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McDonalds Ongoing Marketing Challenge: Social Perception in India

This case was prepared by Dr. Smita Kulkarni (University of Miami) and Dr. Walfried Lassar (Florida International University) with assistance from Chandan Sridhar (Florida International University) and Akhila Venkitachalam (Aditya Birla Centre, London Business School) as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of a management situation. Copyright 2009. All rights reserved. No part of this case study may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without written permission of the authors.

A Story Began.. It was a busy day at the Mumbai Central Station in India, marked with the usual rush of passengers. A large group of passengers was ready and anxiously awaiting to board their respective trains. Porters in their red uniforms were seen carrying baggage to help the travellers. Food vendors, bookstalls, newspaper sellers... It was a mini marketplace. A family with two kids arrived in an air conditioned car two hours earlier then their scheduled departure. After they entered the train station, the humid weather, the typical odour at the railway station and the crowd made them uncomfortable. With a bored look, the children looked around and suddenly shrieked with joy. Excited, they indicated a sign to their parents. It was the Golden Arch of McDonalds. Smiling, the family entered Ronalds place, McDonalds, for a great time before they boarded the train. They were sure that that the experience would be wonderful like the ones they had during their earlier visits to McDonalds at other locations in India and abroad. In the Indian Railways Food Plaza at Mumbai Central, McDonalds stood apart from its other competitors. It promised and delivered the customers an entirely different experience. This experience was way different from that of other fast food chains serving in Mumbai and other parts of India. The perceived value of the customers about McDonalds was high as the evidence of cleanliness, quality and sophistication of service made a lasting impression on their minds. They were Indian customers who considered McDonalds as a symbol of the American culture. Availability of McDonalds in their country reflected the beginning of globalization which had brought in western brand influences into the Indian markets. The impressive aspect was that the intangibles of the fast food service had made the maximum impact on the customers. The Indian customers had always seen the kitchen doors of the other restaurants with a sign Restricted Area or For Employees only. Now in McDonalds, they were able to see the operations and hence the conviction in the QSC Quality, Service and Cleanliness was quick and lasting. McDonalds represented America world wide and was an American icon like basketball and Coca cola. The Indian market welcomed western brands. Irrespective of the diversities, Indian culture had always embraced newer cultures and absorbed them within itself. McDonalds initiative to adopt the burger to meet the Indian taste was widely appreciated. In this case, one could visualize the transformation of Big Mac to Maharaja Mac. Introduction McDonalds restaurant in Delhi In 1996, McDonald's opened in India for the first time, a country where the majority of the population was Hindu and vegetarian, and the cow was sacred. Many saw it as just another example of the relentless spread of Western corporations into every nation, creating a global system in which wealth was drained out of local economies into the hands of a very 2
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few, very rich elite. McDonalds opened its doors in India in October 1996, demonstrating what the McDonalds experience was all about. McDonalds in India was a 50-50 joint venture partnership between McDonalds Corporation (U.S.A.) and two Indian businessmen. Amit Jatias company, Hardcastle Restaurants Pvt. Ltd., owned and operated McDonalds restaurants in Western India, while Connaught Plaza Restaurants Pvt. Ltd., headed by Vikram Bakshi, owned and operated the North Indian operationsi. These companies signed their joint-venture agreements with McDonald's in April 1995 and along with their Indian management team trained in McDonald's restaurants in Indonesia and the U.S.A. before opening the first McDonalds restaurant in India. The entry of McDonalds in India was perfectly timed. The market had begun to open up. The economy of the country was growing stronger. The customer markets were eager to acquire newer products and use newer forms of services. Foreign brands were valued and perceived to be superior in quality. According to a report of AC Neilson, among the worlds consumers, Latin Americans and Asians were the biggest supporters of globalisation and the value that it added to the various aspects of their livesii. It was a favourable situation for McDonalds because at the time when they entered, India, the Asian Tiger was awakening to the global call. The Indian customer was enthusiastic about the market situation which provided them with numerous choices to choose and pick. In a way McDonalds revolutionized the food retailing business in India. It introduced the Indian customers to service standards which were available in the western world for years. These service standards were visible and noteworthy and hence triggered quick acceptance within the customers. McDonalds positioning in India as a family restaurant further fuelled its success. India as a market was a unique example of diversity. Divided into 28 states and 7 union territories, the vegetation, climate, religion, language, clothing, and food varied from one state to another. With the combination of spices in a unique way, food of these states reflected their traditions and culture. Hence the biggest challenge to any food business in India definitely was about balancing the diversity and the product offerings. McDonalds got clearance from Foreign Investment Promotion Board (FIPB) of India in 1991. But it was only after five years of preparation, that the first restaurant became operational in 1996. It worked on developing local relationships with local partners to facilitate the raw material. Indian companies for their operational convenience had divided the Indian subcontinent into four zones, the progressive West, the powerful North, the traditional and culturally rich, South and East. McDonalds opened their first restaurant in the capital of India which is Delhi. The second restaurant was opened in the financial capital of India, Mumbai. McDonald initially concentrated in the West and North regions. Later the company exhibited ambitious plans for expansion in Eastern and Southern regions. History McDonald's expansion worldwide was mind boggling. It operated over 31,000 restaurants worldwide and employed more than 1.5 million people. With their presence in more than 3
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119 countries in six continents a global traveler saw them everywhere . This perception was the result of the most extensive, expensive and systematic mass marketing strategy of recent times. The first store opened near Chicago on April 15, 1955. McDonalds since then has expanded phenomenally. McDonald's real influence had been in establishing organizational systems of complete control at every stage from raw product to factory, from worker to consumer - backed by incessant media hype. McDonald's had been a successful global food corporation at refining, co-coordinating, standardizing and developing such processes into a total system. It had set up these practices in every country it had moved into, and many other companies followed their suit. What Ford Motor Company did for cars, travel and the urban environment; McDonald's had done for food and eating habits. McDonald's expansion was criticized and resisted by trade unionists, local residents, nutritionists and many others in almost every town and country where they planned a new store - despite their highly developed and expensive marketing effort about being a benefit for the community. They were resisted for what they represented, and remained a focus of controversy. Challenges for McDonalds in India: Vegetarianism: The major issue was beef. Cow being sacred and worshipped, beef could not be served. Muslims did not eat pork. The challenge was to change the form of the worldwide popular Hamburger to make an entry into India. With 25-30% of the population being lacto vegetarian and a large majority eating meat, an alternative to beef and pork was necessary.

