power outages even in New Delhi (the capital ciry) and Bangalore (India's Silicon Valley. In terms of political system, India is a democracy Since independence from the Beitish in 1947, the economic system has historically been modelled on the socialist syle. Under this system, the government strictly controls the entry and exit of domestic as well as multinational corporations (MNC) into diffenent sectons. MNC also face a variery of other resterictions. Since 1991, India has starned derngulating the economy. However, the socialist mindset cannor be erased overnight A Member of Parliament said of fast-food chains such as McDonald's and KFC, "We want computer chips and not potato chip. The country haN a few anti-Western factions, which have opposed the entry of MNC in gmeral The mistrust of MNCcoeld be at least panially'attributed to the fact that the British rule of India was rooted i the entry of the British East India Company (for trading purpones into the country. Thene ane also several amall Exhibit 2| McDonald's outlets in India (existing and planned) Saipur ( Agra Atedabad anet openings by 200 ange Panned openings ty 200 Outts eting of Manh 200t Exhibit 3| Geographic analysis of McDonald's operations and performance (financial year 2000) Geographic breakdown Asia Latin Total USA Pactic Others Europe 4754 Amenca Hevenues 14243 294 Operating inceme 1.772 1ed 442 102 Tetal aets 21404 7064 7.290 Capsat expenditures 224 Depreiation amertisation1011 H im n but oal balth A, hea of he pand o nd the re Kinald Mi alan H shar he maunn den anche nvironmentalists that at ppol oNifically t the aair bhar sui enter h Whin KECirpn its taurin Banale in 1 ind thit KIC ba cs. l mino uni MM C-122 O McDonalds India.pdf (page 4 of 8) 西 all, we are not a meat culture, and therefore our systems are ill-adapted to meat in the first place, and where people are poorer like this will have an enormous impact. McDonald's entry strategy in India shifting to a diet McDonald's India was incorporated as a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle Restaurants (Amit Jatia) to own and operate the Mumbai outlets. Although McDonald's had done product adaptation to suit local tastes and cultures in several previous Since 1991, when the Indian economy began opening up to foreign investments, many multinationals have rushed in large middle class, estimated at 300 million. However, even some of the well-known global brands failed with their initial strategies and were forced to reposition, including, in some cases, drastic reduction of prices. Some multinationals (for example, Peugeot) even had to ventures, such as the Teriyaki Burger in Japan, rice close shop. Kellogg's, which entered with high-priced cereals (several orders of magnitude more expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially failed to realise that Indians were repulsed by chicken skin, which was vital for the Colonel's secret batter to stick. Thus, apart from a lack of understanding of the local tastes, a combination of circumstances - including overestimation of the demand potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing business, infrastructural inadequacies and, finally, inappropriate firm strategies (for example, pricing) disappointments. lured by the attraction of serving a dishes in Indonesia, noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India was significantly greater. McDonald's replaced its core product, the Big Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also - led to many failures and offered spicier sauces, such as McMasala and Mclmli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald's system. In 1998, McDonald's India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald's Happy Meal, complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the which included a vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant company undertook selective price cutting and ran some management system. Two different menu boards were displayed in each restaurant - green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald's printed brochures explaining all these steps and took customers on kitchen tours. McDonald's positioned itself as a family restaurant. The average price of a 'Combo' meal, which included periodic promotions. In February 1999, the company was offering 'economeals' for as low as Rs 29, The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald's a healthy' margin (40 per cent for cones). As Vikram Bakshi, explained, I will never become unaffordable, as I will not then be able to build up volumes.' The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald's pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy's was offering about McDonald's), food quality and variety. The company also ran special promotions during festivals, and 'vegetarian' days, and was even developing garlic- free sauces to bring in 'hard-core' vegetarian traffic. In terms of the selection of cities, McDonald's followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald's then moved mega meals at Rs 35. A typical vegetarian 'set meal', or "thali" (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald's meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald's wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald's remains to be seen. In October 2000, the company introduced two new Indianised products to its menu - the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 peri to smaller satellite towns near the metropolitan cities cent of the menu in India was unique - that is, different from the rest of the McDonald's system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg spillover effects, in terms of its reputation, from the Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with Developing the supply chain the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald's had attracted some loyal customers. One such customer said, A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we'd rather eat in a lively McDonald's outlet than sitting in a cramped car on the road." Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee ta local channel; Disney Hour. McDonald's also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again uying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company.and UNESCO. McDonald (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald's often found that there were positive metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. McDonald's search for Indian suppliers started as carly as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald's spent as much as Rs 500 million (USS12.8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6| McDonald's supply chain in India Phillar auces *Detvadun etuc *Naital ettue) Aa ... Eaw materials to its restaurants Logistics managemen was contracted out to AFL Legistics - itself a 5050 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonalds international logistics provider AFL logistics was responsible for the semperature-controlled movement of all products (by rail, road or air, as appropriate) from individual suppliers to the regional distribution centres. McDonald's had to work exctremely hard at inculcating a service orientation ie is employees, especially those involved in physical logistics, since the freshness of the food was at ake. The track operators had so be explicitly and dearly instructed not to swinch off the truck's refrigeration system to save oe fuel or clectricity. The corporation went so the extent of installing trapping devices, which would show the distributors and joint venture partners and employees had to match the restaurant chain's quality and bygiene standards before they became part of its system. McDonald's experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald's identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on faming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald's helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk semperature chart through the entire journey. collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald's ended up with a geographically diverse soercing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company's supply chain. (See Exhibit 6 for McDonald'y supply chain.) A dedicated distribution symem was established to match the suppliers production and delivery schedules with the restaurant's needs. The fitst two cencralised distribution centres were set ep near Mumbai and at Cochin tin the southernmost part of Indial in joint ventures with two local retailers, both of whom had to learn from intermational distrihutors of MDonald's products how the restaurant chain handled diseribution worldwide and especially, how to enhance the quality ot storage operations. The company estimased that cach distribution centre could ervice about 25 outles. McDonald's strove sa keep the scorage volümes ot products high in order to exploit all possihle economies ef scale. The distrihuticn centres were alvo expected to maintain inventory records n interaE with suppliers and the logistics am to ensute that cheir freeners wete well stocked. Said Arur Jatia, Tbe audopana : E oido mo u ued sueodun ofa cole chain Ithe pross ot prourement p2 ae eodsura ursouseM producs under conerolled teripetature Thire in pratically ne need fot a knite in an etaranAllhe shopping and toc prseing i der i the plar Cnly the atial coking akes plae in the narar LVen with thipplier nderiheioi Since 1999, McDonald's had stamed using India as an export base for cheese, letuce and other products that went inno its burgers. Exports had already begun to Sri Lanka, where it had opened in October 15995, and trial shipments had commenced to Hong Kong and the Midde Ear. Said Amit Jaria, Things are becoming glohal in naure. Once you set up a supply chain in a erategie location, it can serviice other countries as well Past performance and planned strategies During its fire 12 monihs of operatioes McDorald opened seven outlets (four in Delhi and three in Mumbail, had6 millien cetomer visits and served 350 000 Maharaja Macs By the end of 1598, the mumber of outlets had gone p it had expanded to 25 outlets Jaipur. The estimanes tor average daily cuomer ies to MeDenald's oulet dred widely. Accoeding so a 2000 thone and an oetlet e onua uau ua sttura pra much. whereas ginetous estimates could be about 40 per omt higher , i June 2000, McDenald's outlers were doing en averag abut 1 500 ra raed a day serving over 3 300 This was a Fypical as uaudat r mamens only 00 Industry Murces howevict, were in apreement shas he spending er das accordine t she per u r a Melho Ter cet enet the pr tw rate ancloord the ett it amin IN r M AN C-126 McDonalds India.pdf (page 8 of 8) Case MDonalds epanson gein nde Indian operation would take three to four more years to break even overall. This was attributable to the heavy investments made in vendor development, infrastructure and brand building One gratifying aspect of McDonald's succes was the fact that, by mid-2000, iz derived as much a 50 per References cent of its revenues from vegetable food items, thes disproving its critics - especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997, customers rated McDonald' food as bland. By September 2000, the perception had changed, however. Costomers thought that McDonald's food had a unique taste. To exploit the opportunities created due to its beser brand awarenes and customer acorptance, McDonald was following a three pronged strategy increase thế seating capacity in existing outlets to cater to addizional trattic open new outlets in Mumbai and Delhi and. tinally, penetrate new cities, McDonald's was also in talks with Delhi Metro Rail Corporation, Airparts Authority of India., Indian Railways and Delhi Development Authority se open smaller MeDorald's outlets in airpos and railway stations, among ochers. The investments required se open these umaller outlets were oely half that of the tegular natlers High real eNtate prices were a thomy ie in ationwide expansion In metropolitan cities soch as Mumhai, prime teal estate was extremely expenaive and sometimes nt availabie at all. The costs were also high in ther citiet uch an Bangalure Cur espation plans a always rdative the availability of nal etate. Endnote im 2 2001 Aah AdA rd Ww, an Communto Aetine Ran S enman w an sE T Sing the 2000On tes cie We ha Dery Ane 2on d oneh has Chr Canet M nc Melorald alo had plam to et up several vutlets along the Delhi Agra tional haghway in major petredeuenting and marking organiation, Bharat Ivirileum Corperaie Leitd. Jaa d. foed both local souries and nteigh donhave many hle cating op nght Sint det, pri mate WA nady piratinnTNnnan affer bichway rawller park The carlineind ale taweghiwar avellin kighway ifferilinditi oa C-127 1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion, ethics, informal institutions, ethical relativism, ethical imperialism, in- group, out-group, 2. Describe how the informal institutions in India (i.e. culture/religion/ethics) were against McDonalds basic products. What McDonalds did to overcome these issues and how was successful nevertheless? (1-2 paragraphs) 3. Explain how McDonalds localized their products to the Indian market and changed their organizational culture to win Indian consumers. Describe which parts of McDonalds strategy remained the same as other parts in the world. (1-2 paragraphs) 4. Do you think McDonalds strategy revolved around ethical relativism or ethical imperialism? Explain. (1-2 paragraphs) 5. Explain how McDonalds worked with suppliers to obtain ingredients such as iceberg lettuce, sesame seed buns and milk. What did McDonalds provide these suppliers with? How was MeDonalds able to influence and work with suppliers and distributions in India, despite being from a different country, cultural and religion? (1-2 paragraphs) Case 8 Beefing up the beefless Mac: McDonald's expansion strategies in India* Nitin Pangarkar Saroja Subrahmanyan National University of Singapore Background In March 2001, the McDonald's Corporation's Indian. operation was at a critical juncture in its evolution. Over the previous few months, the company had expanded its retail base from Mumbai (10 outlets) and Delhi (4 outlets) to Bangalore (one outlet), Pune (one outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001, McDonald's had plans to