Glocalization in Food Business - Docx1

GLOCALIZATION IN FOOD BUSINESS: STRATEGIES OF ADAPTATION
TO LOCAL NEEDS AND DEMANDS
AJ TMR
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Food industry, the world over, is witnessing unprecedented increase in the number
of multinational enterprises. These multinational enterprises, when deciding to
expand their operations to a new country, have to make a choice between
following uniform business strategies as in their home country or modify their
strategies to suit the host …read more
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Asian Journal of Technology & Management Research Vol. 01 – Issue: 01 (Jan -
Jun 2011)
The year was 1991. A workaholic young man of 24 years came forward. Confident
at heart &dreams in his eyes to change the manufacturing and marketing scenario
in this trade. Withthe assistance of a few 'think-a-like' people, he started the ground
work and gradually gave ita shape and thus emerged- chhappan bhog, the name
that changed the concept ofconventional selling in this trade.The name
'Chhappan Bhog'
is an old mythological Hindu name derived from age old'Mahabharat times, when
a royal get together would take place with various delicacies, probably 56 in
numbers, keeping the old term alive, it proceeded further.
IX.4 THE SHOP
The shop's interior is an amalgamation of new trendy design and age old Indian
heritage projects, an inviting ambience to its customers.A tempting range of exotic
North, Indian & Bengali sweets, premium quality namkeens andIndian beverages
are displayed in a very practical as well as elegant manner.Apart fromsweets &
namkeens, they offer mouthwatering chaat to their those customers who have
aninclination towards (Chatpata) tingling taste.A well equipped kitchen is the
integral part of their shop. Their strictly follow the modernmethods of preparation.
A team of experienced karigars have been deputed to keep an eye onthe process of
manufacturing, so that no stone is left unturned. Hygiene is the 'mantra' amongtheir
kitchen staff.
X.0 KEY LEARNING
The cases above illustrate that MNFEs glocalized their products and processes
when they goto foreign countries. As we know that trust is very important in Food
industry since the riskattached with the industry is very high as compared to other
industries like garments,electronic appliances etc. Glocalization has helped
MNFEs to grow and gain trust of the people of a particular region. The other key
learning from the above cases are.

Jun 2011)
•
Glocalization strategies need to deal with adaptation to specific taste requirements
ofvarious regions. It is very important as every region has different taste
requirementsand one food item may be popular in one region and completely
rejected by someother region, for example spicy food of India may not be liked by
Chinese people.
•
The glocalization strategies also should take into account various cultural
andreligious issues like McDonalds and Pizza Hut both modified their menu to
take intoaccount the religious beliefs of Hindus and Muslims in India, by not
serving beef and pork.
•
The end product should be appropriately modified so that it is according to
theregion’s specific demands. This makes the product offering to be accepted
bycustomers readily as they associate themselves with the brand and the product
like“The Great Indian treat” of Pizza Hut was adopted successfully by the Indian
public.
•
Not only the food item has to be modified in terms of its ingredient or the cooking
process to suit the taste buds of the local population but it also needs to beappropri
ately named so as to appeal the locals. For example, within India many southIndian
dishes are now having hybrid names in north India: American Dosa, ChineseDosa,
Fried Dhokla, Fried Idlis etc.
•
Another factor that MNFEs need to address is the modification in the process for
the product or service development or production. This is a very important factor ta
keninto consideration by McDonalds and they separated the burger preparation
processesfor Vegetarian and non-vegetarian burgers. This also helps the company
to gain trustof consumers as well as the employees.
•
Glocalization strategies also include marketing strategies and campaigns used.
Likeusing actors and celebrities of the region in the advertisements. McDonalds
and PizzaHut both have used this tool effectively as their advertisements and
campaigns haveBollywood actors and themes.
•
Glocalization helps in connecting with the consumers of that region on an
emotionallevel and also leveraging its global position. This is the most important
aspect thatleads to the success of the company. The global position of the company
makes thecustomers to try the product for the first time and later the localization
aspect andstrategies make the customers to come again.