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The population of a billion was undoubtedly a promising opportunity for an international company. McDonalds accepted the challenge and created the Aloo Tikki Burger known as McAloo TikkiTM especially for the Indian vegetarian customers. Aloo- Tikki was a potato patty with spices. It also made a chicken and fish option available for the non vegetarians. McDonalds even separated the non vegetarian cooking process and the vegetarian cooking process to convince the customers of the Shudh Shakahari Experience which means pure vegetarian experience. In addition, the crew cooking vegetarian food were asked to wear green apronsiv. McDonalds in India was one of its kinds as it did not offer beef at all. In order to convince and change the perception of the customers about the burgers they offered, McDonalds made attempts to clarify their stand about beef in India. So the world famous hamburger was without meat. This was indeed a classic case of product adaptation, to gain foothold in a new market. Competition from Local Food Retailers: 4
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The competition from the local food retailers was intense. The food retailers had been doing business for years. Their familiarity with the market and the understanding of the local taste gave them a competitive edge. There were numerous eating joints which offered snacks and meals with affordable price tags. Organized food retailing was dominated by the north Indian style and the south Indian style restaurant chains. The metropolitan cities and some developed urban areas offered superior dining experience through the existence of some fine, classic restaurants. But the price was expensive and only a select group of customers could afford to make visits there. On the other hand, the size of the unorganized food retailing was larger and comprised of roadside food vendors, dhabas (the eateries on the highways) and on the outskirts of the cities and a plethora of small eateries. Local food in a large assortment was widely available within acceptable price ranges. It was observed that food choices made by consumers were impulsive. Aroma, taste, habits and visibility worked on the subconscious level and played a major role in affective decision making. The local food business exactly understood the psychology of the customers and operated accordingly. The mass markets in India had their own set of preferences. Target Marketing: Value propositions had to be directed to the right target market to establish a new product. An interesting question was who would eat at McDonalds? In order to develop the marketing strategy, it was important for any company to understand the consumer market. The more one knew and understood about consumers, the more effectively one could communicate and market to themv. Four aspects of consumer behaviour which needed to be examined to understand a consumer market were the ability of the people to buy, consumer needs, buying motives and the buying processvi. The initial attempt of McDonalds was to induce trials and get the customers into the restaurants. Word of mouth and advertising was expected to reveal the experience of eating at McDonalds. McDonalds Value Meal addressed the price sensitivity of the Indian consumer market. However, irrespective of this effort, McDonalds was affordable to select customers only. These were the ambitious middle, upper middle and affluent classes who were keen to combine eating with fun. Children were the major influencers. McDonalds advertisement put forth an attractive proposition to the children segment that played a major role in the decision making as regards the choice of a restaurant. Happy MealTM was used to reflect the fun element of the experience at McDonalds. Happy MealsTM were all about the simple pleasures of childhood, a time of excitement, joy, and being treated special. Each Happy Meal was themed and had on offer, a set of collectible toys from that particular theme. One theme typically was used for duration of 4 6 weeksvii. In this deal the customer got a choice of a burger, a drink and a toy. Happy MealsTM were a huge success. The rising income levels in India increased the disposable income. Fun and entertainment 5
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assumed importance in the financially stable families. McDonalds was perceived to be a fun place with special areas marked for kids, toy gifts and of all the attraction of a burger. Subsequently, McDonald introduced newer menus appealing to the India taste. Children in India preferred a burger over pizza and McDonald, the king of burgers was announced as the number one in a survey titled Indias most respected companies by Business Week in India for Food retailing in 2006viii. Youngsters valued McDonalds for the trendy environment and the joint acted as an interesting meeting place. In United States, two thirds of the business of McDonalds was done at the drive through windowsix. In India, because of unavailability of space and lack of proper infrastructure, the company could not do so. However, home delivery was an area of consideration. In March 2007, McDonalds announced that it would invest about Rs 3 crore (US $0.75 million) over the next three years to strengthen its home delivery services. It launched an all-India single home delivery number 66-000-666 to facilitate this service. In March 2007, the company's Managing Director Mr.Vikram Bakshi said Mc Delivery currently accounts for almost 5 per cent of the overall sales and with the introduction of the new system; the company is looking at a substantial share of 7.5 per cent in the turnover by next yearx. Pricing Food pricing was a sensitive issue in India. An ideal strategy was to focus on customers ability to pay and tap the rich and upper middleclass population in India. Although McDonalds strategy was to increase sales volumes by making products available at affordable price, its products were perceived to be expensive. The company outlets in Delhi and Mumbai initially were opened due to the increased affordability of people with western exposure and brand recognition factors in metros. Additionally, people in the metros were open to experiment with variety of foods. Absorption of newer cultures was faster in the Metros than other areas. The mass markets in India were price sensitive.The positive factors were the growth in consumer markets with rapid growth in disposable incomes, development of modern urban xi lifestyles and the demand for value . Eating Habits Eating out was a special occasion to many Indian families. Meals had been an essential medium for social sharing and relationshipxii.Whenever families decided to eat out, the choices available were abundant. The trend in metropolitan cities was however changing. With more nuclear families and dual income households, the demand for fast and readymade food was growing. The needs of the growing working population stimulated the need for new products and services. Indian culture was relatively new to the use of technology and streamlined process in food service. McDonalds needed to find ways and methods to motivate the customers opt for initial trials and acceptance. The conventional eating pattern of Indians involved breakfast, lunch and dinner. Lunch and dinner menus 6
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were complete meals providing the right balance in terms of nutrition. Breakfast was conventional as per the family culture and upbringing. Burgers were likely to be slotted in the category of snacks. But globally burgers and beverage brands were linked with poor xiii eating habits . The market situation called for focus on the environment within the restaurant and western association. Issues McDonalds had been accused of destruction of vast areas of the rainforest for the production of cattle to produce beef, promoting unhealthy food with a risk of cancer and heart disease, taking advantage of children with its advertising and marketing, and cruelty to animalsxiv. There had been complaints as regards the nutrition, hygiene etc..