open 15 more outlets with one each in Ludhiana and Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a map showing their locations in India) and the rest in cities where it already had a presence. By 2003, the company planned to increase the number of outlets to 80 and the cumulative investment in India to more than Rs 10 billion. (The approximate exchange rate in March 2001 was Rs 46.50 USS1J This would represent a threefold increase over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities Agra, Bacoda and Chandigarh) would also have at least one McDonald's outiet by 2003. The Indian venture had been operational for more than four yeas and had recorded healthy growth but no profits. Commenting on the progress until that point in time, Vikram Bakshi (McDonald's partner in Delhi) said Out growth and expansion in India over the last three years has definitely been very encouraging Only a few menths previously, Amis Jatia (MiDonalds other partner in charge of the Mumbai outlets had said: We are stil to recover our invetment. You need a very large base and break-even is normally after seven to ten years. Despite the venture's lack of profits, Jatia also showed his enthusiasm for expansion when he said, "Having cracked the Indian market, MeDonald's is ready to leverage ies initial investmenes in infrastructure to rapidly expand. wandering appropriateness of McDonald's hold stratege move. Was the additional investment wise, especially in view of the lack of profirability of the existing operations? Since many of the new cities to be enrered were less Westernised than Mumhai or Delhi, many observeN doubted whether the demand potential would he sufficient to justify the economic aperanion of outlets The cose and availability of prime real estate in najor Indian cities was another issae. Opening a new outier required an average investment of Rs 30 million. n Mumhai and Delhi, where prime real estare was expensive, tihe investments could be hghen FinallyS some analyss douhted whether McDonald's could afford to spend hig ancunes on advertising to create a strong brand-name reputation f its tlet base and custamer basie remained relatively nartow. Observers were about the McDonald's - the global fast-food powerhouse McDonald's 4, hy fac the world's bigger marketer of fast food. In 2000, operated nearly 0 a00 resraursne and had 15 mlion peopk erving 43 iallion custirbers cach day i 120 ceuntrics The mpany had bult an imoreeive set of fihanclal tu with LSS-40.2 hiliin insyiremide sMick dut n Wuch US524.3 billion was acounted for by hanchiied C-120 McDonalds India.pdf (page 2 of 8) Exhibit 1| Profile of the Indlan cities targeted by McDonald's Anno Populetion Plece 1991 2001 Remars State Nourist attaraction, home to the Ta Mahel Major tourut attraction Capital city of two northern states Punjab A Haryana Major business centre in wwester dia Agra 1076 Uttar (7263 5890 Pradesh Jaipur 1459 Rajasthan 9354 Chandigerh 504 790 Punjab & 19 500 14 457 Haryana Ahmedabed 255 3823 11625 Nadodaraaroda 1454 Busines centre 16 251 9.926 12 901 18365 16 217 16 217 Mumbai Commercal capital of india Maharinhera Pune 1567 Satellite town of Mumba Maharasha 16:365 menufecturing centre Lodhiana 1:043 1482 Textile manufactuning centre in Punjab 119.500 1457 northern India Deih 119 13641 Capital city seat of the central Delh 22 687 19.091 government Bangelore 2640 3637 Indias Silicon Valey Kamataka hin th u (Chemsen Commane a restaurants, USS21.7 billion in assets, USS3.3 hillion in operating profits and USS2 hillion in net profits. (See Exhilt 3 for a geographic analysas of McDanald's operations.) It was also routinely cited by the busines Prw as being a vvy marketer, In June 1999, with a value of LISS26.231 bilion, the McDonald's brand was rated as being the eghth most valuable brand in the world, ahead of well-keown brands such as Sony, Nokia and Topota MeDunaids has had kng history in Asia. t entered the Japanese arket in I471, whch was fellowed by ntry ie ocher ewly ind coon n uch a Singapore and HHung Non amo athers in Asia Ery into Chin urred iny in 190, McDunalN entered India in 16. Se Exhiit for MEDondyMa ate in La Asan d South AviAn cunts. The The Indian market India is a vat suhcontinent with an anea one-quarter of that of the Linited States, and a population aimune four times that of the US. t boct 950milion. The per capita GDF is quite low, at LSS390 in 1999. Howeve pu Kund med unnund aog tuanipe ame ranked the fifth-largest economy in the world iranking abeve Frane, laly, the LK and Russia with she thin largest GDP Asta in 1999.iSee Exhihit S for inetime distrioutnin IndiaAimong enterong economieu India ften coadered wond onis to China India on aversity Is matched bEN diversity. Thene are mure than 20 ajot spoe ind er 200alecs The Inn toncy Jhing 4 Alinsl in therE la the ENTARREINi IniNpopulation veng ihes th bani anan. the nenhauneower of the TWIN nal the Nloved ak of the imim ight ar n an . In the C-121 石 McDonalds India.pdf (page 3 of 8) a poor infrastructure with frequent power outages even in New Delhi (the capital ciry) and Bangalore (India's Silicon Valley. In terms of political system, India is a democracy Since independence from the Beitish in 1947, the economic system has historically been modelled on the socialist syle. Under this system, the government strictly controls the entry and exit of domestic as well as multinational corporations (MNC) into diffenent sectons. MNC also face a variery of other resterictions. Since 1991, India has starned derngulating the economy. However, the socialist mindset cannor be erased overnight A Member of Parliament said of fast-food chains such as McDonald's and KFC, "We want computer chips and not potato chip. The country haN a few anti-Western factions, which have opposed the entry of MNC in gmeral The mistrust of MNCcoeld be at least panially'attributed to the fact that the British rule of India was rooted i the entry of the British East India Company (for trading purpones into the country. Thene ane also several amall Exhibit 2| McDonald's outlets in India (existing and planned) Saipur ( Agra Atedabad anet openings by 200 ange Panned openings ty 200 Outts eting of Manh 200t Exhibit 3| Geographic analysis of McDonald's operations and performance (financial year 2000) Geographic breakdown Asia Latin Total USA Pactic Others Europe 4754 Amenca Hevenues 14243 294 Operating inceme 1.772 1ed 442 102 Tetal aets 21404 7064 7.290 Capsat expenditures 224 Depreiation amertisation1011 H im n but oal balth A, hea of he pand o nd the re Kinald Mi alan H shar he maunn den anche nvironmentalists that at ppol oNifically t the aair bhar sui enter h Whin KECirpn its taurin Banale in 1 ind thit KIC ba cs. l mino uni MM C-122 O McDonalds India.pdf (page 4 of 8) 西 all, we are not a meat culture, and therefore our systems are ill-adapted to meat in the first place, and where people are poorer like this will have an enormous impact. McDonald's entry strategy in India shifting to a diet McDonald's India was incorporated as a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle Restaurants (Amit Jatia) to own and operate the Mumbai outlets. Although McDonald's had done product adaptation to suit local tastes and cultures in several previous Since 1991, when the Indian economy began opening up to foreign investments, many multinationals have rushed in large middle class, estimated at 300 million. However, even some of the well-known global brands failed with their initial strategies and were forced to reposition, including, in some cases, drastic reduction of prices. Some multinationals (for example, Peugeot) even had to ventures, such as the Teriyaki Burger in Japan, rice close shop. Kellogg's, which entered with high-priced cereals (several orders of magnitude more expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially failed to realise that Indians were repulsed by chicken skin, which was vital for the Colonel's secret batter to stick. Thus, apart from a lack of understanding of the local tastes, a combination of circumstances - including overestimation of the demand potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing business, infrastructural inadequacies and, finally, inappropriate firm strategies (for example, pricing) disappointments. lured by the attraction of serving a dishes in Indonesia, noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India was significantly greater. McDonald's replaced its core product, the Big Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also - led to many failures and offered spicier sauces, such as McMasala and Mclmli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald's system. In 1998, McDonald's India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald's Happy Meal, complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the which included a vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant company undertook selective price cutting and ran some management system. Two different menu boards were displayed in each restaurant - green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald's printed brochures explaining all these steps and took customers on kitchen tours. McDonald's positioned itself as a family restaurant. The average price of a 'Combo' meal, which included periodic promotions. In February 1999, the company was offering 'economeals' for as low as Rs 29, The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald's a healthy' margin (40 per cent for cones). As Vikram Bakshi, explained, I will never become unaffordable, as I will not then be able to build up volumes.' The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald's pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy's was offering about McDonald's), food quality and variety. The company also ran special promotions during festivals, and 'vegetarian' days, and was even developing garlic- free sauces to bring in 'hard-core' vegetarian traffic. In terms of the selection of cities, McDonald's followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald's then moved mega meals at Rs 35. A typical vegetarian 'set meal', or "thali" (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald's meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald's wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald's remains to be seen. In October 2000, the company introduced two new Indianised products to its menu - the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 peri to smaller satellite towns near the metropolitan cities cent of the menu in India was unique - that is, different from the rest of the McDonald's system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg spillover effects, in terms of its reputation, from the Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with Developing the supply chain the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald's had attracted some loyal customers. One such customer said, A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we'd rather eat in a lively McDonald's outlet than sitting in a cramped car on the road." Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee ta local channel; Disney Hour. McDonald's also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again uying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company.and UNESCO. McDonald (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald's often found that there were positive metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. McDonald's search for Indian suppliers started as carly as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald's spent as much as Rs 500 million (USS12.8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6| McDonald's supply chain in India Phillar auces *Detvadun etuc *Naital ettue) Aa ... Eaw materials to its restaurants Logistics managemen was contracted out to AFL Legistics - itself a 5050 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonalds international logistics provider AFL logistics was responsible for the semperature-controlled movement of all products (by rail, road or air, as appropriate) from individual suppliers to the regional distribution centres. McDonald's had to work exctremely hard at inculcating a service orientation ie is employees, especially those involved in physical logistics, since the freshness of the food was at ake. The track operators had so be explicitly and dearly instructed not to swinch off the truck's refrigeration system to save oe fuel or clectricity. The corporation went so the extent of installing trapping devices, which would show the distributors and joint venture partners and employees had to match the restaurant chain's quality and bygiene standards before they became part of its system. McDonald's experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald's identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on faming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald's helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk semperature chart through the entire journey. collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald's ended up with a geographically diverse soercing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company's supply chain. (See Exhibit 6 for McDonald'y supply chain.) A dedicated distribution symem was established to match the suppliers production and delivery schedules with the restaurant's needs. The fitst two cencralised distribution centres were set ep near Mumbai and at Cochin tin the southernmost part of Indial in joint ventures with two local retailers, both of whom had to learn from intermational distrihutors of MDonald's products how the restaurant chain handled diseribution worldwide and especially, how to enhance the quality ot storage operations. The company estimased that cach distribution centre could ervice about 25 outles. McDonald's strove sa keep the scorage volümes ot products high in order to exploit all possihle economies ef scale. The distrihuticn centres were alvo expected to maintain inventory records n interaE with suppliers and the logistics am to ensute that cheir freeners wete well stocked. Said Arur Jatia, Tbe audopana : E oido mo u ued sueodun ofa cole chain Ithe pross ot prourement p2 ae eodsura ursouseM producs under conerolled teripetature Thire in pratically ne need fot a knite in an