Jun 2011)
XI.0 CHANGES IN CUSTOMER PERCEPTION DUE
TO GLOCALISATION1999 2009
Serving burgers ice-cream, fries, shakes and pizza

Bland western food

less spicy, non-oily, crisp, fresh and different

Expensive western restaurants

Affordable family restaurant, money well spent

Loud for youngsters

Mature, calm, cultured, straightforward for families

Childish

Childlike, and young at heart
XII.0 CONCLUSION
Glocalization should form a very important aspect in the expansion plans of the
Global Foodfirms. Glocalization attributes the success of a global product
completely to localization ofthe product according to the specific needs of that
region. Many companies collapse, when adecision to launch in different locations
simultaneously is taken without any prior estimationof the degree of adaptation
needed. For example,
Nirula’s failed in Lucknow due to theproblem of not being able to adapt to the
local conditions.
The food multinationalenterprises have to be particularly sensitive to these issues
because challenges faced in thisindustry due to the cultural differences are more
critical and complex as compared to theother industries.
REFERENCES
1.

Ahmed, A., & Manohar, G. “Glocalization”: IIPM knowledge center. Available
at:http://www.iipm.edu/iipm-old/iipm-glocalization.html2.

Boyd, D. (2006). "Glocalization: When Global Information and Local Interaction
Collide."
O'Reilly Emerging Technology Conference
, San Diego, CA. March 6.3.

Campbell, M. (2002). “Asterix Promoting McBurgers in France: McDonald in
the'glocalization' of fast food marketing”, Toronto Globe & Mail, January 24.4.

Hye-won, J. (2006). “Is globalization succumbing to glocalization?”
The Korean Times
, July18.5.

Kappan, R. (2004). ‘Web’ man in a new weave, The Hindu. Available
at:http://www.gothamcomics.com/html/spiy_desi_2.htm. Accessed on: September
26, 2006

Jun 2011)
6.

Khondker, H. (2004) “Glocalization as Globalization: Evolution of a Sociological
Concept”,
Bangladesh e-Journal of Sociology,
Vol. 1. No. 2.7.

7.Raimi,S.
(2003).“Glocalization”.Availableat:http://searchcio.techtarget.com/sDefination/0,si
d19_gci826478,00.html. Accessed on: September 25, 2006.8.

Stollberg, G. (2005). Ayurvedic medicine in Germany. Available at:
http://www.uni- bielefeld.de/soz/pdf/PaperStollberg.pdf. Accessed on: September
25, 20069.

The Economic Times. 16
th
and 23
rd
June 2002 – “Glocalization:Globalization/plus/Localization”.10.

Towers, D. (2004). “Wal-Mart: A glocalized company”. Managing Global
Business- Self-Program, Universite Jean Mouline, Lyon 3.11.

World Bank Institute & the Glocal Forum (2003). “Glocalization: Research study
and policyrecommendations.”
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 About
 Press
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 People
Asian Journal of
Technology &
Management
Research Vol. 01 –
Issue: 01 (Jan - Jun
2011)
•
Glocalization
strategies need to
deal with
adaptation to
specific taste
requirements
ofvarious regions.
It is very
important as every
region has
different taste
requirementsand
one food item
may be popular in
one region and
completely
rejected by
someother region,
for example spicy
food of India may
not be liked by
Chinese people.
•
The glocalization
strategies also
should take into
account various
cultural
andreligious
issues like
McDonalds and
Pizza Hut both
modified their
menu to take
intoaccount the
religious beliefs
of Hindus and
Muslims in India,
by not serving
beef and pork.
•
The end product

