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McDonaldization in India

Conference Paper · September 2008

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 McDonaldization in India
The case by:
Neeti Kasliwal,
Associate Profesor,
Banasthali Vidyapith,
Jaipur Campus,
Email: neetikasliwal@gmail.com

Synopsis
The main theme of the case is dealing with the marketing and branding initiatives taken by
McDonalds to have a strong holding in India. The company has Indianized its product
offerings and have gelled so well with Indian tastes that it is no longer considered an
American brand. If one thinks of indigenous fast food, the first name that comes to the mind
is McDonalds.

Learning objectives:
There are primarily three learning objectives;
1. How the company justified the glocal approach?
2. How the company has changed the perception of consumers from the tag of junk food
to healthy food?
3. Will the company be able to sustain its positioning in this ever demanding and
fiercely competitive Indian market?
 Abstract
McDonaldization in India

Though “glocal” initiative is the norm of the day, it is not as simple as its derivation
(global+local). It brings in its own set of opportunities and problems for the companies. Over
the past few years many multinational companies have forayed into Indian market with
glocal approach and have achieved tremendous success. One of the pioneers in this approach
is McDonalds in India.
The following case study deals with the strategic marketing initiatives taken by the company
in terms of indigeniouzation of brand building and promotion strategies in Indian market
where there is no set formula or pattern to entice consumers. There are some of the important
lessons to be learnt from McDonalds which the future marketers might find useful to have a
glocal vision in the market. McDonald's worldwide is well known for a high degree of
respect for the local culture. Localization of ingredients and communication, yet cultivating
an international image are some of the reasons of success of this fast food chain in India.
But during the past few years, McDonald’s globally had become the symbol of everything
wrong — junk, fast, alien and fattening food. But the company has changed this perception
through its product offerings with local flavours and achieved its mission- “To be India’s best
quick service restaurant experience supported by principles and core values.”

“ Your company does not belong in markets where it cannot be the best.”
-Kotler on Marketing

“The basis of McDonald's success is serving low-priced value-oriented product fast and
efficiently in clean and pleasant surroundings.”

-Ray Kroc, Former Senior Chairman

"We've been distracted from running great restaurants by our growing complexity."

- Jack Greenberg, former CEO of McDonald's in 2001.

"The world has changed. Our customers have changed. We have to change too."

- Jim Cantalupo, former chairman and CEO of McDonald's in 2003.

INTRODUCTION

With faster communication, transportation and financial flows the world is rapidly shrinking.
The development of the web, the rapid spread of cable and satellite TV around the world and
the global linking of telecommunication networks have led to a convergence of lifestyles. The
convergence of needs and wants has created global markets for standardized marketing mix
on one side and has also led to adapted marketing mix on the other side, where the company
has to adjust its marketing program according to the target market. For many companies
global branding has been both a blessing and a curse. If not designed and implemented
properly, it may ignore important differences in consumer behaviour in the individual
countries. Companies with vision and good judgement achieve excellency in international
marketing. Consumer behaviour dramatically differs across markets. To be successful in
foreign market, a firm must understand what makes those markets different from its domestic
markets. But understanding differences is only the first step. The firm must then tailor its
marketing strategy to fit the special characteristics of these new markets. In general
companies that are successful at international markets are patient, flexible and willing to
compromise to meet the needs of their foreign partners and customers. Great brands
understand the fine balance between making the familiar new, and the new familiar. The key
to "being" global is not strictly about offering a product a service which the locals already
have, rather leveraging the familiar in order to create something innovative like aloo tikki
burger or tandoori pizza!

One company that has these qualities is McDonalds, a global fast food powerhouse which is
having 31000 restaurants worldwide in 120 countries serving 54 million customers per day. A
figure that is considerably higher than the population of countries like South Africa, South
Korea, Spain and Canada, to name a few. Ronald McDonald introduced in 1963, is second
only to Santa Claus in terms of recognition.
MCINDIA- COMING OF MCDONALDS IN INDIA
A Locally Owned Company

McDonalds India, a wholly owned subsidiary of McDonalds India Private Limited (MIPL)
incorporated in 1993. The company opened its door in India in Vasant Vihar in New Delhi in
October 1996. McDonald's India is a joint-venture company managed by Indians. In Western
India, Amit Jatia’s company, Hardcastle Restaurants Private Limited owns and manages
McDonald's restaurants. In Northern India, McDonald's Restaurants are owned and managed
by Vikram Bakshi’s Connaught Plaza Restaurants Private Limited. Amit Jatia and Vikram
Bakshi are responsible for running McDonald's in India.