etaranAllhe shopping and toc prseing i der i the plar Cnly the atial coking akes plae in the narar LVen with thipplier nderiheioi Since 1999, McDonald's had stamed using India as an export base for cheese, letuce and other products that went inno its burgers. Exports had already begun to Sri Lanka, where it had opened in October 15995, and trial shipments had commenced to Hong Kong and the Midde Ear. Said Amit Jaria, Things are becoming glohal in naure. Once you set up a supply chain in a erategie location, it can serviice other countries as well Past performance and planned strategies During its fire 12 monihs of operatioes McDorald opened seven outlets (four in Delhi and three in Mumbail, had6 millien cetomer visits and served 350 000 Maharaja Macs By the end of 1598, the mumber of outlets had gone p it had expanded to 25 outlets Jaipur. The estimanes tor average daily cuomer ies to MeDenald's oulet dred widely. Accoeding so a 2000 thone and an oetlet e onua uau ua sttura pra much. whereas ginetous estimates could be about 40 per omt higher , i June 2000, McDenald's outlers were doing en averag abut 1 500 ra raed a day serving over 3 300 This was a Fypical as uaudat r mamens only 00 Industry Murces howevict, were in apreement shas he spending er das accordine t she per u r a Melho Ter cet enet the pr tw rate ancloord the ett it amin IN r M AN C-126 McDonalds India.pdf (page 8 of 8) Case MDonalds epanson gein nde Indian operation would take three to four more years to break even overall. This was attributable to the heavy investments made in vendor development, infrastructure and brand building One gratifying aspect of McDonald's succes was the fact that, by mid-2000, iz derived as much a 50 per References cent of its revenues from vegetable food items, thes disproving its critics - especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997, customers rated McDonald' food as bland. By September 2000, the perception had changed, however. Costomers thought that McDonald's food had a unique taste. To exploit the opportunities created due to its beser brand awarenes and customer acorptance, McDonald was following a three pronged strategy increase thế seating capacity in existing outlets to cater to addizional trattic open new outlets in Mumbai and Delhi and. tinally, penetrate new cities, McDonald's was also in talks with Delhi Metro Rail Corporation, Airparts Authority of India., Indian Railways and Delhi Development Authority se open smaller MeDorald's outlets in airpos and railway stations, among ochers. The investments required se open these umaller outlets were oely half that of the tegular natlers High real eNtate prices were a thomy ie in ationwide expansion In metropolitan cities soch as Mumhai, prime teal estate was extremely expenaive and sometimes nt availabie at all. The costs were also high in ther citiet uch an Bangalure Cur espation plans a always rdative the availability of nal etate. Endnote im 2 2001 Aah AdA rd Ww, an Communto Aetine Ran S enman w an sE T Sing the 2000On tes cie We ha Dery Ane 2on d oneh has Chr Canet M nc Melorald alo had plam to et up several vutlets along the Delhi Agra tional haghway in major petredeuenting and marking organiation, Bharat Ivirileum Corperaie Leitd. Jaa d. foed both local souries and nteigh donhave many hle cating op nght Sint det, pri mate WA nady piratinnTNnnan affer bichway rawller park The carlineind ale taweghiwar avellin kighway ifferilinditi oa C-127 1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion, ethics, informal institutions, ethical relativism, ethical imperialism, in- group, out-group, 2. Describe how the informal institutions in India (i.e. culture/religion/ethics) were against McDonalds basic products. What McDonalds did to overcome these issues and how was successful nevertheless? (1-2 paragraphs) 3. Explain how McDonalds localized their products to the Indian market and changed their organizational culture to win Indian consumers. Describe which parts of McDonalds strategy remained the same as other parts in the world. (1-2 paragraphs) 4. Do you think McDonalds strategy revolved around ethical relativism or ethical imperialism? Explain. (1-2 paragraphs) 5. Explain how McDonalds worked with suppliers to obtain ingredients such as iceberg lettuce, sesame seed buns and milk. What did McDonalds provide these suppliers with? How was MeDonalds able to influence and work with suppliers and distributions in India, despite being from a different country, cultural and religion? (1-2 paragraphs) Case 8 Beefing up the beefless Mac: McDonald's expansion strategies in India* Nitin Pangarkar Saroja Subrahmanyan National University of Singapore Background In March 2001, the McDonald's Corporation's Indian. operation was at a critical juncture in its evolution. Over the previous few months, the company had expanded its retail base from Mumbai (10 outlets) and Delhi (4 outlets) to Bangalore (one outlet), Pune (one outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001, McDonald's had plans to open 15 more outlets with one each in Ludhiana and Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a map showing their locations in India) and the rest in cities where it already had a presence. By 2003, the company planned to increase the number of outlets to 80 and the cumulative investment in India to more than Rs 10 billion. (The approximate exchange rate in March 2001 was Rs 46.50 USS1J This would represent a threefold increase over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities Agra, Bacoda and Chandigarh) would also have at least one McDonald's outiet by 2003. The Indian venture had been operational for more than four yeas and had recorded healthy growth but no profits. Commenting on the progress until that point in time, Vikram Bakshi (McDonald's partner in Delhi) said Out growth and expansion in India over the last three years has definitely been very encouraging Only a few menths previously, Amis Jatia (MiDonalds other partner in charge of the Mumbai outlets had said: We are stil to recover our invetment. You need a very large base and break-even is normally after seven to ten years. Despite the venture's lack of profits, Jatia also showed his enthusiasm for expansion when he said, "Having cracked the Indian market, MeDonald's is ready to leverage ies initial investmenes in infrastructure to rapidly expand. wandering appropriateness of McDonald's hold stratege move. Was the additional investment wise, especially in view of the lack of profirability of the existing operations? Since many of the new cities to be enrered were less Westernised than Mumhai or Delhi, many observeN doubted whether the demand potential would he sufficient to justify the economic aperanion of outlets The cose and availability of prime real estate in najor Indian cities was another issae. Opening a new outier required an average investment of Rs 30 million. n Mumhai and Delhi, where prime real estare was expensive, tihe investments could be hghen FinallyS some analyss douhted whether McDonald's could afford to spend hig ancunes on advertising to create a strong brand-name reputation f its tlet base and custamer basie remained relatively nartow. Observers were about the McDonald's - the global fast-food powerhouse McDonald's 4, hy fac the world's bigger marketer of fast food. In 2000, operated nearly 0 a00 resraursne and had 15 mlion peopk erving 43 iallion custirbers cach day i 120 ceuntrics The mpany had bult an imoreeive set of fihanclal tu with LSS-40.2 hiliin insyiremide sMick dut n Wuch US524.3 billion was acounted for by hanchiied C-120 McDonalds India.pdf (page 2 of 8) Exhibit 1| Profile of the Indlan cities targeted by McDonald's Anno Populetion Plece 1991 2001 Remars State Nourist attaraction, home to the Ta Mahel Major tourut attraction Capital city of two northern states Punjab A Haryana Major business centre in wwester dia Agra 1076 Uttar (7263 5890 Pradesh Jaipur 1459 Rajasthan 9354 Chandigerh 504 790 Punjab & 19 500 14 457 Haryana Ahmedabed 255 3823 11625 Nadodaraaroda 1454 Busines centre 16 251 9.926 12 901 18365 16 217 16 217 Mumbai Commercal capital of india Maharinhera Pune 1567 Satellite town of Mumba Maharasha 16:365 menufecturing centre Lodhiana 1:043 1482 Textile manufactuning centre in Punjab 119.500 1457 northern India Deih 119 13641 Capital city seat of the central Delh 22 687 19.091 government Bangelore 2640 3637 Indias Silicon Valey Kamataka hin th u (Chemsen Commane a restaurants, USS21.7 billion in assets, USS3.3 hillion in operating profits and USS2 hillion in net profits. (See Exhilt 3 for a geographic analysas of McDanald's operations.) It was also routinely cited by the busines Prw as being a vvy marketer, In June 1999, with a value of LISS26.231 bilion, the McDonald's brand was rated as being the eghth most valuable brand in the world, ahead of well-keown brands such as Sony, Nokia and Topota MeDunaids has had kng history in Asia. t entered the Japanese arket in I471, whch was fellowed by ntry ie ocher ewly ind coon n uch a Singapore and HHung Non amo athers in Asia Ery into Chin urred iny in 190, McDunalN entered India in 16. Se Exhiit for MEDondyMa ate in La Asan d South AviAn cunts. The The Indian market India is a vat suhcontinent with an anea one-quarter of that of the Linited States, and a population aimune four times that of the US. t boct 950milion. The per capita GDF is quite low, at LSS390 in 1999. Howeve pu Kund med unnund aog tuanipe ame ranked the fifth-largest economy in the world iranking abeve Frane, laly, the LK and Russia with she thin largest GDP Asta in 1999.iSee Exhihit S for inetime distrioutnin IndiaAimong enterong economieu India ften coadered wond onis to China India on aversity Is matched bEN diversity. Thene are mure than 20 ajot spoe ind er 200alecs The Inn toncy Jhing 4 Alinsl in therE la the ENTARREINi IniNpopulation veng ihes th bani anan. the nenhauneower of the TWIN nal the Nloved ak of the imim ight ar n an . In the C-121 石 McDonalds India.pdf (page 3 of 8) a poor infrastructure with frequent power outages even in New Delhi (the capital ciry) and Bangalore (India's Silicon Valley. In terms of political system, India is a democracy Since independence from the Beitish in 1947, the economic system has historically been modelled on the socialist syle. Under this system, the government strictly controls the entry and exit of domestic as well as multinational corporations (MNC) into diffenent sectons. MNC also face a variery of other resterictions. Since 1991, India has starned derngulating the economy. However, the socialist mindset cannor be erased overnight A Member of Parliament said of fast-food chains such as McDonald's and KFC, "We want computer chips and not potato chip. The country haN a few anti-Western factions, which have opposed the entry of MNC in gmeral The mistrust of MNCcoeld be at least panially'attributed to the fact that the British rule of India was rooted i the entry of the British East India Company (for trading purpones into the country. Thene ane also several amall Exhibit 2| McDonald's outlets in India (existing and planned) Saipur ( Agra Atedabad anet openings by 200 ange Panned openings ty 200 Outts eting of Manh 200t Exhibit 3| Geographic analysis of McDonald's operations and performance (financial year 2000) Geographic breakdown Asia Latin Total USA Pactic Others Europe 4754 Amenca Hevenues 14243 294 Operating inceme 1.772 1ed 442 102 Tetal aets 21404 7064 7.290 Capsat expenditures 224 Depreiation amertisation1011 H im n but oal balth A, hea of he pand o nd the re Kinald Mi alan H shar he maunn den anche nvironmentalists that at ppol oNifically t the aair bhar sui enter h Whin KECirpn its taurin Banale in 1 ind thit KIC ba cs. l mino uni MM C-122 O McDonalds India.pdf (page 4 of 8) 西 all, we are not a meat culture, and therefore our systems are ill-adapted to meat in the first place, and where people are poorer like this will have an enormous impact. McDonald's entry strategy in India shifting to a diet McDonald's India was incorporated as a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle Restaurants (Amit Jatia) to own and operate the Mumbai outlets. Although McDonald's had done product adaptation to suit local tastes and cultures in several previous Since 1991, when the Indian economy began opening up to foreign investments, many multinationals have rushed in large middle class, estimated at 300 million. However, even some of the well-known global brands failed with their initial strategies and were forced to reposition, including, in some cases, drastic reduction of prices. Some multinationals (for example, Peugeot) even had to ventures, such as the Teriyaki Burger in Japan, rice close shop. Kellogg's, which entered with high-priced cereals (several orders of magnitude more expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially failed to realise that Indians were repulsed by chicken skin, which was vital for the Colonel's secret batter to stick. Thus, apart from a lack of understanding of the local tastes, a combination of circumstances - including overestimation of the demand potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing business, infrastructural inadequacies and, finally, inappropriate firm strategies (for example, pricing) disappointments. lured by the attraction of serving a dishes in Indonesia, noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India was significantly greater. McDonald's replaced its core product, the Big Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also - led to many failures and offered spicier sauces, such as McMasala and Mclmli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald's system. In 1998, McDonald's India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald's Happy Meal, complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the which included a vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant company undertook selective price cutting and ran some management system. Two different menu boards were displayed in each restaurant - green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald's printed brochures explaining all these steps and took customers on kitchen tours. McDonald's positioned itself as a family restaurant. The average price of a 'Combo' meal, which included periodic promotions. In February 1999, the company was offering 'economeals' for as low as Rs 29, The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald's a healthy' margin (40 per cent for cones). As Vikram Bakshi, explained, I will never become unaffordable, as I will not then be able to build up volumes.' The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald's pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy's was offering about McDonald's), food quality and variety. The company also ran special promotions during festivals, and 'vegetarian' days, and was even developing garlic- free sauces to bring in 'hard-core' vegetarian traffic. In terms of the selection of cities, McDonald's followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald's then moved mega meals at Rs 35. A typical vegetarian 'set meal', or "thali" (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald's meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald's wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald's remains to be seen. In October 2000, the company introduced two new Indianised products to its menu - the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 peri to smaller satellite towns near the metropolitan cities cent of the menu in India was unique - that is, different from the rest of the McDonald's system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg spillover effects, in terms of its reputation, from the Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with Developing the supply chain the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald's had attracted some loyal customers. One such customer said, A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we'd rather eat in a lively McDonald's outlet than sitting in a cramped car on the road." Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee ta local channel; Disney Hour. McDonald's also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again uying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company.and UNESCO. McDonald (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald's often found that there were positive metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. McDonald's search for Indian suppliers started as carly as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald's spent as much as Rs 500 million (USS12.8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6| McDonald's supply chain in India Phillar auces *Detvadun etuc *Naital ettue) Aa ... Eaw materials to its restaurants Logistics managemen was contracted out to AFL Legistics - itself a 5050 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonalds international logistics provider AFL logistics was responsible for the semperature-controlled movement of all products (by rail, road or air, as appropriate) from individual suppliers to the regional distribution centres. McDonald's had to work exctremely hard at inculcating a service orientation ie is employees, especially those involved in physical logistics, since the freshness of the food was at ake. The track operators had so be explicitly and dearly instructed not to swinch off the truck's refrigeration system to save oe fuel or clectricity. The corporation went so the extent of installing trapping devices, which would show the distributors and joint venture partners and employees had to match the restaurant chain's quality and bygiene standards before they became part of its system. McDonald's experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald's identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on faming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald's helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk semperature chart through the entire journey. collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald's ended up with a geographically diverse soercing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company's supply chain. (See Exhibit 6 for McDonald'y supply chain.) A dedicated distribution symem was established to match the suppliers production and delivery schedules with the restaurant's needs. The fitst two cencralised distribution centres were set ep near Mumbai and at Cochin tin the southernmost part of Indial in joint ventures with two local retailers, both of whom had to learn from intermational distrihutors of MDonald's products how the restaurant chain handled diseribution worldwide and especially, how to enhance the quality ot storage operations. The company estimased that cach distribution centre could ervice about 25 outles. McDonald's strove sa keep the scorage volümes ot products high in order to exploit all possihle economies ef scale. The distrihuticn centres were alvo expected to maintain inventory records n interaE with suppliers and the logistics am to ensute that cheir freeners wete well stocked. Said Arur Jatia, Tbe audopana : E oido mo u ued sueodun ofa cole chain Ithe pross ot prourement p2 ae eodsura ursouseM producs under conerolled teripetature Thire in pratically ne need fot a knite in an etaranAllhe shopping and toc prseing i der i the plar Cnly the atial coking akes plae in the narar LVen with thipplier nderiheioi Since 1999, McDonald's had stamed using India as an export base for cheese, letuce and other products that went inno its burgers. Exports had already begun to Sri Lanka, where it had opened in October 15995, and trial shipments had commenced to Hong Kong and the Midde Ear. Said Amit Jaria, Things are becoming glohal in naure. Once you set up a supply chain in a erategie location, it can serviice other countries as well Past performance and planned strategies During its fire 12 monihs of operatioes McDorald opened seven outlets (four in Delhi and three in Mumbail, had6 millien cetomer visits and served 350 000 Maharaja Macs By the end of 1598, the mumber of outlets had gone p it had expanded to 25 outlets Jaipur. The estimanes tor average daily cuomer ies to MeDenald's oulet dred widely. Accoeding so a 2000 thone and an oetlet e onua uau ua sttura pra much. whereas ginetous estimates could be about 40 per omt higher , i June 2000, McDenald's outlers were doing en averag abut 1 500 ra raed a day serving over 3 300 This was a Fypical as uaudat r mamens only 00 Industry Murces howevict, were in apreement shas he spending er das accordine t she per u r a Melho Ter cet enet the pr tw rate ancloord the ett it amin IN r M AN C-126 McDonalds India.pdf (page 8 of 8) Case MDonalds epanson gein nde Indian operation would take three to four more years to break even overall. This was attributable to the heavy investments made in vendor development, infrastructure and brand building One gratifying aspect of McDonald's succes was the fact that, by mid-2000, iz derived as much a 50 per References cent of its revenues from vegetable food items, thes disproving its critics - especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997, customers rated McDonald' food as bland. By September 2000, the perception had changed, however. Costomers thought that McDonald's food had a unique taste. To exploit the opportunities created due to its beser brand awarenes and customer acorptance, McDonald was following a three pronged strategy increase thế seating capacity in existing outlets to cater to addizional trattic open new outlets in Mumbai and Delhi and. tinally, penetrate new cities, McDonald's was also in talks with Delhi Metro Rail Corporation, Airparts Authority of India., Indian Railways and Delhi Development Authority se open smaller MeDorald's outlets in airpos and railway stations, among ochers. The investments required se open these umaller outlets were oely half that of the tegular natlers High real eNtate prices were a thomy ie in ationwide expansion In metropolitan cities soch as Mumhai, prime teal estate was extremely expenaive and sometimes nt availabie at all. The costs were also high in ther citiet uch an Bangalure Cur espation plans a always rdative the availability of nal etate. Endnote im 2 2001 Aah AdA rd Ww, an Communto Aetine Ran S enman w an sE T Sing the 2000On tes cie We ha Dery Ane 2on d oneh has Chr Canet M nc Melorald alo had plam to et up several vutlets along the Delhi Agra tional haghway in major petredeuenting and marking organiation, Bharat Ivirileum Corperaie Leitd. Jaa d. foed both local souries and nteigh donhave many hle cating op nght Sint det, pri mate WA nady piratinnTNnnan affer bichway rawller park The carlineind ale taweghiwar avellin kighway ifferilinditi oa C-127 1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion, ethics, informal institutions, ethical relativism, ethical imperialism, in- group, out-group, 2. Describe how the informal institutions in India (i.e. culture/religion/ethics) were against McDonalds basic products. What McDonalds did to overcome these issues and how was successful nevertheless? (1-2 paragraphs) 3. Explain how McDonalds localized their products to the Indian market and changed their organizational culture to win Indian consumers. Describe which parts of McDonalds strategy remained the same as other parts in the world. (1-2 paragraphs) 4. Do you think McDonalds strategy revolved around ethical relativism or ethical imperialism? Explain. (1-2 paragraphs) 5. Explain how McDonalds worked with suppliers to obtain ingredients such as iceberg lettuce, sesame seed buns and milk. What did McDonalds provide these suppliers with? How was MeDonalds able to influence and work with suppliers and distributions in India, despite being from a different country, cultural and religion? (1-2 paragraphs) Case 8 Beefing up the beefless Mac: McDonald's expansion strategies in India* Nitin Pangarkar Saroja Subrahmanyan National University of Singapore Background In March 2001, the McDonald's Corporation's Indian. operation was at a critical juncture in its evolution. Over the previous few months, the company had expanded its retail base from Mumbai (10 outlets) and Delhi (4 outlets) to Bangalore (one outlet), Pune (one outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001, McDonald's had plans to open 15 more outlets with one each in Ludhiana and Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a map showing their locations in India) and the rest in cities where it already had a presence. By 2003, the company planned to increase the number of outlets to 80 and the cumulative investment in India to more than Rs 10 billion. (The approximate exchange rate in March 2001 was Rs 46.50 USS1J This would represent a threefold increase over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities Agra, Bacoda and Chandigarh) would also have at least one McDonald's outiet by 2003. The Indian venture had been operational for more than four yeas and had recorded healthy growth but no profits. Commenting on the progress until that point in time, Vikram Bakshi (McDonald's partner in Delhi) said Out growth and expansion in India over the last three years has definitely been very encouraging Only a few menths previously, Amis Jatia (MiDonalds other partner in charge of the Mumbai outlets had said: We are stil to recover our invetment. You need a very large base and break-even is normally after seven to ten years. Despite the venture's lack of profits, Jatia also showed his enthusiasm for expansion when he said, "Having cracked the Indian market, MeDonald's is ready to leverage ies initial investmenes in infrastructure to rapidly expand. wandering appropriateness of McDonald's hold stratege move. Was the additional investment wise, especially in view of the lack of profirability of the existing operations? Since many of the new cities to be enrered were less Westernised than Mumhai or Delhi, many observeN doubted whether the demand potential would he sufficient to justify the economic aperanion of outlets The cose and availability of prime real estate in najor Indian cities was another issae. Opening a new outier required an average investment of Rs 30 million. n Mumhai and Delhi, where prime real estare was expensive, tihe investments could be hghen FinallyS some analyss douhted whether McDonald's could afford to spend hig ancunes on advertising to create a strong brand-name reputation f its tlet base and custamer basie remained relatively nartow. Observers were about the McDonald's - the global fast-food powerhouse McDonald's 4, hy fac the world's bigger marketer of fast food. In 2000, operated nearly 0 a00 resraursne and had 15 mlion peopk erving 43 iallion custirbers cach day i 120 ceuntrics The mpany had bult an imoreeive set of fihanclal tu with LSS-40.2 hiliin insyiremide sMick dut n Wuch US524.3 billion was acounted for by hanchiied C-120 McDonalds India.pdf (page 2 of 8) Exhibit 1| Profile of the Indlan cities targeted by McDonald's Anno Populetion Plece 1991 2001 Remars State Nourist attaraction, home to the Ta Mahel Major tourut attraction Capital city of two northern states Punjab A Haryana Major business centre in wwester dia Agra 1076 Uttar (7263 5890 Pradesh Jaipur 1459 Rajasthan 9354 Chandigerh 504 790 Punjab & 19 500 14 457 Haryana Ahmedabed 255 3823 11625 Nadodaraaroda 1454 Busines centre 16 251 9.926 12 901 18365 16 217 16 217 Mumbai Commercal capital of india Maharinhera Pune 1567 Satellite town of Mumba Maharasha 16:365 menufecturing centre Lodhiana 1:043 1482 Textile manufactuning centre in Punjab 119.500 1457 northern India Deih 119 13641 Capital city seat of the central Delh 22 687 19.091 government Bangelore 2640 3637 Indias Silicon Valey Kamataka hin th u (Chemsen Commane a restaurants, USS21.7 billion in assets, USS3.3 hillion in operating profits and USS2 hillion in net profits. (See Exhilt 3 for a geographic analysas of McDanald's operations.) It was also routinely cited by the busines Prw as being a vvy marketer, In June 1999, with a value of LISS26.231 bilion, the McDonald's brand was rated as being the eghth most valuable brand in the world, ahead of well-keown brands such as Sony, Nokia and Topota MeDunaids has had kng history in Asia. t entered the Japanese arket in I471, whch was fellowed by ntry ie ocher ewly ind coon n uch a Singapore and HHung Non amo athers in Asia Ery into Chin urred iny in 190, McDunalN entered India in 16. Se Exhiit for MEDondyMa ate in La Asan d South AviAn cunts. The The Indian market India is a vat suhcontinent with an anea one-quarter of that of the Linited States, and a