should be
appropriately
modified so that it
is according to
theregion’s
specific demands.
This makes the
product offering
to be accepted
bycustomers
readily as they
associate
themselves with
the brand and the
product like“The
Great Indian
treat” of Pizza Hut
was adopted
successfully by
the Indian public.
•
Not only the food
item has to be mo
dified in terms of i
ts ingredient or th
e cooking process
to suit the taste bu
ds of the local pop
ulation but it also
needs to beapprop
riately named so
as to appeal the
locals. For
example, within
India many
southIndian dishes
are now having
hybrid names in
north India:
American Dosa,
ChineseDosa,
Fried Dhokla,
Fried Idlis etc.
•
Another factor
that MNFEs need
to address is the
modification in
the process for
the product or ser
vice development
or production. Thi
s is a very importa
nt factor takeninto
consideration by
McDonalds and
they separated the
burger preparation
processesfor
Vegetarian and
non-vegetarian
burgers. This also
helps the
company to gain
trustof consumers
as well as the
employees.
•
Glocalization
strategies also
include marketing
strategies and
campaigns used.
Likeusing actors
and celebrities of
the region in the
advertisements.
McDonalds and
PizzaHut both
have used this tool
effectively as their
advertisements
and campaigns
haveBollywood
actors and themes.
•
Glocalization
helps in
connecting with
the consumers of
that region on an
emotionallevel
and also
leveraging its
global position.
This is the most
important aspect
thatleads to the
success of the
company. The
global position of
the company
makes
thecustomers to
try the product for
the first time and
later the
localization aspect
andstrategies
make the
customers to
come again.

Asian Journal of
Technology &
Management
2011)
XI.0
CHANGES
IN
CUSTOMER
PERCEPTIO
N DUE
TO GLOCAL
ISATION1999
2009
Serving burgers ic
e-cream, fries, sha
kes and pizza

Bland western
food

less spicy, non-
oily, crisp, fresh
and different

Expensive
western
restaurants

Affordable family
restaurant, money
well spent

Loud for
youngsters

Mature, calm,
cultured,
straightforward
for families

Childish

Childlike, and
young at heart
XII.0
CONCLUSIO
N
Glocalization
should form a
very important
aspect in the
expansion plans
of the Global
Foodfirms.
Glocalization
attributes the
success of a
global product
completely to
localization ofthe
product according
to the specific
needs of that
region. Many
companies
collapse, when
adecision to
launch in different
locations
simultaneously is
taken without any
prior estimationof
the degree of
adaptation
needed. For
example,
Nirula’s failed
in Lucknow
due to
theproblem of
not being able
to adapt to the
local
conditions.
The food
multinationalenter
prises have to be
particularly
sensitive to these
issues because
challenges faced
in thisindustry due
to the cultural
differences are
more critical and
complex as
compared to
theother
industries.
REFERENCE
S
1.

Ahmed, A., &

Manohar, G.
“Glocalization”:
IIPM knowledge
center. Available
at:http://www.iipm.
edu/iipm-old/iipm-
glocalization.html2.

Boyd, D. (2006).
"Glocalization:
When Global
Information and
Local Interaction
Collide."
O'Reilly Emerging
Technology Confere
nce
, San Diego, CA.
March 6.3.

Campbell, M.
(2002). “Asterix
Promoting
McBurgers in
France: McDonald
in the'glocalization'
of fast food
marketing”,
Toronto Globe &
Mail, January 24.4.

Hye-won, J. (2006).
“Is globalization
succumbing to
glocalization?”
The Korean Times
, July18.5.

Kappan, R. (2004).
‘Web’ man in a new
weave, The Hindu.
Available
at:http://www.gotha
mcomics.com/html/
spiy_desi_2.htm.
Accessed
on: September
26, 2006

Asian Journal of
Technology &
Management
2011)
6.

Khondker, H.
(2004)
“Glocalization as
Globalization:
Evolution of a
Sociological
Concept”,
Bangladesh e-
Journal of
Sociology,
Vol. 1. No. 2.7.

7.Raimi,S.
(2003).“Glocalizati
on”.Availableat:http
://searchcio.techtarg
et.com/sDefination/
0,sid19_gci826478,
00.html. Accessed
on: September 25,
2006.8.