Local Sourcing Is Key for Truly Indian Products

Around the world, McDonald's traditionally operates with local partners or local
management. In India too, McDonald's purchases form local suppliers. McDonald's
constructs its restaurants using local architects, contractors, labour and – where possible –
local materials. McDonald's hires local personnel for all positions within the restaurants and
contributes a portion of its success to communities in the form of municipal taxes and
reinvestment.
McDonald's sources food products form local companies. Fresh Lettuce comes from Pune,
Delhi, Nainital and Ooty; Cheese form Dynamix Dairies, Baramati, Maharashtra; fresh Buns
from Cremica, Phillaur, Punjab and Mrs. Bector and Sons, Khopoli, Maharashtra; Sauce from
Bector Foods, Phillaur, Punjab and Hindustan Lever Limited-Best Foods Division, Thane,
Chicken Patties, Vegetable Patties, Pies and Pizza McPuff ™ from Vista Processed Foods,
Taloja, Maharashtra, Dairy Products from Amrit Food, Ghaziabad, UP.

Setting Up Of an Extensive Food Chain

McDonald's and its international supplier partners worked together with local Indian
companies to develop products that meet McDonald's rigorous quality standards. These
standards also strictly adhere to Indian Government regulations on food, health and hygiene.
Part of this development involves the transfer of state-of-the-art food processing technology,
which has enabled Indian businesses to grow by improving their ability to compete in today’s
international markets. For instance, 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 provide breading and batters to McDonald's India
and other companies. Another benefit of expertise in the areas of agriculture allows
McDonald's and its suppliers to work with farmers in Ooty, Pune and Delhi and other regions
to cultivate high quality lettuce. This includes sharing advanced agricultural technology and
expertise like utilisation of drip irrigation systems that reduce overall water consumption and
agricultural management practices, which result in greater yields.
In some cases, the Indian suppliers had the technology - but no market for the products they
produced. For example, Dynamix Dairies – through its relationship with McDonald's – was
introduced to a large consumer to supply milk casein and other milk derivatives. The two
companies entered into a business relationship resulting in an initial export order of
approximately US $12 million per year – with the potential to increase. McDonald's local
supply networks through Radhakrishna Foodland to get products from various suppliers to
restaurants in Delhi, Mumbai and other parts of India. This is because along with the front-
end operations, McDonald's also has to establish and manage the back-end cold chain -- the
strength of which is the key to its success.

Quality, Service Cleanliness & Value

The McDonald's philosophy of QSC&V is the guiding force behind its service to the
customers. McDonald’s India serves only the highest quality products. All McDonald’s
suppliers adhere to Indian Government regulations on food, health and hygiene while
continuously maintaining their own recognised standards. All McDonald’s products are
prepared using the most current state-of-the-art cooking equipment to ensure quality and
safety. McDonald's India has a relentless focus and profound commitment to food safety.
Food safety is an integral part of their daily restaurant operations. The company’s total food
safety programs lead the industry and exceed the stipulated regulatory requirements in the
country.
At McDonald’s, the customer always comes first. The company provides fast friendly
service- the hallmark of McDonald’s that sets its restaurants apart from others. The
restaurants provide a clean, comfortable environment especially suited for families. This is
achieved through their stringent cleaning standards, carefully adhered to. The menu is priced
at a value that the largest segment of the Indian consumers can afford. McDonald’s does not
sacrifice quality for value – rather they leverage economies to minimise costs while
maximizing value to customers.

Current status

McDonald's has about 123 restaurants in India of which 72 are in North & East India and 51
in West & South India and is planning to increase the number of outlets in India to 220 by the
end of 2008. McDonald's company executives said the company was planning an expansion
at the rate of 50 to 60 new outlets every year, doubling the number by the end of 2008. The
company will invest about Rs 500 crore (Rs 5 billion) in the next two-three years and of this
Rs 100 crore will be invested in the eastern sector. While 40 per cent of the net investment of
Rs 500 crore will be in investment of the brand, the remaining 60 per cent will be directed
towards back-end operations.

GLOCAL INITIATIVES TAKEN BY THE COMPANY

Respect for the Indian Customs and Culture

“Even though the Indian outfit stuck to its core taste that grew on consumers from 'bland' to
'unique' in three years, with no change factored in by the fast-food chain, McDonald's menu
still was about 75% different from its global menu."

- Vikram Bakshi, MD, McDonald's Delhi.

"The Indian palate is very definitive -people are extremely finicky and choosy, not too willing
to experiment. Food tastes vary from region to region. To capture the market, we had to
localize flavors."