population aimune four times that of the US. t boct 950milion. The per capita GDF is quite low, at LSS390 in 1999. Howeve pu Kund med unnund aog tuanipe ame ranked the fifth-largest economy in the world iranking abeve Frane, laly, the LK and Russia with she thin largest GDP Asta in 1999.iSee Exhihit S for inetime distrioutnin IndiaAimong enterong economieu India ften coadered wond onis to China India on aversity Is matched bEN diversity. Thene are mure than 20 ajot spoe ind er 200alecs The Inn toncy Jhing 4 Alinsl in therE la the ENTARREINi IniNpopulation veng ihes th bani anan. the nenhauneower of the TWIN nal the Nloved ak of the imim ight ar n an . In the C-121 石 McDonalds India.pdf (page 3 of 8) a poor infrastructure with frequent power outages even in New Delhi (the capital ciry) and Bangalore (India's Silicon Valley. In terms of political system, India is a democracy Since independence from the Beitish in 1947, the economic system has historically been modelled on the socialist syle. Under this system, the government strictly controls the entry and exit of domestic as well as multinational corporations (MNC) into diffenent sectons. MNC also face a variery of other resterictions. Since 1991, India has starned derngulating the economy. However, the socialist mindset cannor be erased overnight A Member of Parliament said of fast-food chains such as McDonald's and KFC, "We want computer chips and not potato chip. The country haN a few anti-Western factions, which have opposed the entry of MNC in gmeral The mistrust of MNCcoeld be at least panially'attributed to the fact that the British rule of India was rooted i the entry of the British East India Company (for trading purpones into the country. Thene ane also several amall Exhibit 2| McDonald's outlets in India (existing and planned) Saipur ( Agra Atedabad anet openings by 200 ange Panned openings ty 200 Outts eting of Manh 200t Exhibit 3| Geographic analysis of McDonald's operations and performance (financial year 2000) Geographic breakdown Asia Latin Total USA Pactic Others Europe 4754 Amenca Hevenues 14243 294 Operating inceme 1.772 1ed 442 102 Tetal aets 21404 7064 7.290 Capsat expenditures 224 Depreiation amertisation1011 H im n but oal balth A, hea of he pand o nd the re Kinald Mi alan H shar he maunn den anche nvironmentalists that at ppol oNifically t the aair bhar sui enter h Whin KECirpn its taurin Banale in 1 ind thit KIC ba cs. l mino uni MM C-122 O McDonalds India.pdf (page 4 of 8) 西 all, we are not a meat culture, and therefore our systems are ill-adapted to meat in the first place, and where people are poorer like this will have an enormous impact. McDonald's entry strategy in India shifting to a diet McDonald's India was incorporated as a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle Restaurants (Amit Jatia) to own and operate the Mumbai outlets. Although McDonald's had done product adaptation to suit local tastes and cultures in several previous Since 1991, when the Indian economy began opening up to foreign investments, many multinationals have rushed in large middle class, estimated at 300 million. However, even some of the well-known global brands failed with their initial strategies and were forced to reposition, including, in some cases, drastic reduction of prices. Some multinationals (for example, Peugeot) even had to ventures, such as the Teriyaki Burger in Japan, rice close shop. Kellogg's, which entered with high-priced cereals (several orders of magnitude more expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially failed to realise that Indians were repulsed by chicken skin, which was vital for the Colonel's secret batter to stick. Thus, apart from a lack of understanding of the local tastes, a combination of circumstances - including overestimation of the demand potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing business, infrastructural inadequacies and, finally, inappropriate firm strategies (for example, pricing) disappointments. lured by the attraction of serving a dishes in Indonesia, noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India was significantly greater. McDonald's replaced its core product, the Big Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also - led to many failures and offered spicier sauces, such as McMasala and Mclmli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald's system. In 1998, McDonald's India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald's Happy Meal, complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the which included a vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant company undertook selective price cutting and ran some management system. Two different menu boards were displayed in each restaurant - green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald's printed brochures explaining all these steps and took customers on kitchen tours. McDonald's positioned itself as a family restaurant. The average price of a 'Combo' meal, which included periodic promotions. In February 1999, the company was offering 'economeals' for as low as Rs 29, The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald's a healthy' margin (40 per cent for cones). As Vikram Bakshi, explained, I will never become unaffordable, as I will not then be able to build up volumes.' The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald's pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy's was offering about McDonald's), food quality and variety. The company also ran special promotions during festivals, and 'vegetarian' days, and was even developing garlic- free sauces to bring in 'hard-core' vegetarian traffic. In terms of the selection of cities, McDonald's followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald's then moved mega meals at Rs 35. A typical vegetarian 'set meal', or "thali" (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald's meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald's wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald's remains to be seen. In October 2000, the company introduced two new Indianised products to its menu - the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 peri to smaller satellite towns near the metropolitan cities cent of the menu in India was unique - that is, different from the rest of the McDonald's system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg spillover effects, in terms of its reputation, from the Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with Developing the supply chain the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald's had attracted some loyal customers. One such customer said, A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we'd rather eat in a lively McDonald's outlet than sitting in a cramped car on the road." Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee ta local channel; Disney Hour. McDonald's also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again uying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company.and UNESCO. McDonald (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald's often found that there were positive metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. McDonald's search for Indian suppliers started as carly as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald's spent as much as Rs 500 million (USS12.8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6| McDonald's supply chain in India Phillar auces *Detvadun etuc *Naital ettue) Aa ... Eaw materials to its restaurants Logistics managemen was contracted out to AFL Legistics - itself a 5050 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonalds international logistics provider AFL logistics was responsible for the semperature-controlled movement of all products (by rail, road or air, as appropriate) from individual suppliers to the regional distribution centres. McDonald's had to work exctremely hard at inculcating a service orientation ie is employees, especially those involved in physical logistics, since the freshness of the food was at ake. The track operators had so be explicitly and dearly instructed not to swinch off the truck's refrigeration system to save oe fuel or clectricity. The corporation went so the extent of installing trapping devices, which would show the distributors and joint venture partners and employees had to match the restaurant chain's quality and bygiene standards before they became part of its system. McDonald's experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald's identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on faming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald's helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk semperature chart through the entire journey. collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald's ended up with a geographically diverse soercing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company's supply chain. (See Exhibit 6 for McDonald'y supply chain.) A dedicated distribution symem was established to match the suppliers production and delivery schedules with the restaurant's needs. The fitst two cencralised distribution centres were set ep near Mumbai and at Cochin tin the southernmost part of Indial in joint ventures with two local retailers, both of whom had to learn from intermational distrihutors of MDonald's products how the restaurant chain handled diseribution worldwide and especially, how to enhance the quality ot storage operations. The company estimased that cach distribution centre could ervice about 25 outles. McDonald's strove sa keep the scorage volümes ot products high in order to exploit all possihle economies ef scale. The distrihuticn centres were alvo expected to maintain inventory records n interaE with suppliers and the logistics am to ensute that cheir freeners wete well stocked. Said Arur Jatia, Tbe audopana : E oido mo u ued sueodun ofa cole chain Ithe pross ot prourement p2 ae eodsura ursouseM producs under conerolled teripetature Thire in pratically ne need fot a knite in an etaranAllhe shopping and toc prseing i der i the plar Cnly the atial coking akes plae in the narar LVen with thipplier nderiheioi Since 1999, McDonald's had stamed using India as an export base for cheese, letuce and other products that went inno its burgers. Exports had already begun to Sri Lanka, where it had opened in October 15995, and trial shipments had commenced to Hong Kong and the Midde Ear. Said Amit Jaria, Things are becoming glohal in naure. Once you set up a supply chain in a erategie location, it can serviice other countries as well Past performance and planned strategies During its fire 12 monihs of operatioes McDorald opened seven outlets (four in Delhi and three in Mumbail, had6 millien cetomer visits and served 350 000 Maharaja Macs By the end of 1598, the mumber of outlets had gone p it had expanded to 25 outlets Jaipur. The estimanes tor average daily cuomer ies to MeDenald's oulet dred widely. Accoeding so a 2000 thone and an oetlet e onua uau ua sttura pra much. whereas ginetous estimates could be about 40 per omt higher , i June 2000, McDenald's outlers were doing en averag abut 1 500 ra raed a day serving over 3 300 This was a Fypical as uaudat r mamens only 00 Industry Murces howevict, were in apreement shas he spending er das accordine t she per u r a Melho Ter cet enet the pr tw rate ancloord the ett it amin IN r M AN C-126 McDonalds India.pdf (page 8 of 8) Case MDonalds epanson gein nde Indian operation would take three to four more years to break even overall. This was attributable to the heavy investments made in vendor development, infrastructure and brand building One gratifying aspect of McDonald's succes was the fact that, by mid-2000, iz derived as much a 50 per References cent of its revenues from vegetable food items, thes disproving its critics - especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997, customers rated McDonald' food as bland. By September 2000, the perception had changed, however. Costomers thought that McDonald's food had a unique taste. To exploit the opportunities created due to its beser brand awarenes and customer acorptance, McDonald was following a three pronged strategy increase thế seating capacity in existing outlets to cater to addizional trattic open new outlets in Mumbai and Delhi and. tinally, penetrate new cities, McDonald's was also in talks with Delhi Metro Rail Corporation, Airparts Authority of India., Indian Railways and Delhi Development Authority se open smaller MeDorald's outlets in airpos and railway stations, among ochers. The investments required se open these umaller outlets were oely half that of the tegular natlers High real eNtate prices were a thomy ie in ationwide expansion In metropolitan cities soch as Mumhai, prime teal estate was extremely expenaive and sometimes nt availabie at all. The costs were also high in ther citiet uch an Bangalure Cur espation plans a always rdative the availability of nal etate. Endnote im 2 2001 Aah AdA rd Ww, an Communto Aetine Ran S enman w an sE T Sing the 2000On tes cie We ha Dery Ane 2on d oneh has Chr Canet M nc Melorald alo had plam to et up several vutlets along the Delhi Agra tional haghway in major petredeuenting and marking organiation, Bharat Ivirileum Corperaie Leitd. Jaa d. foed both local souries and nteigh donhave many hle cating op nght Sint det, pri mate WA nady piratinnTNnnan affer bichway rawller park The carlineind ale taweghiwar avellin kighway ifferilinditi oa C-127 1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion, ethics, informal institutions, ethical relativism, ethical imperialism, in- group, out-group, 2. Describe how the informal institutions in India (i.e. culture/religion/ethics) were against McDonalds basic products. What McDonalds did to overcome these issues and how was successful nevertheless? (1-2 paragraphs) 3. Explain how McDonalds localized their products to the Indian market and changed their organizational culture to win Indian consumers. Describe which parts of McDonalds strategy remained the same as other parts in the world. (1-2 paragraphs) 4. Do you think McDonalds strategy revolved around ethical relativism or ethical imperialism? Explain. (1-2 paragraphs) 5. Explain how McDonalds worked with suppliers to obtain ingredients such as iceberg lettuce, sesame