Stollberg, G.
(2005). Ayurvedic
medicine in
Germany. Available
at:
http://www.uni- biel
efeld.de/soz/pdf/Pap
erStollberg.pdf.
Accessed on:
September 25,
20069.

The Economic
Times. 16
th
and 23
rd
June 2002
– “Glocalization:Gl
obalization/plus/Lo
calization”.10.

Towers, D. (2004).
“Wal-Mart: A
glocalized
company”.
Managing Global
Business- Self-
Program, Universite
Jean Mouline, Lyon
3.11.

World Bank
Institute & the
Glocal Forum
Research study and policyrecommendations.”
(2003). “Glocalization:
ABOUT AUTHOR
AJ TMR
PAPERS
51
VIEWS
2,781
FOLLOWERS
98
Follow
50 MORE BY AJ TMR
Decision Making Based On Management Information System and Decision Support System
AJ TMR
1475 views
RELATED PAPERS
Multinational Fast Food Chains' " Global Think, Local Act Strategy " and Consumer Preferences in Turkey
İsmail Metin
162 views
Case Study 11: Marketing of Services: The McDonald's Way

Aniket Khasnobis
1996 views
Glocalization of Subway in India: How a US Giant Has Adapted in the Asian Subcontinent
Demi Simi
3323 views
The Glocalisation Strategy for Planetary Brands.

Amar Moorjani
420 views
McDonald’s Success Story in India

Yuanxin Tian
8414 views
Issue-June International Journal on Human Resource Management

Julio Nugroho
302 views
Social Media and Glocalization

Leonard Li
985 views
Multicultural Student Perceptions of Fast Food Restaurant Brands: An Australian Study

Jay Kandampully
343 views
Consumer Behavior and the Growth of the Fast Food Industry in a Small Emerging Country
Haven Allahar
2559 views
Consumer perception about fast food in India: an exploratory study

SOF FOUK
966 views
ENCYCLOPEDIA OF JUNK FOOD AND FAST FOOD
Angelica Berleze
17177 views
A categorization approach to analyzing the global consumer culture debate

Dana Alden
50 views
Markets, religion, regulation: Kosher, halal and Hindu vegetarianism in global perspective
Johan Fischer
769 views
Consumer perceptions of foreign fast food restaurants in an emerging market

Ateeq Rauf
676 views
Business Consultancy Project on SME named at Nottingham Sutton in Ashfield

Taner Bulut
352 views
Service Quality and Branding Strategies at McDonalds

Chenoy Ceil
4256 views
Macro-Environmental Factors Effecting Fast Food Industry

kishani Dhanapala
611 views
Human resources development, employment and globalization in the hotel, catering and tourism sector: report
for discussion at Tripartite Meeting on Human Resources Development, Employment and Globalization in the
Hotel, Catering and Tourism Sector, Geneva, 2001
dirk belau
294 views
Glocommodification: How the Global Consumes the Local-McDonald's in Israel
Anuththara Wanaguru
157 views
Corporate and Consumer Conceptions of 'Fast Food' Branding in Malaysia

