Golden Arches Case of Strategic Adaptation Dr Amit Rangnekar NMIMS

Strategic issues addressed Market entry in a developing country with low PCI levels Evaluating market attractiveness Strategic insight into a consummate global marketer Compatibility between product adaptation & local responsiveness (on the one hand) & a global strategy on the other hand Critical assessment of future strategic options, namely aggressive expansion when the operations are yet to attain profitability Framework for assessing Industry / Market attractiveness

Market entry in a developing country with low PCI levels

Evaluating market attractiveness

Strategic insight into a consummate global marketer

Compatibility between product adaptation & local responsiveness (on the one hand) & a global strategy on the other hand

Critical assessment of future strategic options, namely aggressive expansion when the operations are yet to attain profitability

Framework for assessing Industry / Market attractiveness

Case Coverage McDonalds International Corporate Strategy Challenges Attractiveness Strategies- Country Business Plan SCM CSR Marketing Strategy Branding, Pricing, Promotion, Distribution STPD Product Adaptation Performance Future Plans Issues & Realities

McDonalds International

Corporate Strategy

Challenges

Attractiveness

Strategies- Country Business Plan

SCM

CSR

Marketing Strategy

Branding, Pricing, Promotion, Distribution

STPD

Product Adaptation

Performance

Future Plans

Issues & Realities

The Beginning… 1954, Ray Kroc, 52, a distributor of milk shake maker- Multimixer, heads West on hearing about the McDonald Bros hamburger stand in California Seizing the opportunity, he pitched the idea of opening up several restaurants to the McDonald brothers, to sell 8 of his Multimixers to each and every one. "Who could we get to open them for us?" they asked "Well," Kroc answered, "what about me?"

1954, Ray Kroc, 52, a distributor of milk shake maker- Multimixer, heads West on hearing about the McDonald Bros hamburger stand in California

Seizing the opportunity, he pitched the idea of opening up several restaurants to the McDonald brothers, to sell 8 of his Multimixers to each and every one.

"Who could we get to open them for us?" they asked "Well," Kroc answered, "what about me?"

McDonalds-Global Fast Food powerhouse 2004- World’s biggest marketer of fast food 31000 restaurants 120 countries 47 million customers per day Ronald McDonald, introduced 1963, second only to Santa Claus in terms of recognition

2004- World’s biggest marketer of fast food

31000 restaurants

120 countries

47 million customers per day

Ronald McDonald, introduced 1963, second only to Santa Claus in terms of recognition

Philosophy & Vision McDonald's complete commitment to Quality, Service, Cleanliness and Value (QSC&V). " We take the burger business more seriously than anyone else " Ray Kroc " If you've got time to lean, you've got time to clean " Ray Kroc

McDonald's complete commitment to Quality, Service, Cleanliness and Value (QSC&V).

" We take the burger business more seriously than anyone else " Ray Kroc

" If you've got time to lean, you've got time to clean " Ray Kroc

Global Strategy Customer driven, goal oriented Achieving sustainable, profitable growth Designed to increase restaurant visits and grow brand loyalty among new & existing customers Further build financial strength

Customer driven, goal oriented

Achieving sustainable, profitable growth

Designed to increase restaurant visits and grow brand loyalty among new & existing customers

Further build financial strength

Plan to Win Built around 5 key drivers of exceptional customer experiences- People + 4Ps Founded on the belief of 3 success components Operational Excellence Leadership Marketing Innovation

Built around 5 key drivers of exceptional customer experiences- People + 4Ps

Founded on the belief of 3 success components

Operational Excellence

Leadership Marketing

Innovation

Operational Excellence Intent on delivering exceptional experiences to 47 million customers served each day Implement restaurant-specific review policies to identify opportunities to improve QSCV Independent mystery shoppers to evaluate performance & give a customer's perspective Improve speed of service and efficiency Better kitchen organization, front counter and drive-thru areas Emphasize hospitality, accuracy and cleanliness Simplify the restaurant environment