Animals Vegetarians and animal welfare campaigners were not too wholehearted about McDonald's xv - for obvious reasons. As the world's largest user of beef , they were responsible for the slaughter of countless cows every year. In Europe alone they used half a million chickens xvi every week, all from windowless factory farms . This meant that these animals suffered great cruelty during their unnatural, painful and short lives, many being kept inside with no access to fresh air and sunshine, and no freedom of movement. A major consideration for the fast food industry was whether it was acceptable for the food industry to exploit animals at all. McDonald's argued that it stuck to the letter of the law and if there were any problems, it would be a matter concerned with the government. Although meat eating had a long history, it was only in recent decades that factory farming and intensive methods had been applied on a vast scale. This mass production process was primarily to benefit the food companies' drive for greater profits, backed by their promotional campaigns. McDonalds corporation was the world's largest promoter of meatbased products, the largest user of beef and the second largest user of chicken. Environment Conservationists had often focused on McDonald's as an industry leader promoting business practices detrimental to the environment. But the company spent a fortune promoting itself as environmentally friendly. They annually produced over a million ton of packaging, used for just a few minutes before being discarded. The environmental effect of the production and disposal of all this needed to be taken into account. Multinational companies operating on such a scale contributed to global warming, ozone destruction, depletion of mineral resources and the destruction of natural habitats. The modern industrial system, with transnational corporations in particular, had callously taken advantage of the natural resources globally, damaging forests and other eco7
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systems, reducing biodiversity, adding to land, and sea and air pollution while adversely affecting the global climate. McDonald's contribution to these were mainly through the effects of cattle ranching (as the world's foremost promoter of a beef-based diet), through the growing and transportation of cash crops, and through the production and disposal of thousands of tons of packaging material. Nutrition and Health One of the most fundamental and enjoyable aspects of the day-to-day lives of people had been eating food of their choice and the circumstances in which it was eaten. For most people this generally meant eating the healthiest possible food (bearing in mind constraints of time and poverty), usually cooked on site and then eaten communally - either in a family or home setting, or with others while at work or in school. But there were rapid changes as the pace and nature of society had shifted. An industrial or service infrastructure increasingly dominated the local neighborhoods and people's lives, undermining existing patterns of human interaction, whether among families, friends, neighbors or in the community in general. Mass-produced, processed food gradually and increasingly replaced fresh and healthy foods in people's diets over the course of the twentieth century. In recent decades, McDonalds capitalized on this situation by promoting quick meals to be eaten outside the home. This change in eating habits brought serious consequences to human relations and health. These consequences sparked a debate about healthy food. They also brought out a whole range of new campaigns and movements dedicated to encouraging healthy eating and healthy lifestyles. Macro environmental factors affected McDonalds, forced it to become defensive, and they had to resort to lip service to try and deflect public criticism. In the health debate, food industry was heavily criticized for creating products that are high xvii in fat, sugar and salt . Health consciousness was rising amongst people with the obesity crisis hitting the world. The concern was serious as it was children who were the most affected. Nutrition and exercise issues which were important and needed to be reviewed earlier, now were considered, discussed, and debated only after witnessing the frightening consequences. Many critics blamed McDonalds like businesses for public health concerns, contending that fast food menus and portion sizes contribute to obesity, diabetes and heart disease and a variety of other diet related problemsxviii. But at the same time, it was worthwhile to note that the type of demand exhibited by the market initiated the processes within the companies. As long as the demand for fast food continued, nutritional issues would continue to be argued and deliberated upon. India also had its own set of so called nutritious and non-nutritious food. People in India appeared to prefer food for its taste. Bhel Puri, Samosas and Potato Wada which were some of the very popular Indian snacks were weak in terms of nutrition. However, a large level of population savored them for the spicy taste ignoring the hygiene and the value in terms of nutrition. Trans- fats and their use in food also had been a major controversial issue. It had been established scientifically that artificial trans- fats were bad for human health. In United States, New York City was the first city to announce a ban on all restaurants from using 8
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artificial Trans fats with the deadline on July 1, 2007. When the legal system imposed bans and developed a regulatory framework, the food industry was compelled to respond. In January 2007, McDonalds picked new Trans fat free oil for cooking its famous French fries xix after years of testing . In view of the health risks and dangers, it was important that food service did not just confine to respond to the basic need of hunger. Food industry was required to innovate and work on introducing healthy eating options and making them available. This would create a situation where the final choice would then be made by the consumers. A healthy lifestyle only would help overcome the health problems gripping the society. Awareness about health needed to be built up and somewhere the responsibility definitely lay with companies which were into the food business. Health concern was a global call and responding to this was the need of the hour. Employment McDonald's Corporation created a global, highly standardized and fast production-line system, geared to maximum turnover of products and profits. McDonald's employed more than a million mostly young people around the world and provided them with work opportunities. The fast food giant helped pioneer employment that was low-pay, non-union, temporary or part-time with few guaranteed rights and conditions. McDonald's worldwide employed over one and a half million workers, over half of them under 21 years old. It had been calculated that a staggering 10% of all workers in the USA got their first job at McDonald's! Outlets like McDonalds provided job opportunities to youngsters in India pursuing their education. The franchisee model of McDonalds was a significant source of employment for many people in India. Sources at McDonalds reported that they were an equal opportunity employer, providing not just employment but long-term careers as well. The average McDonalds restaurant employed as many as 50 people- from crew to restaurant manager. The chain planned to invest in the improvement of supply chain management and new outlets in the country which in turn would generate employment. Advertising and Marketing Initiatives at McDonalds Advertising was known to have an impact on the minds and the hearts of the consumers. But product and the value offered needed to be attractive and powerful to maintain consistency in sales and build customer loyalty. Advertising was the backbone of McDonalds marketing strategy in India. The positioning had been directed towards establishing McDonalds as a family restaurant. Special efforts were made to not allow it to get converted into a typical teenage hangout. Advertisements were created using storylines with focus on emotions. Through a variety of advertisements, the visit to McDonald was portrayed as a special occasion providing excitement and satisfaction to the customers who comprised of families with kids and the youngsters.