Tony Wilson
131 views
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ranscription
1 1 Beefing up the beefless Mac: McDonald s expansion strategies in India 1 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 (14 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 = US$1.) This would represent a threefold increase
over the cumulative investment until June 2000 (Rs 3.5 billion). Three other cities (Agra, Baroda and
Chandigarh) would also have at least one McDonald s outlet by Exhibit 1: Profile of the Indian cities
targeted by McDonalds 1 This case was written as a basis for class discussion rather than to illustrate
effective of ineffective handling of an administrative or business situation. Source: (2011, 07). Case
Studies. StudyMode.com. Retrieved 07, 2011, from Case Study 8: Beefing up the beefless Mac:
McDonald s expansion strategies in India, pp
2 2 Exhibit 2: McDonald s outlets in India (existing and planned) The Indian venture had been
operational for more than four years 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: 'Our growth and
expansion in India over the last three years has definitely been very encouraging. Only a few months
previously, Amit Jatia (McDonald s other partner in charge of the Mumbai outlets) had said: We are still
to recover our investment. 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, McDonald s is ready to leverage its initial investments in
infrastructure to rapidly expand. Observers were wondering about the appropriateness of McDonald s
bold strategic move. Was the additional investment wise, especially in view of the lack of profitability of
the existing operations? Since many of the new cities to be entered were less Westernised than Mumbai
or Delhi, many observers doubted whether the demand potential would be sufficient to justify the
economic operation of outlets. The cost and availability of prime real estate in major Indian cities was
another issue. Opening a new outlet required an average investment of Rs 30 million. In Mumbai and
Delhi, where prime real estate was expensive, the investments could be higher. Finally, some analysts
doubted whether McDonald s could afford to spend big amounts on advertising to create a strong
brandname reputation if its outlet base and customer base remained relatively narrow. McDonald s the
global fast-food powerhouse McDonald s is, by far, the world s biggest marketer of fast food. In 2000, it
operated nearly 30,000 restaurants and had 1.5 million people serving 45 million customers each day in
120 countries. The company had built an impressive set of financial figures, with US$40.2 billion in
system-wide sales (out of which US$24.5 billion was accounted for by franchised restaurants), US$21.7
billion in assets, US$3.3 billion in operating profits and US$2 billion in net profits. (See Exhibit 3 for a
geographic analysis of McDonald s operations.) It was also routinely cited by the business press as being
a savvy marketer. In June 1999, with a value of US$ billion, the McDonald s brand was rated as being the
eighth most valuable brand in the world, ahead of well-known brands such as Sony, Nokia and Toyota.
McDonald s has had a long history in Asia. It entered the Japanese market in 1971, which was followed
by entry into other newly industrialising economies (such as Singapore and Hong Kong, among others) in
Asia. Entry into China occurred only in McDonald s entered India in (See Exhibit 4 for McDonald s start-
up dates in East Asian
3 3 and South Asian countries.) The late entry could be attributed to several factors, such as the fact that
a significant percentage of India s population is vegetarian, the limited purchasing power of the
population and the closed nature of the economy. Exhibit 3: Geographic analysis of McDonald s
operations and performance (financial year 2000) Exhibit 4: Dates of McDonald s entry into East and
South Asian markets The Indian market India is a vast subcontinent with an area one-quarter of that of
the United States, and a population almost four times that of the US, at about 950 million. The per
capita GDP is quite low, at US$390 in However, after adjusting for purchasing power parity, India was
ranked the fifth-largest economy in the world (ranking above France, Italy, the UK and Russia) with the
thirdlargest GDP in Asia in (See Exhibit 5 for income distribution in India.) Among emerging economies,
India is often considered second only to China.
4 4 India s economic diversity is matched by its social diversity. There are more than 20 major spoken
languages and over 200 dialects. The Indian currency (Rupee) has its denomination spelt out not only in
English and Hindi, but also in 13 other languages. About 50 per cent of the population is considered to
be illiterate, and advertising reaches them via billboards and audiovisual means. For national launches,
at least eight languages are used. In addition, the country faces a poor infrastructure with frequent
power outages, even in New Delhi (the capital city) and Bangalore (India s Silicon Valley). Exhibit 5:
Income distribution in India In terms of political system, India is a democracy. Since independence from