seed buns and milk. What did McDonalds provide these suppliers with? How was MeDonalds able to influence and work with suppliers and distributions in India, despite being from a different country, cultural and religion? (1-2 paragraphs) Case 8 Beefing up the beefless Mac: McDonald's expansion strategies in India* Nitin Pangarkar Saroja Subrahmanyan National University of Singapore Background In March 2001, the McDonald's Corporation's Indian. operation was at a critical juncture in its evolution. Over the previous few months, the company had expanded its retail base from Mumbai (10 outlets) and Delhi (4 outlets) to Bangalore (one outlet), Pune (one outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001, McDonald's had plans to open 15 more outlets with one each in Ludhiana and Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a map showing their locations in India) and the rest in cities where it already had a presence. By 2003, the company planned to increase the number of outlets to 80 and the cumulative investment in India to more than Rs 10 billion. (The approximate exchange rate in March 2001 was Rs 46.50 USS1J This would represent a threefold increase over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities Agra, Bacoda and Chandigarh) would also have at least one McDonald's outiet by 2003. The Indian venture had been operational for more than four yeas and had recorded healthy growth but no profits. Commenting on the progress until that point in time, Vikram Bakshi (McDonald's partner in Delhi) said Out growth and expansion in India over the last three years has definitely been very encouraging Only a few menths previously, Amis Jatia (MiDonalds other partner in charge of the Mumbai outlets had said: We are stil to recover our invetment. You need a very large base and break-even is normally after seven to ten years. Despite the venture's lack of profits, Jatia also showed his enthusiasm for expansion when he said, "Having cracked the Indian market, MeDonald's is ready to leverage ies initial investmenes in infrastructure to rapidly expand. wandering appropriateness of McDonald's hold stratege move. Was the additional investment wise, especially in view of the lack of profirability of the existing operations? Since many of the new cities to be enrered were less Westernised than Mumhai or Delhi, many observeN doubted whether the demand potential would he sufficient to justify the economic aperanion of outlets The cose and availability of prime real estate in najor Indian cities was another issae. Opening a new outier required an average investment of Rs 30 million. n Mumhai and Delhi, where prime real estare was expensive, tihe investments could be hghen FinallyS some analyss douhted whether McDonald's could afford to spend hig ancunes on advertising to create a strong brand-name reputation f its tlet base and custamer basie remained relatively nartow. Observers were about the McDonald's - the global fast-food powerhouse McDonald's 4, hy fac the world's bigger marketer of fast food. In 2000, operated nearly 0 a00 resraursne and had 15 mlion peopk erving 43 iallion custirbers cach day i 120 ceuntrics The mpany had bult an imoreeive set of fihanclal tu with LSS-40.2 hiliin insyiremide sMick dut n Wuch US524.3 billion was acounted for by hanchiied C-120 McDonalds India.pdf (page 2 of 8) Exhibit 1| Profile of the Indlan cities targeted by McDonald's Anno Populetion Plece 1991 2001 Remars State Nourist attaraction, home to the Ta Mahel Major tourut attraction Capital city of two northern states Punjab A Haryana Major business centre in wwester dia Agra 1076 Uttar (7263 5890 Pradesh Jaipur 1459 Rajasthan 9354 Chandigerh 504 790 Punjab & 19 500 14 457 Haryana Ahmedabed 255 3823 11625 Nadodaraaroda 1454 Busines centre 16 251 9.926 12 901 18365 16 217 16 217 Mumbai Commercal capital of india Maharinhera Pune 1567 Satellite town of Mumba Maharasha 16:365 menufecturing centre Lodhiana 1:043 1482 Textile manufactuning centre in Punjab 119.500 1457 northern India Deih 119 13641 Capital city seat of the central Delh 22 687 19.091 government Bangelore 2640 3637 Indias Silicon Valey Kamataka hin th u (Chemsen Commane a restaurants, USS21.7 billion in assets, USS3.3 hillion in operating profits and USS2 hillion in net profits. (See Exhilt 3 for a geographic analysas of McDanald's operations.) It was also routinely cited by the busines Prw as being a vvy marketer, In June 1999, with a value of LISS26.231 bilion, the McDonald's brand was rated as being the eghth most valuable brand in the world, ahead of well-keown brands such as Sony, Nokia and Topota MeDunaids has had kng history in Asia. t entered the Japanese arket in I471, whch was fellowed by ntry ie ocher ewly ind coon n uch a Singapore and HHung Non amo athers in Asia Ery into Chin urred iny in 190, McDunalN entered India in 16. Se Exhiit for MEDondyMa ate in La Asan d South AviAn cunts. The The Indian market India is a vat suhcontinent with an anea one-quarter of that of the Linited States, and a population aimune four times that of the US. t boct 950milion. The per capita GDF is quite low, at LSS390 in 1999. Howeve pu Kund med unnund aog tuanipe ame ranked the fifth-largest economy in the world iranking abeve Frane, laly, the LK and Russia with she thin largest GDP Asta in 1999.iSee Exhihit S for inetime distrioutnin IndiaAimong enterong economieu India ften coadered wond onis to China India on aversity Is matched bEN diversity. Thene are mure than 20 ajot spoe ind er 200alecs The Inn toncy Jhing 4 Alinsl in therE la the ENTARREINi IniNpopulation veng ihes th bani anan. the nenhauneower of the TWIN nal the Nloved ak of the imim ight ar n an . In the C-121 石 McDonalds India.pdf (page 3 of 8) a poor infrastructure with frequent power outages even in New Delhi (the capital ciry) and Bangalore (India's Silicon Valley. In terms of political system, India is a democracy Since independence from the Beitish in 1947, the economic system has historically been modelled on the socialist syle. Under this system, the government strictly controls the entry and exit of domestic as well as multinational corporations (MNC) into diffenent sectons. MNC also face a variery of other resterictions. Since 1991, India has starned derngulating the economy. However, the socialist mindset cannor be erased overnight A Member of Parliament said of fast-food chains such as McDonald's and KFC, "We want computer chips and not potato chip. The country haN a few anti-Western factions, which have opposed the entry of MNC in gmeral The mistrust of MNCcoeld be at least panially'attributed to the fact that the British rule of India was rooted i the entry of the British East India Company (for trading purpones into the country. Thene ane also several amall Exhibit 2| McDonald's outlets in India (existing and planned) Saipur ( Agra Atedabad anet openings by 200 ange Panned openings ty 200 Outts eting of Manh 200t Exhibit 3| Geographic analysis of McDonald's operations and performance (financial year 2000) Geographic breakdown Asia Latin Total USA Pactic Others Europe 4754 Amenca Hevenues 14243 294 Operating inceme 1.772 1ed 442 102 Tetal aets 21404 7064 7.290 Capsat expenditures 224 Depreiation amertisation1011 H im n but oal balth A, hea of he pand o nd the re Kinald Mi alan H shar he maunn den anche nvironmentalists that at ppol oNifically t the aair bhar sui enter h Whin KECirpn its taurin Banale in 1 ind thit KIC ba cs. l mino uni MM C-122 O McDonalds India.pdf (page 4 of 8) 西 all, we are not a meat culture, and therefore our systems are ill-adapted to meat in the first place, and where people are poorer like this will have an enormous impact. McDonald's entry strategy in India shifting to a diet McDonald's India was incorporated as a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle Restaurants (Amit Jatia) to own and operate the Mumbai outlets. Although McDonald's had done product adaptation to suit local tastes and cultures in several previous Since 1991, when the Indian economy began opening up to foreign investments, many multinationals have rushed in large middle class, estimated at 300 million. However, even some of the well-known global brands failed with their initial strategies and were forced to reposition, including, in some cases, drastic reduction of prices. Some multinationals (for example, Peugeot) even had to ventures, such as the Teriyaki Burger in Japan, rice close shop. Kellogg's, which entered with high-priced cereals (several orders of magnitude more expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially failed to realise that Indians were repulsed by chicken skin, which was vital for the Colonel's secret batter to stick. Thus, apart from a lack of understanding of the local tastes, a combination of circumstances - including overestimation of the demand potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing business, infrastructural inadequacies and, finally, inappropriate firm strategies (for example, pricing) disappointments. lured by the attraction of serving a dishes in Indonesia, noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India was significantly greater. McDonald's replaced its core product, the Big Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also - led to many failures and offered spicier sauces, such as McMasala and Mclmli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald's system. In 1998, McDonald's India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald's Happy Meal, complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the which included a vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant company undertook selective price cutting and ran some management system. Two different menu boards were displayed in each restaurant - green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald's printed brochures explaining all these steps and took customers on kitchen tours. McDonald's positioned itself as a family restaurant. The average price of a 'Combo' meal, which included periodic promotions. In February 1999, the company was offering 'economeals' for as low as Rs 29, The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald's a healthy' margin (40 per cent for cones). As Vikram Bakshi, explained, I will never become unaffordable, as I will not then be able to build up volumes.' The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald's pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy's was offering about McDonald's), food quality and variety. The company also ran special promotions during festivals, and 'vegetarian' days, and was even developing garlic- free sauces to bring in 'hard-core' vegetarian traffic. In terms of the selection of cities, McDonald's followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald's then moved mega meals at Rs 35. A typical vegetarian 'set meal', or "thali" (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald's meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald's wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald's remains to be seen. In October 2000, the company introduced two new Indianised products to its menu - the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 peri to smaller satellite towns near the metropolitan cities cent of the menu in India was unique - that is, different from the rest of the McDonald's system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg spillover effects, in terms of its reputation, from the Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with Developing the supply chain the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald's had attracted some loyal customers. One such customer said, A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we'd rather eat in a lively McDonald's outlet than sitting in a cramped car on the road." Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee ta local channel; Disney Hour. McDonald's also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again uying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company.and UNESCO. McDonald (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald's often found that there were positive metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. McDonald's search for Indian suppliers started as carly as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald's spent as much as Rs 500 million (USS12.8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6| McDonald's supply chain in India Phillar auces *Detvadun etuc *Naital ettue) Aa ... Eaw materials to its restaurants Logistics managemen was contracted out to AFL Legistics - itself a 5050 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonalds international logistics provider AFL logistics was responsible for the semperature-controlled movement of all products (by rail, road or air, as appropriate) from individual suppliers to the regional distribution centres. McDonald's had to work exctremely hard at inculcating a service orientation ie is employees, especially those involved in physical logistics, since the freshness of the food was at ake. The track operators had so be explicitly and dearly instructed not to swinch off the truck's refrigeration system to save oe fuel or clectricity. The corporation went so the extent of installing trapping devices, which would show the distributors and joint venture partners and employees had to match the restaurant chain's quality and bygiene standards before they became part of its system. McDonald's experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald's identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on faming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald's helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk semperature chart through the entire journey. collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald's ended up with a geographically diverse soercing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company's supply chain. (See Exhibit 6 for McDonald'y supply chain.) A dedicated distribution symem was established to match the suppliers production and delivery schedules with the restaurant's needs. The fitst two cencralised distribution centres were set ep near Mumbai and at Cochin tin the southernmost part of Indial in joint ventures with two local retailers, both of whom had to learn