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Advertising helped in building brand recall, but advertising alone was not able to sustain the brand. Despite the fact that McDonald's was a fast food chain of restaurants, in India it was positioned as the family restaurant and outlets were called McDonalds Family Restaurant. Extra care was taken to make the restaurants child friendly, by providing play areas wherever possible so that the parents could relax and have a good time while visiting McDonald's. The counters were low, tables were rounded so that children did not hurt themselves in the restaurant and the menus are pictorially depicted so that a child could order a meal without bothering parents. The entire restaurant was attractive and child friendly. When operations in India began, initially McDonalds positioned itself as a place to visit with the baseline "McDonald's mein hain kuch baat" (Theres definitely something about McDonalds) in their advertisements. People were encouraged to try the McDonald's experience. However, over the years, after McDonald's had been hugely accepted by Indian customers, there was a need to evolve the communication strategy and move on from trying to encourage and motivate people to visit for the first time to making McDonald's a regular experience. After McDonalds established itself and people knew what McDonald's was all about, the baseline was changed to Toh aaj McDonald's ho jaye" (Let it be McDonalds for today), which talked about an everyday experience. The objective was to continue positioning McDonald's as a comfort zone for familiesxx. The brands media strategy focused more on the electronic media. The advertising continued to use emotional appeal to display family ties and fun at McDonalds. Indians being emotional found it easier to correlate themselves with such types of emotional messages. Advertisements with audio visual appeal created more impact on the viewers. So McDonalds narrated the fun filled environment at their fast food outlet using electronic media. McDonalds did have enough repeat customers. The customer base increased substantially since they started operations. The strength of McDonald's as a brand in India was that it was the most recognizable brand world over amongst all age groups. It was the Indianization of the brand that helped McDonalds establish in a new market successfully. The brands success was attributed to its promise of a great fun filled experience delivered at its outlets. McDonald's executed promotional campaigns involving children. McDonalds used kids as an entry strategy to the family. World over McDonalds was a family restaurant and children were an integral part of a family. During the last few decades, kids had become the target audience for most categories including consumer durables. In the 1990's, India saw a major shift to nuclear families. When joint-extended families existed, the head of the family made most decisions. In smaller-nuclear families, individual opinions had become more dominant, whether it was buying a refrigerator or a TV or whether it was about eating out. Children were an integral part of the decision making process for buying things and played an influential role. Word of mouth and peer pressure worked effectively for this age group. Children influenced the decisions of parents, and McDonalds realized that this group could no longer be ignored. 10
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McDonalds Happy Meals were often accompanied with Lego toys to attract children and the restaurant maintained several Play-Zones to provide children with a fun experience. The restaurants hosted birthday parties, played latest pop-music hits and became a favorite place even for the new generation of jean-clad Americanized teenagers of India. McDonalds even introduced unusual ice-cream flavors such as bubblegum, green apple and berry to entice the curious youngsters. Using collectable toys, television commercials, promotional schemes in schools and figures such as Ronald McDonald, McDonalds pursued its main target group children. Many parents objected strongly to the influence this had over their own children. McDonalds adhered to all the advertising codes in each country. But some argued that it still amounted to exploitation of children, sponsoring so many school events and learning programs out of publicity, not philanthropy. In view of this criticism, McDonald with some other companies vowed to devote at least half of their radio, print, television and internet advertising to promoting more healthful products and healthy lifestyle. Mary Dillon, McDonalds Chief Marketing Officer said that McDonalds planned to put more emphasis on physical activity in ads and was reviewing how it could use licensed characters. Disney characters were used extensively by McDonalds at one time but the entertainment company decided to allow its characters to push products that met certain nutritional guidelinesxxi. Ethics and Social Responsibility In India, Mrs. Maneka Gandhi, a popular environmental activist and her supporters launched an aggressive campaign against fast food chains which contributed in the destruction of the ecological balance and promoted unhealthy food. To respond to such campaigns, McDonalds launched several pro-green advertisements such as We love Green and funded community related activities including Keep our city clean. McDonalds sponsored Olympic Day Run in 2005 and offered baked potatoes and McCurry Pan instead of fries. As a part of its Corporate-Citizenship strategy and to help its own brand and reputation in India, McDonalds participated in community-related projects targeting children. McDonalds in India hosted interschool arts competition and raised funds for charity on World Childrens Day. The restaurant celebrated Childrens week every year from November 14-20 and tactfully supported educational programs for girl-child to promote goodwill among community organizations who worked towards improving status of women in India. McDonalds also partnered with local health organizations to make India Polio-free by helping to set up Pulse-Polio program to provide free vaccine to children. In November 2006, McDonald's India announced the completion of its annual fundraiser, McDonald's World Children's Week 2006 `Each One Contribute One'. The month-long campaign garnered proceeds for vision correction of the visually and economically challenged children. As part of `Each One Contribute One' programme, Re 1 was contributed on the sales of all meals sold from October 13 - November 20, towards the xxii corrective eye surgeries of the needy children . 11