the British in 1947, the economic system has historically been modelled on the socialist style. Under this
system, the government strictly controls the entry and exit of domestic as well as multinational
corporations (MNCs) into different sectors. MNCs also face a variety of other restrictions. Since 1991,
India has started deregulating the economy. However, the socialist mindset cannot 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 chips. The country has a few anti-western factions, which have opposed the entry of
MNCs in general. The mistrust of MNCs could be at least partially attributed to the fact that the British
rule of India was rooted in the entry of the British East India Company (for trading purposes) into the
country. There are also several small but vocal groups of health activists and environmentalists that are
opposed specifically to the entry of fast-food giants such as McDonald s and KFC. When KFC opened its
restaurant in Bangalore in 1995, local officials found that KFC had excessive levels of monosodium
glutamate (MSG) in its food and closed the outlet. The outlet soon reopened, however. Said Vandana
Shiva, a vocal exponent of environmental and animal welfare issues, in an audio interview with
McSpotlight, The McDonald s experience, which is really the experience of eating junk while thinking
you are in heaven, because of the golden arches, which is supposed I guess to suggest that you enter
heaven, and the clown Ronald McDonald, are experiences that the majority of the Indian population
would reject. I think our people are too earthy. First of all, it would be too expensive for the ordinary
Indian for the peasant, or the person in the slums. It s an experience that a very tiny elite would engage
in, and most of that elite which knows what good food is all about would not fall for it. McDonald s is
doing no good to people s health, and in a country like India where first of 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
shifting to a diet like this will have an enormous impact. Since 1991, when the Indian economy began
opening up to foreign investments, many multinationals have rushed in lured by the attraction of serving
a 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 close shop. Kellogg s, which
5 5 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) led to many
failures and disappointments. McDonald s entry strategy in India McDonald s India was incorporated as
a wholly owned subsidiary in 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 ventures, such as the
Teriyaki Burger in Japan, rice 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 offered spicier sauces, such as McMasala and McImli (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 vision. The adaptation of the strategy went well
beyond the menu, encompassing many aspects of the restaurant management system. Two different
menu boards were displayed in each restaurant green for vegetarian products and purple for non-
vegetarian products (see Exhibit 6). 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 (see Exhibit 6). 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. Exhibit 6: Vegetarian and Non-
Vegetarian menus at McDonald s Source:
6 6 McDonald s positioned itself as a family restaurant in India (see Exhibit 7). The average price of a
Combo meal, which included 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,
which included a 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 company undertook
selective price cutting and ran some 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 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. Exhibit 7: McDonald s Family Restaurant Source: 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 per 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 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 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.
7 7 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 (a local channel) Disney Hour. McDonald s also teamed up with
Delhi Traffic Police and the Delhi Fire Service to highlight safety issues, again trying to create goodwill
among schoolchildren. In October 1999, in conjunction with The Walt Disney Company and UNESCO,
McDonald s launched a search for Millennium Dreamers. The program would bring together 2,000
young people from around the globe who had made a positive and significant impact on their
communities. Based on the number of its outlets, India was allocated two representatives. By June 2000,
the company had started rolling out its first national campaign, as it was expanding beyond Mumbai and
New Delhi. The campaign, budgeted at Rs 100 million, was expected to highlight (in phased order) the
brand (the experience that there is something special about McDonald s), food quality and variety. The
company also ran special promotions during festivals, and vegetarian days, and was even developing
garlicfree 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 to smaller satellite
towns near the metropolitan cities (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 spillover effects, in