- Gautam Advani, Chief of Marketing, Domino's Pizza

McDonald's worldwide is well known for the high degree of respect to the local culture. The
company’s Asian product adaptation to local taste includes burgers with Thai basil in
Thailand, Teriyaki burger in Japan, Rice dishes in Indonesia. The company has developed a
much high degree of product adaptability in India to tackle Indian challenge. The Indian
menu is 75% localized whereas its 33% in other Asian countries and just less than 5% in
other countries.
Various initiatives taken by Mc Donald’s India which are unique, like introduction of local
menu formulated by a Menu development team in 1998 which resulted in Mc Aloo Tikki
burger which has become the largest selling burger for the chain in the country, Pizza Mc
Puff and Mc Veggie. The company also conducted an extensive consumer research, which
further resulted in Indianize product offerings. The research found out that the company
should not entirely localize the menu and but rather offer wider product range and more hot
food, and should have a low entry level prices.

Further the Indianized menu also became instant hit for exports. McDonalds India is
currently exporting three million units of these products combined to European and Middle
Eastern markets. The company is expecting to double the exports to six million by 2013.
McDonalds also says that its Indian suppliers are able to pick up bigger margins from
exports. International food chain companies are constantly customising the menu and looking
for exports from India. Over all analysts say 20 per cent growth is expected in the exports of
Indian menu for global consumers in next five years.

Since 40% of consumers are vegetarian, so McDonald's has developed a menu especially for
India with vegetarian selections to suit Indian taste and culture. Keeping in line with this,
McDonald's does not offer any beef and pork items in India. So Maharaja Mac replaced Big
Mac, which has chicken patty instead of beef, McAloo burger, Vegetable Salad sandwich,
Mcmasala, and McImli sauces. The fast food giant also offers garlic free sauces, eggless
sandwich sauces, egg less soft serves and Mcshakes to get in “hard core” vegetarian
customers and offering a larger variety to the vegetarian consumers. The cheese and cold
sauces used in India is also 100% vegetarian. Also in India, only vegetable oil is used as a
cooking medium. Only the freshest chicken, fish and vegetable products find their way into
our Indian restaurants.

McDonald's has also re-engineered its operations to address the special requirements of a
vegetarian menu known as restaurant management system (RMS). Two separate kitchens for
vegetarian and non-vegetarian preparations that have separate staff, equipments and utensils
for preparation and wrapping items. Employees in the vegetarian and non-vegetarian sections
of the restaurants can be identified by the different coloured aprons that they wear. This
separation of vegetarian and non-vegetarian food products is maintained throughout the
various stages of procurement, cooking and serving. The company organizes customer
kitchen tours to assure the quality and values are respected and very well understood by them.
McDonalds has a completely different profile in India compared to the US. McDonald has
positioned itself as a family restaurant in India. The interiors are brightly lit, casual,
comfortable and have a contemporary look. Lot of emphasis is on cleanliness. The company
harness prosperity and feel good factor around festivals seasons across regions and religions.
The advertising focus of McDonald's revolves around the food appeal and the emotional link
with McDonald's. It also attempts to bring out the `fun' element attached with McDonald's. Its
advertising track whether it is McDonald's mein hai kuch baat, To aaj McDonald's ho jaaye '
to I ‘m lovin’ it, shows the focus of the company- global branding with local communication.

MCNUTRITION INITIATIVES: AN APPROACH TO CHANGE THE

PERCEPTION.
McDonald's - From Obese Fast Food Grease Joint to Healthy Sophisticated Food Joint

Today's lifestyles are increasingly busy, people are eating out more often. That’s why
McDonald's continues to provide customers with the choices and information they need to
help them meet their lifestyle needs. The company has provided nutrition information for
menu items in a variety of convenient formats-- at their restaurants through Nutrition Facts
brochures, product wrappers, on the backs of tray liners or right in the nutrition information
area of their website. Icon and bar chart graphics on McDonald's food product packaging
provides nutritional guidelines for calories, fat, protein, carbohydrates and sodium based on
the government's daily-recommended allowances.

McDonald's India is making a conscious attempt to do away with the `burgers and fries' only
tag. Said Mr Vikram Bakshi, Managing Director, McDonald's India, "We want to break away
from the perception that McDonald's offers products only for kids and teenagers. We realise
that we are a family restaurant and want to be relevant to the entire family”. Therefore,
McDonald's began offering roti wraps - a break from the burger format - to cater to health-
conscious adults.