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According to Mr Vikram Bakshi, Joint Venture Partner and Managing Director, McDonald's India (North and East Region), McDonalds had come a long way since 2002 and the results were encouraging. Over 390 children were treated at the pediatric centre at Dr xxiii Shroff's Charity Eye Hospital with the support of NGO ORBIS . McDonald's did not offer any beef or pork items in India, and even created egg less products for their vegetarian customers. French Fries in India were not beef flavoured as in the US. During popular religious festivals in India, McDonalds introduced more vegetarian selections. Supply Chain McDonalds stated that Rs. 50,000 crore (about U.S. $12.5 billion) worth of food produce was wasted in India, mainly because of the lack of proper infrastructure for storage and transportation under controlled conditionsxxiv. In its commitment to providing quality products while supporting Indian businesses, McDonalds spent a few years setting up a unique supply chain, even before opening its first restaurant in India. McDonalds stated that it was critical to go beyond ones immediate suppliers and customers to encompass the entire chain, since hidden value often emerged once the entire chain was visualizedxxv. Understanding the value to the downstream customer was a part of the supply chain management process. The supply chain connected McDonalds throughout India and made McDonalds Indian.. McDonalds in India focused on making a successful supply chain strategy to implement its QSCV principle (Quality, Service, Cleanliness and Value), pricing flexibility and new product launches from time to time. Local Sourcing McDonald's sourced its requirements from local suppliers and farmers, and maintained its adherence to Indian Government regulations on food, health and hygiene. McDonald's xxvi India purchased more than 96% of its products and supplies from Indian suppliers , even constructing restaurants using local architects, contractors, local material (wherever possible), and hired local personnel for all positions within the restaurants and contributed a portion of its success to communities in the form of municipal taxes and reinvestment. McDonalds described the relationships between itself and its Indian suppliers as mutually beneficial, reasoning that as McDonald's expanded in India, suppliers would continue to get the opportunity to expand their businesses, access to the latest in food technology, exposure to advanced agricultural practices and the ability to grow or to export. Cold Chain The Cold Chain was necessary to maintain the integrity of food products and retain their freshness and nutritional value. The Cold Chain was an integral part of the Supply Chain. Setting up the Cold Chain involved the transfer of food processing technology by McDonald's and its international suppliers to Indian entrepreneurs, who had become an integral part of the Cold Chain. The term Cold Chain described the network for the procurement, warehousing, transportation and retailing of food products under controlled temperatures. McDonalds restaurants stored products to be used on a daily basis, within a 12
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temperature range of 18C to 4C. About 52% of its food products needed to be stored under these conditions before they were usedxxvii. As the ingredients moved from farms to processing plants to the restaurant, McDonald's Quality Inspection Program (QIP) carried out quality checks at over 36 different points in xxviii the Cold Chain system till it reached the customer . Setting up of the Cold Chain enabled McDonalds to cut down on operational wastage. Suppliers Trikaya Agriculture Supplier of Iceberg Lettuce Implementation of certain agricultural practices enabled Trikaya to successfully grow specialty crops such as iceberg lettuce, specific herbs and many Asian vegetables. Initially lettuce was grown only during the winter months, but with McDonald's assistance in the area of agriculture, Trikaya Farms in Talegaon, Maharashtra, were able to grow the crop all the year round. McDonald's provided assistance in the selection of high quality seeds, exposed the farms to advanced drip-irrigation technology, and helped develop a refrigerated transportation system allowing a small agri-business in Maharashtra to provide fresh, high-quality lettuce to McDonald's urban restaurant locations thousands of kilometers away. With this cold chain infrastructure in place, Trikaya Agriculture planned to export this high value product to other international markets, especially to McDonald's Middle East and Asia Pacific operations, and had done shipments to the Gulf successfully It also shipped a large amount of snow peas to Austrian markets. In addition to export, McDonald's assistance enabled Trikaya Agriculture to supply this crop to a number of hotels, clubs, flight kitchens and offshore catering companies all over India. Vista Process Foods Pvt. Ltd. Supplier of Chicken and Vegetable Products As a joint venture with OSI Industries Inc., USA, and McDonald's India Pvt. Ltd., Vista Processed Foods Pvt. Ltd. produced a range of frozen chicken and vegetable foods. The infrastructure at its plant at Taloja, Maharashtra, had: Separate processing lines for chicken and vegetable foods. Capability to produce frozen foods at temperature as low as -35 degree Celsius to retain freshness. International standards, procedures and support services.