from intermational distrihutors of MDonald's products how the restaurant chain handled diseribution worldwide and especially, how to enhance the quality ot storage operations. The company estimased that cach distribution centre could ervice about 25 outles. McDonald's strove sa keep the scorage volümes ot products high in order to exploit all possihle economies ef scale. The distrihuticn centres were alvo expected to maintain inventory records n interaE with suppliers and the logistics am to ensute that cheir freeners wete well stocked. Said Arur Jatia, Tbe audopana : E oido mo u ued sueodun ofa cole chain Ithe pross ot prourement p2 ae eodsura ursouseM producs under conerolled teripetature Thire in pratically ne need fot a knite in an etaranAllhe shopping and toc prseing i der i the plar Cnly the atial coking akes plae in the narar LVen with thipplier nderiheioi Since 1999, McDonald's had stamed using India as an export base for cheese, letuce and other products that went inno its burgers. Exports had already begun to Sri Lanka, where it had opened in October 15995, and trial shipments had commenced to Hong Kong and the Midde Ear. Said Amit Jaria, Things are becoming glohal in naure. Once you set up a supply chain in a erategie location, it can serviice other countries as well Past performance and planned strategies During its fire 12 monihs of operatioes McDorald opened seven outlets (four in Delhi and three in Mumbail, had6 millien cetomer visits and served 350 000 Maharaja Macs By the end of 1598, the mumber of outlets had gone p it had expanded to 25 outlets Jaipur. The estimanes tor average daily cuomer ies to MeDenald's oulet dred widely. Accoeding so a 2000 thone and an oetlet e onua uau ua sttura pra much. whereas ginetous estimates could be about 40 per omt higher , i June 2000, McDenald's outlers were doing en averag abut 1 500 ra raed a day serving over 3 300 This was a Fypical as uaudat r mamens only 00 Industry Murces howevict, were in apreement shas he spending er das accordine t she per u r a Melho Ter cet enet the pr tw rate ancloord the ett it amin IN r M AN C-126 McDonalds India.pdf (page 8 of 8) Case MDonalds epanson gein nde Indian operation would take three to four more years to break even overall. This was attributable to the heavy investments made in vendor development, infrastructure and brand building One gratifying aspect of McDonald's succes was the fact that, by mid-2000, iz derived as much a 50 per References cent of its revenues from vegetable food items, thes disproving its critics - especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997, customers rated McDonald' food as bland. By September 2000, the perception had changed, however. Costomers thought that McDonald's food had a unique taste. To exploit the opportunities created due to its beser brand awarenes and customer acorptance, McDonald was following a three pronged strategy increase thế seating capacity in existing outlets to cater to addizional trattic open new outlets in Mumbai and Delhi and. tinally, penetrate new cities, McDonald's was also in talks with Delhi Metro Rail Corporation, Airparts Authority of India., Indian Railways and Delhi Development Authority se open smaller MeDorald's outlets in airpos and railway stations, among ochers. The investments required se open these umaller outlets were oely half that of the tegular natlers High real eNtate prices were a thomy ie in ationwide expansion In metropolitan cities soch as Mumhai, prime teal estate was extremely expenaive and sometimes nt availabie at all. The costs were also high in ther citiet uch an Bangalure Cur espation plans a always rdative the availability of nal etate. Endnote im 2 2001 Aah AdA rd Ww, an Communto Aetine Ran S enman w an sE T Sing the 2000On tes cie We ha Dery Ane 2on d oneh has Chr Canet M nc Melorald alo had plam to et up several vutlets along the Delhi Agra tional haghway in major petredeuenting and marking organiation, Bharat Ivirileum Corperaie Leitd. Jaa d. foed both local souries and nteigh donhave many hle cating op nght Sint det, pri mate WA nady piratinnTNnnan affer bichway rawller park The carlineind ale taweghiwar avellin kighway ifferilinditi oa C-127 1. Words to think about as you solve this assignment: Cultural intelligence, taboo, holy, culture, religion, ethics, informal institutions, ethical relativism, ethical imperialism, in- group, out-group, 2. Describe how the informal institutions in India (i.e. culture/religion/ethics) were against McDonalds basic products. What McDonalds did to overcome these issues and how was successful nevertheless? (1-2 paragraphs) 3. Explain how McDonalds localized their products to the Indian market and changed their organizational culture to win Indian consumers. Describe which parts of McDonalds strategy remained the same as other parts in the world. (1-2 paragraphs) 4. Do you think McDonalds strategy revolved around ethical relativism or ethical imperialism? Explain. (1-2 paragraphs) 5. Explain how McDonalds worked with suppliers to obtain ingredients such as iceberg lettuce, sesame seed buns and milk. What did McDonalds provide these suppliers with? How was MeDonalds able to influence and work with suppliers and distributions in India, despite being from a different country, cultural and religion? (1-2 paragraphs) Case 8 Beefing up the beefless Mac: McDonald's expansion strategies in India* Nitin Pangarkar Saroja Subrahmanyan National University of Singapore Background In March 2001, the McDonald's Corporation's Indian. operation was at a critical juncture in its evolution. Over the previous few months, the company had expanded its retail base from Mumbai (10 outlets) and Delhi (4 outlets) to Bangalore (one outlet), Pune (one outlet), Jaipur (one outlet) and the Delhi-Agra highway (one outlet). During 2001, McDonald's had plans to open 15 more outlets with one each in Ludhiana and Ahmedabad (see Exhibit 1 for a brief profile of the different cities and Exhibit 2 for a map showing their locations in India) and the rest in cities where it already had a presence. By 2003, the company planned to increase the number of outlets to 80 and the cumulative investment in India to more than Rs 10 billion. (The approximate exchange rate in March 2001 was Rs 46.50 USS1J This would represent a threefold increase over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities Agra, Bacoda and Chandigarh) would also have at least one McDonald's outiet by 2003. The Indian venture had been operational for more than four yeas and had recorded healthy growth but no profits. Commenting on the progress until that point in time, Vikram Bakshi (McDonald's partner in Delhi) said Out growth and expansion in India over the last three years has definitely been very encouraging Only a few menths previously, Amis Jatia (MiDonalds other partner in charge of the Mumbai outlets had said: We are stil to recover our invetment. You need a very large base and break-even is normally after seven to ten years. Despite the venture's lack of profits, Jatia also showed his enthusiasm for expansion when he said, "Having cracked the Indian market, MeDonald's is ready to leverage ies initial investmenes in infrastructure to rapidly expand. wandering appropriateness of McDonald's hold stratege move. Was the additional investment wise, especially in view of the lack of profirability of the existing operations? Since many of the new cities to be enrered were less Westernised than Mumhai or Delhi, many observeN doubted whether the demand potential would he sufficient to justify the economic aperanion of outlets The cose and availability of prime real estate in najor Indian cities was another issae. Opening a new outier required an average investment of Rs 30 million. n Mumhai and Delhi, where prime real estare was expensive, tihe investments could be hghen FinallyS some analyss douhted whether McDonald's could afford to spend hig ancunes on advertising to create a strong brand-name reputation f its tlet base and custamer basie remained relatively nartow. Observers were about the McDonald's - the global fast-food powerhouse McDonald's 4, hy fac the world's bigger marketer of fast food. In 2000, operated nearly 0 a00 resraursne and had 15 mlion peopk erving 43 iallion custirbers cach day i 120 ceuntrics The mpany had bult an imoreeive set of fihanclal tu with LSS-40.2 hiliin insyiremide sMick dut n Wuch US524.3 billion was acounted for by hanchiied C-120 McDonalds India.pdf (page 2 of 8) Exhibit 1| Profile of the Indlan cities targeted by McDonald's Anno Populetion Plece 1991 2001 Remars State Nourist attaraction, home to the Ta Mahel Major tourut attraction Capital city of two northern states Punjab A Haryana Major business centre in wwester dia Agra 1076 Uttar (7263 5890 Pradesh Jaipur 1459 Rajasthan 9354 Chandigerh 504 790 Punjab & 19 500 14 457 Haryana Ahmedabed 255 3823 11625 Nadodaraaroda 1454 Busines centre 16 251 9.926 12 901 18365 16 217 16 217 Mumbai Commercal capital of india Maharinhera Pune 1567 Satellite town of Mumba Maharasha 16:365 menufecturing centre Lodhiana 1:043 1482 Textile manufactuning centre in Punjab 119.500 1457 northern India Deih 119 13641 Capital city seat of the central Delh 22 687 19.091 government Bangelore 2640 3637 Indias Silicon Valey Kamataka hin th u (Chemsen Commane a restaurants, USS21.7 billion in assets, USS3.3 hillion in operating profits and USS2 hillion in net profits. (See Exhilt 3 for a geographic analysas of McDanald's operations.) It was also routinely cited by the busines Prw as being a vvy marketer, In June 1999, with a value of LISS26.231 bilion, the McDonald's brand was rated as being the eghth most valuable brand in the world, ahead of well-keown brands such as Sony, Nokia and Topota MeDunaids has had kng history in Asia. t entered the Japanese arket in I471, whch was fellowed by ntry ie ocher ewly ind coon n uch a Singapore and HHung Non amo athers in Asia Ery into Chin urred iny in 190, McDunalN entered India in 16. Se Exhiit for MEDondyMa ate in La Asan d South AviAn cunts. The The Indian market India is a vat suhcontinent with an anea one-quarter of that of the Linited States, and a population aimune four times that of the US. t boct 950milion. The per capita GDF is quite low, at LSS390 in 1999. Howeve pu Kund med unnund aog tuanipe ame ranked the fifth-largest economy in the world iranking abeve Frane, laly, the LK and Russia with she thin largest GDP Asta in 1999.iSee Exhihit S for inetime distrioutnin IndiaAimong enterong economieu India ften coadered wond onis to China India on aversity Is matched bEN diversity. Thene are mure than 20 ajot spoe ind er 200alecs The Inn toncy Jhing 4 Alinsl in therE la the ENTARREINi IniNpopulation veng ihes th bani anan. the nenhauneower of the TWIN nal the Nloved ak of the imim ight ar n an . In the C-121 石 McDonalds India.pdf (page 3 of 8) a poor infrastructure with frequent power outages even in New Delhi (the capital ciry) and Bangalore (India's Silicon Valley. In terms of political system, India is a democracy Since independence from the Beitish in 1947, the economic system has historically been modelled on the socialist syle. Under this system, the government strictly controls the entry and exit of domestic as well as multinational corporations (MNC) into diffenent sectons. MNC also face a variery of other resterictions. Since 1991, India has starned derngulating the economy. However, the socialist mindset cannor be erased overnight A Member of Parliament said of fast-food chains such as McDonald's and KFC, "We want computer chips and not potato chip. The country haN a few anti-Western factions, which have opposed the entry of MNC in gmeral The mistrust of MNCcoeld be at least panially'attributed to the fact that the British rule of India was rooted i the entry of the British East India Company (for trading purpones into the country. Thene ane also several amall Exhibit 2| McDonald's outlets in India (existing and planned) Saipur ( Agra Atedabad anet openings by 200 ange Panned openings ty 200 Outts eting of Manh 200t Exhibit 3| Geographic analysis of McDonald's operations and performance (financial year 2000) Geographic breakdown Asia Latin Total USA Pactic Others Europe 4754 Amenca Hevenues 14243 294 Operating inceme 1.772 1ed 442 102 Tetal aets 21404 7064 7.290 Capsat expenditures 224 Depreiation amertisation1011 H im n but oal balth A, hea of he pand o nd the re Kinald Mi alan H shar he maunn den anche nvironmentalists that at ppol oNifically t the aair bhar sui enter h Whin KECirpn its taurin Banale in 1 ind thit KIC ba cs. l mino uni MM C-122 O McDonalds India.pdf (page 4 of 8) 西 all, we are not a meat culture, and therefore our systems are ill-adapted to meat in the first place, and where people are poorer like this will have an enormous impact. McDonald's entry strategy in India shifting to a diet McDonald's India was incorporated as a wholly owned subsidiary in 1993. In April 1995, the wholly owned subsidiary entered into two 50:50 joint ventures: with Connaught Plaza Restaurants (Vikram Bakshi) to own and operate the Delhi Restaurants; and Hardcastle Restaurants (Amit Jatia) to own and operate the Mumbai outlets. Although McDonald's had done product adaptation to suit local tastes and cultures in several previous Since 1991, when the Indian economy began opening up to foreign investments, many multinationals have rushed in large middle class, estimated at 300 million. However, even some of the well-known global brands failed with their initial strategies and were forced to reposition, including, in some cases, drastic reduction of prices. Some multinationals (for example, Peugeot) even had to ventures, such as the Teriyaki Burger in Japan, rice close shop. Kellogg's, which entered with high-priced cereals (several orders of magnitude more expensive than a traditional Indian breakfast), faced a lack of demand. KFC initially failed to realise that Indians were repulsed by chicken skin, which was vital for the Colonel's secret batter to stick. Thus, apart from a lack of understanding of the local tastes, a combination of circumstances - including overestimation of the demand potential, rosy assumptions about the dismantling of bureaucratic hurdles to doing business, infrastructural inadequacies and, finally, inappropriate firm strategies (for