terms of its reputation, from the metropolitan cities to the satellite towns. In Jaipur, the company was
hoping to attract foreign tourists. Developing the supply chain McDonald s search for Indian suppliers
started as early as 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 (US$12.8 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, distributors and joint venture partners and employees had to match the
restaurant chain s quality and hygiene 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 farming 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 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 sourcing 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 8 for McDonald s supply chain in India.) A
dedicated distribution system was established to match the suppliers production and delivery schedules
with the restaurant s needs. The first two centralised distribution centres were set up near Mumbai and
at Cochin (in the southernmost part of India) in joint ventures with two local retailers, both of whom had
to learn from international distributors of McDonald s products how the restaurant chain handled
distribution worldwide and, especially, how to enhance the quality of storage operations. The company
estimated that each distribution centre could service about 25 outlets. McDonald s strove to keep the
storage volumes of products high in order to exploit all possible economies of scale. The distribution
centres were also expected to maintain inventory records and to interact with suppliers and the logistics
firm to ensure that their freezers were well stocked. Said Amit Jatia, The most important part of our
operations was the development of a cold chain [the process of procurement, warehousing,
transportation and retailing of food products under controlled temperatures]. There is practically no
need for a knife in any restaurant. All the chopping and food processing is done in the plants. Only the
actual cooking takes place in the restaurants.
8 8 Exhibit 8: McDonald s supply chain in India Even with the suppliers and distribution system in place,
McDonald s needed a distribution link to move raw materials to its restaurants. Logistics management
was contracted out to AFL Logistics itself a 50:50 joint venture between Air Freight (a Mumbai-based
firm) and FX Coughlin of the United States, McDonald s international logistics provider. AFL logistics was
responsible for the temperature-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
extremely hard at inculcating a service orientation in its employees, especially those involved in physical
logistics, since the freshness of the food was at stake. The truck operators had to be explicitly and clearly
instructed not to switch off the truck s refrigeration system to save on fuel or electricity. The corporation
went to the extent of installing trapping devices, which would show the temperature chart through the
entire journey. Since 1999, McDonald s had started using India as an export base for cheese, lettuce and
other products that went into its burgers. Exports had already begun to Sri Lanka, where it had opened
in October 1998, and trial shipments had commenced to Hong Kong and the Middle East. Said Amit
Jatia, Things are becoming global in nature. Once you set up a supply chain in a strategic location, it can
service other countries as well. Past performance and planned strategies During its first 12 months of
operations, McDonald s opened seven outlets (four in Delhi and three in Mumbai), had 6 million
customer visits and served 350,000 Maharaja Macs. By the end of 1998, the number of outlets had gone
up to 14, and, by mid-2000, it had expanded to 25 outlets with an outlet in Pune and Jaipur. The
estimates for average daily customer visits to a McDonald s outlet differed widely. According to a mid-
range estimate (conservative estimates were half as much, whereas generous estimates could be about
40 per cent higher), in June 2000, McDonald s outlets were doing (on average) about 1,500 transactions
(or bills raised) a day, serving over 3,500 visitors. This was a significant improvement over 1998, when a
typical McDonald s restaurant was doing only 900 transactions per day (according to the same source).
Industry sources, however, were in agreement that the spending per customer visit at McDonald s was
around Rs 45. The growth rate in McDonald s sales had been 70 per cent over the previous two years ( )
and was expected to be sustained until This growth rate included the effect of starting up new outlets.
Even with this growth, analysts were expecting that the Indian operation would take three to four more
years to break even
9 9 overall. This was attributable to the heavy investments made in vendor development, infrastructure
and brand building. One gratifying aspect of McDonald s success was the fact that, by mid-2000, it
derived as much as 50 per cent of its revenues from vegetable food items, thus disproving its critics
especially those who were sceptical of its ability to serve food that suited Indian palates. In 1997,
customers rated McDonald s food as bland. By September 2000, the perception had changed, however.