Technical and financial support extended by OSI Industries and McDonalds India enabled Vista to set up a better infrastructure and support services. This included hi-tech refrigeration plants for production of frozen food at temperatures as low as - 35 C. This was vital to ensure that the frozen food retained it freshness for a long time and the 'cold chain' was maintained. These products, besides being supplied to McDonald's, were also 13
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offered to institutions such as hospitals, project sites, caterers, corporate canteens, schools and colleges, restaurants, food service establishments and coffee shopsxxix. Dynamix Dairy Supplier of Cheese Dynamix set up a network of milk collection centers equipped with bulk coolers in Baramati, Maharashtra. Easy accessibility enabled farmers to augment their income by finding a new market for surplus milk. The factory had: Fully automatic international standard processing facility. Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein & whey protein and humanized baby food. Stringent quality control measures and continuous research & development.

To encourage the improvements in quality standards and manufacturing capabilities at Dynamix, McDonalds introduced Dynamix to two of its global suppliers Schreiber Foods, USA and Erie Foods, USA. This resulted in a joint venture with one company and an export order from the other company. It also helped Dynamix in acquiring technology to xxx market a large number of high quality, value-added milk products . Amrit Food Supplier of long life UHT Milk and Milk Products for Frozen Desserts to McDonalds Amrit Food, an ISO 9000 company, manufactured widely popular brands - Gagan Milk and Nandan Ghee at its factory at Ghaziabad, Uttar Pradesh. Its plant had: State-of-the-art fully automatic machinery which did not require human contact with product, for total hygiene. Installed capacity of 6000 liters/hour for producing homogenized UHT (Ultra High Temperature) processed milk and milk products. Strict quality control supported by a fully equipped quality control laboratory.

