Some McNuggets (Nuggets on McDonalds)

by rohit on October 14, 2007

I am going to take up the Internet India market stagnation story (see my Oct 6 post) later. Meanwhile, having partaken of a beverage posting (Oct 2) earlier, now have an appetite for some food, so here goes.

Here is gyaan regarding McDonalds in India and in the U.S. home market. I have drawn on recent interviews in Economic Times & Pitch magazine given by the company’s two master franchisees in India. With inputs also from their website and my own experience with the brand both in India and in the U.S.

I have grown to admire the company for the circumstances and manner in which it has recently revitalised itself in the U.S. market. Am also an admirer of the efficiency and consistency with which they run (the world’s largest) franchise network.

And in India, they are one of few multinationals who got their strategy right first time and they have built a brand with an enviable following.

McDonalds (NYSE : MCD) is the world’s largest single food outlet brand with 30,000 outlets in 100+ countries globally. The company was founded in 1955. McDonalds serve over 52 million customers daily. McDonalds is also the world’s largest franchise chain, with over 70% of above outlets being franchisees. And in the brand rankings of leading consultancy Interbrand, McDonalds has been been in the top 10 global brands.

The company has been under attack in its home market in recent years thanks to the anti-obesity movement. The brand was witnessing stagnant sales.

However, what’s creditworthy is that how well this large, mature organization has been able to pull itself out of the above hole it had got into. In 2003, during a time when I was working out of New York city, McDonalds had announced it’s first ever quarterly earnings loss since it went public in 1965.

However,business has of late been booming, with a healthy increase in same-store sales over the same period of the previous year. There was 5.1% growth in the U.S. in same-store sales in Q3 ’07 over the same period of the previous year.As against this, Pepsi’s Yum Brands, the owners of Pizza Hut, KFC & Taco Bell, saw only a 1% growth during the same quarter. And the stock is outperforming analyst’s expectations.

A revamped menu which includes chicken snack items and breakfast items has helped. Former Chief Marketing Officer Larry Light’s “I’m Lovin’ It” campaign has worked well. The campaign was produced – quite unusually – not in Madison Avenue – but by an office of DDB Worldwide, part of the Omnicom Group, in Unterhaching, Germany, near Munich. This ad outfit was selected after a global contest. The new theme had, as of Oct 2004, already helped contribute to 16 consecutive months of global sales gains after years of declines. In Larry King’s words, it was a consequence of a realization at McDonald’s that “we had to change our voice and let the customers speak for themselves.”

Larry Light was also one of the first marketers to move away from exclusive use of mass media, as early as 2004.His strategy entailed employing many messages instead of one message to reach every one. He called his technique “Brand Journalism” and he said “it’s the end of positioning as we know it”.Some more nuggets on Light’s tenure at McDonalds here.

McDonalds is a QSR or quick service restaurant with focus on Quality, (2000 food,safety & quality checks as it moves from farmhouse to restaurant), safety (72 quality protocols are conducted every day at each outlet), quick service and cleanliness . Under attack in the U.S. in recent years for it’s – alleged – fattening menu, there has been a thrust on nutrition as also on CSR ( corporate social responsibility) initiatives.

The company spends over $1 billion p.a. on training. The employees are trained at the company’s Hamburger University, for which they get credits towards a U.S. university degree.

In India :

They have 121 (here is an update from a feature in Hindu Business Line on Oct 16th) outlets in India, having invested Rs. 8 billion so far. They plan to invest an additional Rs. 3 billion over the next three years for back-end operations i.e. for improving productivity of food processing plants and suppliers,for expanding and testing new formats and for entering new markets.

The company operates through two 50-50 joint ventures between McDonalds Corp and two Indian businessmen. The first is Hardcastle Restaurants in Mumbai which is run by the husband-wife duo Amit & Smita Jatia and which is responsible for all outlets in the Western region. It commenced operations in April 1995.The other JV is Connaught Plaza Restaurats which is based in Delhi and which runs the North region. Here,Vikram Bakshi is the India partner.
The two companies between them employ about 5000 people, with between 60-80 hands per outlet.Every new employee is sent to the stores for four weeks training and goes through the entire rigmarole of duties such as serving people and cleaning the floors ad tables.

The company’s plans include making French fries locally at a plant to be set up in Gujarat by one of its key supplier partners worldwide viz. McCain Foods.An outlet is coming up at Delhi airport, so also at old Delhi railway station. Towns like Meerut, Varanasi, Karnal,Kanpur & Gwalior will see expansion.

Sales (actual numbers are a guarded secret) to kids are down in India, consciously so. Thanks to the junk food and obesity concerns.Kids now account for only 18% of customers down from 33% when the company started ten years ago.This percentage is believed to be the the lowest among all countries where McDonalds operates.

In India the company is fastidious about showing it’s respect for vegetarians as also locals (read Hindus & Muslims). All cheeses and sauces are prepared from veg ingredients. Only vegetable oil is used a cooking medium. No beef or pork are used or served at all. Veg products are prepared in separate utensils and also procured through a separate chain.

Some of the innovations for which Indian consumers know and probably love McDonalds :

  • Low cost products such as the McAloo Tikki & McChicken Grill (just Rs. 20). In fact, the company has consistently followed a value for money pricing.
  • McDelivery (call and you can get their items home delivered).
  • A range of innovative Indian menu items

By itself, each of the above three innovations are not unique. However, in each case, McDonalds was one of the first MNC brands to make such moves in the Indian market – as also succeed at them. Not many MNC brands have launched themselves with value-for-money pricing and created localized products and services right from day one. And McDonalds has been doing such localizations ever since they launched in India over 10 years ago.

A footnote : Localization has been around at McDonalds in other countries too. Euro RSCG CEO George Gallate is quoted in Times of India of Oct 20 as saying that McDonalds learnt the importance of localization the hard way. “When McDonalds tried its one-size-fits-all model, it didn’t get a huge amount of traction in markets like France, China or the Middle East.What the people at McDonalds realised that was that they needed a global brand that was tailored to local markets. So they started selling noodles in China, used beetroots in Australia and put falafel burgers onto the menu in Middle East. They delivered the core of what they stood for – fast food – tailored to local markets”.

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