example, pricing) disappointments. lured by the attraction of serving a dishes in Indonesia, noodles in Manila and McLox Salmon sandwiches in Norway, the degree of adaptation required in India was significantly greater. McDonald's replaced its core product, the Big Mac, with the Maharaja Mac. The latter had a mutton patty (instead of the beef patty in the Big Mac), to avoid offending the sensibilities of Hindus (80 per cent of the population), who consider killing cows as sacrilegious, and Muslims (12 per cent of the population), for whom pork is taboo. In addition, since 40 per cent of the market is estimated to be vegetarian, the menu included the McAloo Burger (based on potato), a special salad sandwich for vegetarians, and the McChicken kebab sandwich. It also - led to many failures and offered spicier sauces, such as McMasala and Mclmli (made from tamarind). Other elements of the menu, such as chicken nuggets, fillet fish sandwiches, fries, sodas and milkshakes, were in common with the rest of the McDonald's system. In 1998, McDonald's India set up a menu development team to collect consumer feedback. Subsequently, the team came up with its menu vision, and new products since then have been based on this burger, fries and Coke, varied from Rs 76 for a vegetarian meal to Rs 88 for a Maharaja Mac meal. This could be compared with KFC meal prices at Rs 59 (Crispy Burger, regular fries and large Pepsi) and Rs 79 (KFC Chicken, Colonel Burger and regular Pepsi). McDonald's Happy Meal, complimentary toy, was priced at Rs 46. The prices in India were lower than in Sri Lanka or Pakistan, and even the price of the Maharaja Mac was 50 per cent less than an equivalent product in the United States. To fight its premium image among the public, the which included a vision. The adaptation of the strategy went well beyond the menu, encompassing many aspects of the restaurant company undertook selective price cutting and ran some management system. Two different menu boards were displayed in each restaurant - green for vegetarian products and purple for non-vegetarian products. Behind the counter, restaurant kitchens had separate, dedicated preparation areas for the meat and non-meat products. The kitchen crew (in charge of cooking) had different uniforms to distinguish their roles and did not work at the vegetarian and non-vegetarian stations on the same day, thus ensuring clear segregation. The wrapping of vegetarian and non-vegetarian food took place separately. These extra steps were taken to assure Indian customers of the wholesomeness of both products and their preparation. To convince Indian customers that the company would not serve beef and would respect the culinary habits of its clientele, McDonald's printed brochures explaining all these steps and took customers on kitchen tours. McDonald's positioned itself as a family restaurant. The average price of a 'Combo' meal, which included periodic promotions. In February 1999, the company was offering 'economeals' for as low as Rs 29, The company reduced the price of vegetable nuggets from Rs 29 to Rs 19 and that of its soft-serve ice-cream cone from Rs 16 to Rs 7. Apparently, this still afforded McDonald's a healthy' margin (40 per cent for cones). As Vikram Bakshi, explained, I will never become unaffordable, as I will not then be able to build up volumes.' The lower price could be attributed to two factors: the pricing strategies of MNC rivals as well as mid-range local restaurants, and the development of a local (low-cost) supply chain. McDonald's pricing strategies, as well as special promotions, were influenced by rivals. In February 1999, several competitors were running special promotions, with KFC offering a meal inclusive of chicken, rice and gravy for Rs 39. For Rs 350, Pizza Hut was offering a whole family meal, including two medium pizzas, bread and Pepsi. Wimpy's was offering about McDonald's), food quality and variety. The company also ran special promotions during festivals, and 'vegetarian' days, and was even developing garlic- free sauces to bring in 'hard-core' vegetarian traffic. In terms of the selection of cities, McDonald's followed the same strategy in India as in the rest of the world. Its initial focus on Mumbai and Delhi was driven by the following factors: they were the two largest cities in India; their citizens enjoyed relatively high income levels compared to the rest of the country; and they were exposed to foreign food and culture. After establishing a presence in the leading cities, McDonald's then moved mega meals at Rs 35. A typical vegetarian 'set meal', or "thali" (which included Indian breads, rice, vegetables and yogurt) at a mid-range restaurant cost around Rs 50, which was considerably lower than a McDonald's meal. Some analysts believed that that by introducing loss leaders (for example, cones), McDonald's wanted to highlight good value for all its products. Whether customers attracted by special promotions pay repeat visits to McDonald's remains to be seen. In October 2000, the company introduced two new Indianised products to its menu - the Chicken McGrill and the Veg Pizza McPuff. At that point in time, 75 peri to smaller satellite towns near the metropolitan cities cent of the menu in India was unique - that is, different from the rest of the McDonald's system. The Chicken McGrill had a grilled chicken patty topped with onions and mint sauce, to give it an Indian flavour. The Veg spillover effects, in terms of its reputation, from the Pizza was a takeoff on the popular Indian samosa (potato-based curry puff) with differences in shape (rectangular) and stuffing (capsicum, onions and Mozarella cheese with tomato sauce). In keeping with Developing the supply chain the low pricing strategy in India, these items were priced at Rs 25 and Rs 16, respectively. With its value pricing and localised menu, McDonald's had attracted some loyal customers. One such customer said, A normal kebab, with all the trimmings, at a regular restaurant would cost more than Rs 25 and if the new McGrill is giving us a similar satisfaction with its mint chutney (sauce), then we'd rather eat in a lively McDonald's outlet than sitting in a cramped car on the road." Some elements of the promotional strategy remained the same as in other parts of the world. One instance of this included the emphasis on attracting children. A Happy Meal film was consistently shown on the Cartoon Network and the Zee ta local channel; Disney Hour. McDonald's also teamed up with Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again uying to create goodwill among schoolchildren. In October 1999, in conjunction with The Walt Disney Company.and UNESCO. McDonald (for example, from Delhi to Gurgaon and Noida, both suburbs of Delhi, and from Mumbai to Pune). McDonald's often found that there were positive metropolitan cities to the satellite towns. In Jaipur, the company was hoping to attract foreign tourists. McDonald's search for Indian suppliers started as carly as 1991. Its initial challenge was to develop local suppliers who could deliver quality raw materials, regularly and on schedule. In the five-and-a-half years until start-up, McDonald's spent as much as Rs 500 million (USS12.8 million) to set up a supply network, distribution centres and logistics support. By mid-2000, some estimates placed the total investment in the supply chain at almost Rs 3 billion. Local suppliers, Exhibit 6| McDonald's supply chain in India Phillar auces *Detvadun etuc *Naital ettue) Aa ... Eaw materials to its restaurants Logistics managemen was contracted out to AFL Legistics - itself a 5050 joint venture between Air Freight (a Mumbai-based firm) and FX Coughlin of the United States, McDonalds international logistics provider AFL logistics was responsible for the semperature-controlled movement of all products (by rail, road or air, as appropriate) from individual suppliers to the regional distribution centres. McDonald's had to work exctremely hard at inculcating a service orientation ie is employees, especially those involved in physical logistics, since the freshness of the food was at ake. The track operators had so be explicitly and dearly instructed not to swinch off the truck's refrigeration system to save oe fuel or clectricity. The corporation went so the extent of installing trapping devices, which would show the distributors and joint venture partners and employees had to match the restaurant chain's quality and bygiene standards before they became part of its system. McDonald's experience in identifying and cultivating the supplier of lettuce provided an excellent illustration of the difficulties involved. In 1991, hardly any iceberg lettuce was grown in India, except for a small quantity grown around Delhi during the winter months. McDonald's identified a lettuce supplier (Mangesh Kumar from Ootacamund in Tamilnadu, a southern state) and helped him in a broad range of activities, from seed selection to advice on faming practices. In the case of several other suppliers, such as Cremica Industries which supplied the sesame seed buns, McDonald's helped them to gain access to foreign technology. In another instance, it encouraged Dynamix, the supplier of cheese, to establish a program for milk procurement by investing in bulk milk semperature chart through the entire journey. collection and chilling centres. This, in turn, led to higher milk yields and overall collections, as well as to an improvement in milk quality. McDonald's ended up with a geographically diverse soercing network, with buns coming from northern India, chicken and cheese from western India, and lettuce and pickles from southern India. There were as many as 40 suppliers in the company's supply chain. (See Exhibit 6 for McDonald'y supply chain.) A dedicated distribution symem was established to match the suppliers production and delivery schedules with the restaurant's needs. The fitst two cencralised distribution centres were set ep near Mumbai and at Cochin tin the southernmost part of Indial in joint ventures with two local retailers, both of whom had to learn from intermational distrihutors of MDonald's products how the restaurant chain handled diseribution worldwide and especially, how to enhance the quality ot storage operations. The company estimased that cach distribution centre could ervice about 25 outles. McDonald's strove sa keep the scorage volümes ot products high in order to exploit all possihle economies ef scale. The distrihuticn centres were alvo expected to maintain inventory records n interaE with suppliers and the logistics am to ensute that cheir freeners wete well stocked. Said Arur Jatia, Tbe audopana : E oido mo u ued sueodun ofa cole chain Ithe pross ot prourement p2 ae eodsura ursouseM producs under conerolled teripetature Thire in pratically ne need fot a knite in an etaranAllhe shopping and toc prseing i der i the plar Cnly the atial coking akes plae in the narar LVen with thipplier nderiheioi Since 1999, McDonald's had stamed using India as an export base for cheese, letuce and other products that went inno its burgers. Exports had already begun to Sri Lanka, where it had opened in October 15995, and trial shipments had commenced to Hong Kong and the Midde Ear. Said Amit Jaria, Things are becoming glohal in naure. Once you set up a supply chain in a erategie location, it can serviice other countries as well Past performance and planned strategies During its fire 12 monihs of operatioes McDorald opened seven outlets (four in Delhi and three in Mumbail, had6 millien cetomer visits and served 350 000 Maharaja Macs By the end of 1598, the mumber of outlets had gone p it had expanded to 25 outlets Jaipur. The estimanes tor average daily cuomer ies to MeDenald's oulet dred widely. Accoeding so a 2000 thone and an oetlet e onua uau ua sttura pra much. whereas ginetous estimates could be about 40 per omt higher , i June 2000, McDenald's outlers were doing en averag abut 1 500 ra raed a day serving over 3 300 This was a Fypical as uaudat r mamens only 00 Industry Murces howevict, were in apreement shas he spending er das accordine t she per u r a Melho Ter cet enet the pr tw rate ancloord the ett it amin IN r M AN C-126 McDonalds India.pdf (page 8 of 8) Case MDonalds epanson gein nde Indian operation would take three to four more years to break even overall. This was attributable to the heavy investments made in vendor development, infrastructure and brand building One gratifying aspect of McDonald's succes was the fact that, by mid-2000, iz derived as much a 50 per References cent of its revenues from vegetable food items, thes disproving its critics - especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997, customers rated McDonald' food as bland. By September 2000, the perception had changed, however. Costomers thought that McDonald's food had a unique taste. To exploit the opportunities created due to its beser brand awarenes and customer acorptance, McDonald was following a three pronged strategy increase thế seating capacity in existing outlets to cater to addizional trattic open new outlets in Mumbai and Delhi and. tinally, penetrate new cities, McDonald's was also in talks with Delhi Metro Rail Corporation, Airparts Authority of India., Indian Railways and Delhi Development Authority se open smaller MeDorald's outlets in airpos and railway stations, among ochers. The investments required se open these umaller outlets were oely half that of the tegular natlers High real eNtate prices were a thomy ie in ationwide expansion In metropolitan cities soch as Mumhai, prime teal estate was extremely expenaive and sometimes nt availabie at all. The costs were also high in ther citiet uch an Bangalure Cur espation plans a always rdative the availability of nal etate. Endnote im 2 2001 Aah AdA rd Ww, an Communto Aetine Ran S enman w an sE T Sing the 2000On tes cie We ha Dery Ane 2on d oneh has Chr Canet M nc Melorald alo had plam to et up several vutlets along the Delhi Agra tional haghway in major petredeuenting and marking organiation, Bharat Ivirileum Corperaie Leitd. Jaa d. foed both local souries and nteigh donhave many hle cating op nght Sint det, pri mate WA nady piratinnTNnnan affer bichway rawller park The carlineind ale taweghiwar avellin kighway ifferilinditi oa C-127

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