McDonald’s Expands in India

College of Business – MARKETING DEPARTMENT


Read the case and answer ALL seven (7) questions.

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CASE: McDonald’s Expands in India

McDonald’s Corporation is a fast-food legend whose famous golden arches can be found in 118 different countries. The company is the undisputed leader in the quick-service restaurant (QSR) segment of the hospitality industry, with more than twice the system-wide revenues of Burger King. McDonald’s built its reputation by promising and delivering three things to customers: inexpensive food with consistent taste regardless of location; quick service; and a clean, familiar environment. Today, thanks to memorable advertising and intensive promotion efforts, McDonald’s is one of the world’s most valuable brands. The golden arches are said to be the second most recognized symbol in the world, behind the Olympic rings. In the United States alone, McDonald’s typically spends about twice as much on advertising as Burger King and Wendy’s. Today, however, the company faces competitive attacks from several directions. During the 1990s, a wide range of upscale food and beverage purveyors arrived on the scene. For example, consumers began flocking to Starbucks coffee bars where they spent freely on lattes and other coffee-based specialty drinks. The “fast-casual” segment of the industry that includes companies such as Panera Bread, Cosi, and Baja Fresh is attracting customers seeking higher quality menu items in more comfortable surroundings. Meanwhile, Subway overtook McDonald’s as the restaurant chain with the most outlets in the United States.

Thanks to changing lifestyles around the globe, more people are embracing the Western-style fast-food culture. McDonald’s responded to the opportunities by stepping up its rate of new unit openings. McDonald’s International is organized into three geographic regions: (1) Europe; (2) Asia/Pacific, Middle East, and Africa (APMEA); and (3) Other Countries. The Indian market appears to hold huge potential for McDonald’s. In fall 1996, the company opened its first restaurants in New Delhi and Bombay. In Delhi, McDonald’s competes with Nirula’s, a quick-service restaurant chain with several dozen outlets; in addition, there are hundreds of smaller regional chains throughout India. The U.S.-based Subway chain opened its first Indian location in 2001; Pizza Hut, KFC, and Domino’s Pizza have also entered the market. The Pizza Hut on Juhu Road in Bombay is housed in a three-story-tall building with large plate glass windows and central air conditioning. On most nights a long line of customers forms outside. Indian demand for meals from the major food chains is growing at a double-digit rate; annual total sales exceed $1 billion. With those trends in mind, McDonald’s identifies strategic locations in areas with heavy pedestrian traffic, such as the shopping street in Bandra in the Bombay suburbs. Other restaurant locations include a site near a college in Vile Parle and another opposite the Andheri train station; in all, McDonald’s India operated 208 locations at the end of 2010. Plans call for opening another 40 outlets in 2011.

Prices are lower than in other countries; most sandwiches cost about 40 rupees (less than $1). Drinks cost 15 rupees, and a packet of French fries is 25 rupees. A complete meal costs the equivalent of about $2. Because the Hindu religion prohibits eating beef, McDonald’s developed the Chicken Maharaja Mac specifically for India. Despite protests from several Hindu nationalist groups, the first McDonald’s attracted huge crowds to its site near the Victoria railway terminal; customers included many tourists from across India and from abroad as well as locals commuting to and from work. In short order, however, Hindu activists renewed their protests, this time accusing the company of using beef tallow in its cooking. Since that time, McDonald’s has worked steadily to prove that it is sensitive to Indian tastes and traditions. In addition, to accommodate vegetarians, each restaurant has two separate food preparation areas. The “green” kitchen is devoted to vegetarian fare such as the spicy McAloo Tikka potato burger, Pizza McPuff, and Paneer Salsa McWrap. Meat items are prepared on the red side. Even the mayonnaise is made without eggs. “The tastes of the urban, upwardly mobile Indian are evolving, and more Indians are looking to eat out and experiment. The potential Indian customer base for a McDonald’s or a Subway is larger than the size of entire developed countries.” Sapna Nayak, food analyst at Raobank India said.

In Asia and elsewhere, McDonald’s protects itself from currency fluctuations by purchasing as much as possible from local suppliers. For example, the company’s Singapore locations now buy chicken patties from Thailand rather than from the United States. However, French fries must still be imported from Australia or the United States. To help offset higher costs, McDonald’s offers customers the choice of rice as a side dish at a lower price.

Question 1: Describe the Value Proposition of McDonald’s based on the information provided in the case.                                                                                                                                                  (2 Marks)

Question 2: Use the information provided in the case to suggest a SWOT analysis for McDonald’s.

(2 elements under each category.)                                                                                                (4 Marks)

  Strengths 1. ————————————————————————————————————- 2. ————————————————————————————————————-    Weaknesses 1. ——————————————————————————————————————— 2. ———————————————————————————————————————
Opportunities 1. ————————————————————————————————————- 2. ————————————————————————————————————-Threats 1. ——————————————————————————————————————— 2. ———————————————————————————————————————

Question 3: Which Concept of Marketing among the five discussed in class, is McDonald’s adopting. Justify your answer from the case.                                                                                                  (2 Marks)

Question 4: Referring to the Product/Market Expansion Grid, what strategy is McDonald’s adopting in the Indian market? Justify your answer from the case.                                                    (2 Marks)

Question 5: Discuss two (2) Segmentation Criteria used by McDonald’s in India. Justify your answer from the case.                                                                                                                                    (4 Marks)

Question 6: How would describe the Targeting strategy of McDonald’s? Justify your answer from the case.                                                                                                                                                    (2 Marks)

Question 7: How did McDonald’s adapt its marketing strategy to the Economic and Cultural environment in India? Justify your answer from the case.                                                           (4 Marks)

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