Radhakrishna Foodland Distribution Center McDonald's local supply networked through Radhakrishna Foodland, which operated distribution centers for McDonald's restaurants in Mumbai and Delhi. An integral part of the Radhakrishna Group, Foodland specialized in handling large volumes, providing the entire range of services including procurement, quality inspection, storage, inventory management, deliveries, data collection, recording and reporting. The most important strengths were: A one-stop shop for all distribution management services. Dry and cold storage facility to store and transport perishable products at temperatures up to - 22 degrees Celsius. Effective process control for minimum distribution cost. 14
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The distribution centers focused all their resources to meet McDonald's expectation of cold, clean, and on-time delivery and played a vital role in maintaining the integrity of the products throughout the entire 'cold chain'. Ranging from liquid products coming from Punjab to lettuce from Pune, the distribution center received items from different parts of the country. These items were stored in rooms with different temperature zones and were finally dispatched to the McDonald's restaurants on the basis of their requirements. McDonalds introduced Foodland to F. J. Walkers of Australia, which resulted in an affiliation between the two companies to develop the distribution set-up in India. Buns were sourced from from Cremica in Phillaur, Punjab and Mrs. Bector and Sons in Khopoli, Maharashtra. Cremica Industries worked with one of McDonald's suppliers from Europe to develop technology and expertise, which allowed Cremica to expand its businesses from baking to also providing breading and batters to McDonald's India and other companies. Sauce came from Bector Foods in Phillaur, Punjab and Hindustan Lever Limited-Best Foods Division in Thane, Maharashtraxxxi. Potato Farming in Gujarat In 1991, McDonald's looked for a particular variety of potato to make its French fries. One of McDonalds suppliers, Lamb Weston, invested heavily in setting up production lines to process these potatoes and make the fries. However, the production was discontinued, as the right quality of potatoes could not be sourced. The variety of potato required by McDonalds had to have a certain length, high solids content and low moisture content while the ones that were available were of the tablegrade variety. Nonetheless, as per its initial commitment to local sourcing, McDonald's and its supplier partner, McCain Foods Pvt. Ltd. (the worlds largest French fries company), worked closely with farmers in Gujarat and Maharashtra to develop process-grade potato varieties. Gujarat potato crop was utilized to make McDonalds Chatpatey Potato Wedgesxxxii. McDonald's broke even on operations around December 2003 and expanded to 80 outlets that same year, concentrating on cities where their cold chain facilities had reached. They had ambitious plans for growth in various cities and also on national highways. With the Golden Quadrilateral Highway Project connecting four corners of India nearing completion, highway traffic was expected to increase multifold. This created new business opportunities for marketers who were keen on tapping travelers on the highways. Growth Plans In 2006, McDonalds celebrated its tenth anniversary in India. McDonalds India planned to invest Rs.300 crores- 400 crores (US$ 75 Million - US$ 100 Million) in the next three years to add 100-125 restaurants in the country as against the then existing number of 94xxxiii. 15
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After establishing itself in the Northern and the Western India, McDonalds opened their first restaurant in Eastern India at Kolkata. Out of the total investment, Rs.100 crore (US $ 25 Million) was to be spent to concentrate on the new Eastern region. The focus was on expansion of the brands presence and introduction of new formats. The company adopted a cluster approach to identify key locations in a 500-700 km radius of the city for further expansion. McDonald set up a regional distribution centre in Kolkata. In South India, the company planned to open more stores in one city than one store in many citiesxxxiv. McDonalds partnered with BPCL (Bharat Petroleum Corporation Limited) and HPCL (Hindustan Petroleum Corporation Limited) to set up restaurants targeting the automobile driving consumers. The plan was to set up drive through eateries at the fuel stations. Petroretailing was evolving in India. Petroleum bigwigs proposed to upgrade the service experience to the customers at the gas stations. Partnership with McDonalds was a strategic decision to highlight the value added services. In order to target the shopping mall and cinema lovers, the company setup outlets in new shopping malls and new multiplexes in the countrys metros. In order to tap the potential among the middle-class Indians, the company partnered with railway stations and bus stations. McDonalds also introduced the concept of Litter Patrols where the employees of McDonalds would go around the market every day picking up garbage left behind not only by customers from McDonalds restaurants but also by other visitors in the area, resulting in a cleaner neighbourhood. Future In 2007, a report by McKinsey Global Institute revealed that India would join the premier league of the worlds consumer markets by 2025. With the middleclass growing by 12 times from 50 million to 583 million, the market potential was hugexxxv. Companies with long term plans for the Indian markets needed to understand the hidden potential and prepare themselves to accept the challenge. With 63% of its population in the age group of 15-64 years and 31.8% in the age group of 0-14 years, the opportunities were very attractivexxxvi. In 2006, India achieved an 8.5% GDP growth. The middle class formed the backbone of the Indian market and it was the rising income of young middle class that fueled its growth. 56 million households in India earned US$4400 US $21,800 a yearxxxvii. In its pursuit for better living and improving the quality of life, middle class in India exhibited strong aspirations to grow financially stronger. This key factor made India an active potential market for companies into areas such as food retailing, consumer durables, automobiles etc. McDonalds was very positive on the Indian market scenario. With the parent company making huge investments in supply chain and media communication, the company was 16
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helping the back-end supplier through direct investments in the joint ventures with them. According to Mr.Vikram Bakshi, even when India is the youngest market for the Big Mac in the Asia Pacific region, the penetration it has achieved in the country matches most of the xxxviii countries, where the chain is 20-30 years old . Despite the fact that globally McDonalds slowed down its expansion, there were no restrictions on the Indian operations. This fact revealed the companys perspectives and plans for India. India was identified as one of the top 10 markets for McDonalds. McDonalds India operated around 100 restaurants across the country which includeed 11 drive thru restaurants, a new concept to the Indian market. With 5000 employees working, the company intended to hire another 10,000 to 15,000 people in the next few years. On an average it employed 50 people per outlet, depending upon the seating xxxix capacity . McDonalds strategy revolved around customizing the taste of their menu to suit the Indian palate. Only time would tell if McDonalds localization strategies and positioning as a family restaurant would continue to appeal Indian population. The company faced charges in the US for allegedly using beef extract on its French Fries at Indiaxl. In some states like Gujarat, McDonalds was strongly viewed as a symbol of American Cultural Imperialism. McDonalds was associated with its high prices in India and therefore, expansion outside the metros was unthinkable due to affordability issues. However the company management explained that it was incorrect to perceive McDonalds as expensive. Although the company had done well catering to Indias taste preferences, the countrys regional cultures were so varied that the company needed to bring new products regularly, which was an expensive strategy despite its successful supply chain initiatives. Further a bigger challenge was about translating the McDonalds experience to the Indian masses and maintaining consistency in the delivery of services. Competition from other fast food giants like Pizza Hut, KFC and local food chains was intense on the basis of pricing and the menu. McDonalds India worked with great effort to establish in India. Will the middle class and the affluent continue to favor McDonalds? Would Maharaja Mac expand deeper into the markets of India? Will the global image of a fatty food company affect McDonalds future in India? Will McDonalds continue to succeed in India in the years to come? A story continued..