Customers thought that McDonald s food had a unique taste. To exploit the opportunities created due
to its better brand awareness and customer acceptance, McDonald s was following a three-pronged
strategy: increase the seating capacity in existing outlets to cater to additional traffic; open new outlets
in Mumbai and Delhi; and, finally, penetrate new cities. McDonald s was also in talks with Delhi Metro
Rail Corporation, Airports Authority of India, Indian Railways and Delhi Development Authority to open
smaller McDonald s outlets in airports and railway stations, among others. The investments required to
open these smaller outlets were only half that of the regular outlets. High real estate prices were a
thorny issue in nationwide expansion. In metropolitan cities such as Mumbai, prime real estate was
extremely expensive and sometimes not available at all. The costs were also high in other cities such as
Bangalore. Our expansion plans are always relative to the availability of real estate, Bakshi said.
McDonald s also had plans to set up several outlets along the Delhi-Agra national highway in a tie-up
with a major petroleum refining and marketing organisation, Bharat Petroleum Corporation Limited.
Jatia said, We feel both local tourists and foreigners travelling by road don t have many reliable eating
options right now. The first such outlet, a project estimated at Rs 35 million, was already in operation.
The company proposed to offer highway travellers parking space and a play area for children. The
emphasis on quality, service, cleanliness and value (QSCV) had been quite successful in drawing highway
travellers in its home market (the United States). Some analysts, however, believed that highway
travellers in India, who were typically truck and bus drivers, would not be willing to go in for the type of
food or prices that McDonald s currently offered. In addition, McDonald s was looking at tie-ups with
other oil companies, as well as retail vehicles such as malls, multiplexes or cinema halls. Endnote * This
case was first published, in an earlier form, in Kulwant Singh, Nitin Pangarkar and Gaik Eng Lim (eds.),
2001, Business Strategy in Asia: A Casebook (Singapore: Thomson Learning). References Ad Age, Daily
World Wire, 1998 (Crain Communications Inc.), 1 April. Avertino, M., 2000, McDonald s to stir up
adjusted menus in break-even hunt, Business Standard, 22 June. Berryman, W. and J. McManus, 1998,
India: Turning the elephant economy, Independent Business Weekly, 24 June. Business Line, 1998,
Where McDonald s buys its stuff, 15 July. Business Line, 1998, Big Mac woos Indian palates with
homegrown menus, The Hindu, 6 November. Business Line, 1999, Dinner on discount, 25 February.
Business Line, 1999, India: Mac, Disney look out for millennium kids, 29 October. Business Line, 2000,
India-McDonald s shifts to product-focussed ads, 8 September. Business Line, 2000, McDonald s goes for
media splash, 3 April. Business Line, 2001, India: Big Mac sets eyes on the south, 20 February. Chaterjee,
A., 1998, Marketing to the superrich, Business Today (Living Media India Ltd), 22 April. Connect
Magazine, 1998, Worldwide Feedback Form: /Junepgshtml/June98Wwind.html. DeGarmo, K., 1998,
Mulan Happy Meal goes worldwide, The Fort Worth Star Telegram, 16 June. Deshpande, V., McDonald s
goes more Indian : The Ecologist, 1995, Kentucky Fried Chicken protests in India, October. The
Economist, 1997, Spice with everything, 22 November. Happy Birthday, Maharaja Mac! One year later:
McDonald s in India : html. Independent Business Weekly, 1998, Of Swadeshiwallahs and Saffronomics:
India seeks economic salvation in its past, 17 June. India to be McDonald s export base : Jain, S., 2000,
Big Mac to serve highway travelers, Business Standard, 21 July.
10 10 Kadaba, S. L., 1998, Line up for Maharaja Mac, Chicago Tribune, 22 April. Markets Asia Pacific,
1997, Indian market is culturally diverse, 1 January. Masih, A., 1999, McJatia tickles Bombay s taste buds,
builds an empire, all in two years, Rediff Business Special: apr/29jatia.htm. Masih, A., 1999, Jatia forayed
into McDonald s by chance, Part I: apr/29jatia1.htm. Matthew, J., 1997, McDonald s realty proposals in a
jam, Business Standard, 10 February. McDonald s India to invest Rs 7.5 billion : McDonald s plans major
investments in India : McDonald s reworks its menu : Pande, B. and A. Dua, 2000, Big Mac s appetite for
growth, Business Standard, 29 August. PTI News Agency, 1999, Indian board approves foreign
investment including McDonald s outlet, 20 February. Raghunath, P., 1998, VHP may act against
McDonald s outlet, Gulf News (Al Nasir Publishing LLC), 14 April. Singh, N., 1998, McDonald s plans to
move outlets, Indian Express, 27 January. South China Morning Post, 1997, Beefless Mac arrives, 26
January. The Times of India, 2000, McDonalds comes to town, 22 June. The Times of India, 2000, What
next, McDosas?, 9 September. The Wall Street Journal, 1999, Brand names are of equal rank as
productive equipment and very important assets, June.
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