Health experts from around the world - including the World Health Organization, the U.S.
Surgeon General and the American Dietetic Association - agree that no single factor is
responsible for the increasing rates of overweight and obesity in adults and children. Rather,
the causes are complex and fuelled by many factors. Among these are genetics, cultural
issues, economic factors, excess food consumption and today's increasingly sedentary
lifestyles. Health experts also agree that the key to maintaining a healthy weight is getting the
right balance between your energy (calorie) intake from what you eat and the amount of
energy you burn off with physical activity.
McDonald's helps play a role in providing this balance. Their Happy Meals supply important
nutrients that growing kids need, including calcium, iron, vitamin C, and other vitamins and
minerals. The Dietary Guidelines for Americans recommend that children get at least 60
minutes of moderate physical activity, including active play, most days of the week.
Unfortunately, many children fall short of this goal. At McDonald’s, they strive to make their
Play Places a fun, safe environment for active play such as climbing, jumping, crawling, and
running.

Over the years, McDonald's has partnered on nutrition education programs for kids with
organizations such as the American Academy of Paediatrics, the American Dietetic
Association and the Society for Nutrition Education. In addition, they have long-standing
global sponsors of the FIFA World Cup and Olympic games and supporters of national
events such as McDonald's All American High School Basketball and Soccer Games, as well
as numerous children's sports and fitness programs at the community level. The company
also launched a contest to recruit mothers for three day paid field trips where they will be
given access to the farms where their fresh ingredients are grown, to their world-class
suppliers and to their restaurants.
To help motivate and engage children in physical activity, McDonald’s has recently
developed a unique physical education curriculum—Passport to Play to support balanced,
active lifestyles in the U.S. and around the world. Teachers, physical activity experts, district
curriculum directors, and experts at Baylor College of Medicine in Houston reviewed the
curriculum. It is supported by the United States Olympic Committee and the National
Association for Sport and Physical Education and will be used by PE teachers in 31,000
elementary schools across the country. With the guide and materials is provided by the
company, approximately seven million children in grades 3–5 will learn about and play
games from 15 countries around the world, including Australia, Congo, France, Mexico,
India and the Netherlands.
To counter criticism that fast and junk foods contribute to obesity and other health problems,
the company has no doubt gone the farthest with the healthy food trend, offering an “adult
happy meal,” which consists of a salad, fruit parfait, and stepometer to keep track of the
amount of steps taken in a day and a brochure that promotes walking. The company also
created a website called GoActive.com to educate children and parents about healthy
lifestyles and physical activities.
The company is cutting the amount of "bad" fat in its french fries nearly in half, as it moves
to make all its fried menu items healthier. McDonald's have started using the new oil which
will reduce the amount of trans-fatty acids in its french fries by 48 percent and cut saturated
fat by 16 percent, which are chemically produced from vegetable oil, and saturated fats,
which occur naturally, are what significantly contribute to high cholesterol and heart disease.

On a query related to the growing heath concerns, the company emphasized that “the
consumer gets what he wants in McDonald's chain”, says Vikram Bakshi, MD McDonalds
India. By which he meant that though people might claim to be health conscious but the
moment they step out of their house they don't want bland salads to be served to them.
Though as a chain they were trying to address the issue, by reducing fat content in many of
their products. “Customers also may choose from a number of serving sizes for our
sandwiches, French fries, Chicken McNuggets, Chicken Selects and beverages”, he says.

FUTURE LESSONS

"People didn't know about the menu and as a result, KFC was regarded as a restaurant
serving chicken-All this was simply because of the word chicken."

-Pankaj Batra, Kentucky Fried Chicken's Marketing Manager

There is no question that the Indian Market is really different in many ways from other
markets. Price sensitivity is one of the issues. It has very different distribution channels.
Retailing is also very different. But most experts in India agree that experience is the next
step, even in this country. Over the next ten years or so, one will see more and more parity in
product quality, making it difficult for marketers to differentiate purely on the basis of
product. Service is already an important issue in this market, and experience will be the next.
But experience also includes things like packaging, how the company website is designed and
many other things. Since India is very heterogeneous country, people here and their
consumption patterns differ from one region to another. So it is important to address the issue
of localising the marketing appeal. Just as many times it is important to localise in the global
market, it is important to localise within the broad based market like India to deal with
different preferences, cultural lifestyles and even different languages. To do so one must keep
certain things constant and customise other.

The same has been done by McDonalds in India. Basically the brand identity remained the
same - name, visual appeal, logo. But the way they have done experiential outreach - whether
it’s an event or promotional activities or even communications and advertising in order to
relate to the customer more closely is remarkable. Though the chain adheres to all the basic
principles (like QSC&V) set by McDonalds globally, it has adapted many things in India,
which is one of main reasons for its success in the country.
Some of the important lessons learnt from McDonalds India are balance standardization and
customisation, embrace integrated marketing communications, understand similarities and
differences in the global branding landscape and leverage brand elements to build brand
equity.
McDonalds doesn't believe in a strong fixed positioning. McDonalds take different meanings
in different countries. It serves different versions even in different places within each country.
McDonald is a glocal brand which is available globally but marketed locally. Even though
customers are aware that it is a global brand but when companies make it a glocal brand, the
customer feel close and develops a sense of belongingness, and it is this, rather than its
universal availability, that enhances its equity.