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References

i ii

McDonalds creating an ecosystem, www.just-food.com www.asiapacific.acneilson.com/news/200060821.html

www.mcdonald.ca/en/aboutus www.mcdonaldsindia .com v Plummer Joseph T., The concept and application of life style segmentation, Journal of marketing, January 1974, p.33 vi Jeanett Jean-Pierre and Hennessey David, Global Marketing Strategies, Biztantra and Houghton Miffin, 2005, page 164 vii http://www.mcdonaldsindia.com/funzone/happymeal.html viii http://www.businessworldindia.com/June0506/index.asp - 06/05/2006 ix McDonalds 24/7, Business Week, The McGraw Hill companies, February 2007, pp 69 x http://www.thehindubusinessline.com/2007/03/16/stories/2007031603340500.htm xi Consumer Markets in India, www.kpmg.fi/Binary
iv

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Visset, Margaret, Food and Culture: Interconnections, Social research, Spring 99, Vol.66, Issue 1, pp 117-130 ,14p xiii Gupta Divesh, Media Asia, 2/10/2006, 0 15-15 xiv The Verdict, http://www.mcspotlight.org/case/trial/verdict/verdict4_sum.html xv BBC.co.uk (2001), McDonalds, http://www.bbc.co.uk/dna/h2g2/A593525 xvi McDonalds and Animals, http://www.mcspotlight.org/issues/rants/animals.html
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xii

Benady David, Precision Marketing, 2/23/2007, Vol. 19, issue 9, p23-24, 2p

Adams, Ronald, Fast Food, Obesity and Tort reform: An examination of industry responsibility for public health, Business and Society review, Blackwell Publishing, 110:3, 297-320 xix McDonald finally picks trans- fat free oil www.cbsnews.com/stories/2007/01/30/business/main2411777.shtml xx Advertising does help in building brand recall, but advertising alone does not sustain a brand", Brand Speak (2004)
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Wall Street Journal www.http://www.wsjclassroomedition.com/advertise/mlbpa/health_foodmarketing.pdf

McDonald contributes for a cause http://www.blonnet.com/2006/11/22/stories/2006112202721200.htm xxiii ibid xxiv A taste of freshness from all over India http://www.mcdonaldsindia.com/supchain.htm
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Supply Chain Overview, http://www.mcdonaldsindia.com/aboutus/supplychain/index.html The Wisdom of Local Sourcing, http://www.mcdonaldsindia.com/locsour.htm and Pooja Kothari, Brand-EquityShaking it Up at McDonalds, The Economic Times, October 13, 2004. xxvii Cold Chain, http://www.mcdonaldsindia.com/aboutus/supplychain/coldchain.html
xxvi

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xxviii

Food Safety & Hygiene http://www.mcdonaldsindia.com/ourfood/quality_hygiene.html

McDonalds Indias Cold Chain (2004), http://www.mcdonaldsindia.com/aboutus/presskit/04%20Cold%20Chain.pdf xxx Dynamix Dairy http://www.mcdonaldsindia.com/aboutus/presskit/09%20Dynamix%20Dairies.pdf Radhakrishna Foodland (P) Ltd. http://www.mcdonaldsindia.com/aboutus/presskit/07%20RKHS.pdf Potato Farming in Gujarat http://www.mcdonaldsindia.com/aboutus/presskit/06%20Potato%20Farming.pdf xxxiii McDonalds India plans to expand in South http://www.blonnet.com/2006/09/15/stories/2006091504191900.htm xxxiv www.hindubusinessonline.com/2007/03/09/stories/2007030905190500.htm xxxv India on course to become fifth largest market by 2025 www.rediff.com/money/2007/may/04india.htm xxxvi CIA Factbook, www.cia.gov/cia/publications/factbook xxxvii Consumer Markets, April 2007 www.ibef.org xxxviii McDonalds gears up for home run http://economictimes.indiatimes.com/News/CompaniesAZ/M_Companies_/McDonalds/McDonalds_gears_up_for_home xxxix McDonalds get set to park at petrol pumps http://economictimes.indiatimes.com/News/CompaniesAZ/M_Companies_/McDonalds/McDonalds_gets_set_to_park_at_ xl Animal Flavouring-McDonalds Indian Arm Says Its Clear, Business Line, March 9, 2002.
xxxii xxxi

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