According to industry experts, for any multinational food retailers in India, it is imperative to
have 30% localization and 70% global content, or rather, a ‘global brand with a local heart’.
And that’s what McDonalds is all about.

It is rightly said that, "a brand is said to have personality, an emotional bond to the customer
that grows out of the perceived characteristics." Through its recent advertisement theme "I'm
Lovin' it", McDonald's have succeeded in developing an emotional bond between McDonald
and its customers across 100 countries. Therefore any effective & well-managed brand can
add tremendous value to its customers only when it is communicated effectively.
Moreover looking at the fact that the Indian market has a young population and one with a
lot of disposable income, “time” is one of the commodities, which is becoming more and
more scarce, which has implications for the fast food business. Owing to the paucity of time,
the consumer is looking at 'convergence', i.e., he is looking at combing many of his activities,
like, ‘shopping + entertainment + food’, and which means the restaurants have to be present
in places where this kind of convergence is taking place. And one will find a McDonalds
restaurant in such places in India.

McDonalds in India has also discovered markets away from megacities, Pune, Ahmedabad,
Vadodara, Ludhiana, Jaipur, Noida, Faridabad, Doraha, Manesar and Gurgaon, Mathura, the
inhabitants in these places themselves are discovering a newer and faster lifestyle. A study
by A C Nielson-ORG Marg has shown that there are small pockets of big spenders even in
smaller towns. In fact, the surprise finding of this research agency is the level of ownership of
certain high-priced consumer durables such as laser discs, home theatres and MP3 Players is
higher in small towns than in larger metros. There are other factors too, which are leading
these companies to expand away from megacities. These companies are confident that in
these cities there is a dramatic shift in lifestyle trends, a substantial increase in the disposable
incomes, a burgeoning of Indian middle class, mushrooming of consolidated entertainment
complexes, exposure to newer cuisines, etc. In fact, with an increase in the disposable income
and the propensity to spend, a similar surge is evident in semi-urban areas. Cable television
and frequent visits to bigger cities have made the customer in these smaller cities aware of the
big brands creating a latent demand waiting to be fulfilled. Analysts believe that in smaller
towns, the aspiration levels are very high and people adopt new international brands very fast.
So any company to sustain its profitability and market share cannot afford to neglect smaller
towns.

OUTLOOK

Globalisation has affected almost every aspect of life in almost every nation. From economic
to social to culture, this widespread exchange of goods, services and ideas have influenced
changes around the world. Even though the cultural influence in globalization is of slight
significance to policy makers, its power has tremendous consequences to the nations involved
and its people. Food is an important element in defining culture. Britannica (2007) “Food is
the oldest global carrier of culture.” (Para.1) Any changes in the foods that we eat, in its
preparation, the way it is served and consumed diminishes the traditional beliefs of the
people.
One of the most influential changes came with the introduction of fast food restaurants like
McDonald’s into diverse cultures around the world. According to William Gould (1996),
before the introduction of McDonald’s overseas “fast food was almost unknown. McDonald’s
was the first company to try to export America’s love of fast food and changes in eating
habits of other nations.”
Many issues of food culture and globalisation lead to transformations that are either
perceived as beneficial or corrupting to that culture. As a result of these transformations,
some changes are embraced by the population while other changes are seen as a threat to the
way of life that has been established for centuries. Some are adverse to the idea of
globalisation as a hole and perceive McDonald’s as a representation of this ideal and hold
them responsible. But for many, introduction of McDonald's has been positive. With the
advancement of technology and communication the world itself seem to be moving at a faster
pace. The advent of fast food into foreign cultures allows the opportunity to keep up with this
fast pace. Culture is ever changing and thus McDonald's marks another step in the evolution
of culture with the changes it has brought about. Their menu has given people a new choice
over the traditional foods eaten in the past.
McDonald's India, a locally owned company, is now 11 years young. This vibrant decade has
seen this international company evolve Indian menus, Indian sensitivities and yet remain as
globally innovative as ever. The journey has seen McDonald’s adapation to the cultural and
economic differences of Indian society and develops a rich brand identity amongst its
customers, employees as well as partners alike. And till date all are saying, “I ‘M LOVIN’
IT!”

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