Intent on delivering exceptional experiences to 47 million customers served each day

Implement restaurant-specific review policies to identify opportunities to improve QSCV

Independent mystery shoppers to evaluate performance & give a customer's perspective

Improve speed of service and efficiency

Better kitchen organization, front counter and drive-thru areas

Emphasize hospitality, accuracy and cleanliness Simplify the restaurant environment

Leadership marketing Reconnect with customers thro’ contemporary global marketing direction “i'm lovin' it” “ i'm lovin' it” reflects an attitude we want our employees to embrace & reflect in their service Maximize ad spend impact Broaden reach through PR Deliver global brand message through ads, packaging and restaurant experiences Emphasis on building sales at existing restaurants rather than adding new ones.

Reconnect with customers thro’ contemporary global marketing direction “i'm lovin' it”

“ i'm lovin' it” reflects an attitude we want our employees to embrace & reflect in their service

Maximize ad spend impact

Broaden reach through PR

Deliver global brand message through ads, packaging and restaurant experiences

Emphasis on building sales at existing restaurants rather than adding new ones.

Innovation Evolving to remain relevant to consumers Variety of value, premium & wholesome menus giving more customers more reasons to visit Expanded Happy Meal choices to attract & retain customers Educating people about healthy, active lifestyles, premium Salads < 10 gm fat Wi-fi accessibility when enjoying a Big Mac XP 400 McCafés in 23 countries serving premium & specialty coffees, cakes, pastries inside existing McDonald's restaurants

Evolving to remain relevant to consumers

Variety of value, premium & wholesome menus

giving more customers more reasons to visit

Expanded Happy Meal choices to attract & retain customers

Educating people about healthy, active lifestyles, premium Salads < 10 gm fat

Wi-fi accessibility when enjoying a Big Mac XP

400 McCafés in 23 countries serving premium & specialty coffees, cakes, pastries inside existing McDonald's restaurants

Franchising Always been a franchising Company Franchisees play a major role, approximately 70% of McDonald's businesses are owned and operated by independent franchisees McDonald's remains committed to franchising

Always been a franchising Company

Franchisees play a major role, approximately 70% of McDonald's businesses are owned and operated by independent franchisees

McDonald's remains committed to franchising

Financial Muscle- Y-2002-03 $ 41.5 billion in sales $ 25.7 billion (62%)- sales of franchisees $ 2.1 billion operating profit $ 893 million Net profit Assets- $ 24 billion 8 th Most valuable brand in the world, ahead of Sony, Nokia, Toyota in 1999 Among Top 100 companies worldwide in 2000

$ 41.5 billion in sales

$ 25.7 billion (62%)- sales of franchisees

$ 2.1 billion operating profit

$ 893 million Net profit

Assets- $ 24 billion

8 th Most valuable brand in the world, ahead of Sony, Nokia, Toyota in 1999

Among Top 100 companies worldwide in 2000

Asian Presence 3653 0 0 9 103 184 114 61 233 110 157 105 140 2437 Outlets’97 68 6148 Asia $ 2 Sri Lanka 1998 $ 20 Pakistan 1998 411 46 India 1996 2 105 Indonesia 1991 197 546 China 1990 213 357 South Korea 1988 64 100 Thailand 1985 50 350 Taiwan 1984 49 149 Malaysia 1981 50 236 Philippines 1980 24 130 Singapore 1979 54 216 HK 1975 60 3891 Japan 1971 % Change Outlets’02 Country Entry

Income Distribution in India 165 1 Billion Total >125000 0.006 0.03 Super Rich 50000-125000 0.02 0.14 Sheer Rich 25000-50000 0.07 0.44 Clear Rich 12500-25000 0.25 1.55 Near Rich >12500 0.35 2.18 Rich Total 6000-12500 5 25 Strivers 3000-6000 8 45 Climbers 1000-3000 20 120 Aspirants <600 131 763 Deprived Household Income $ US Household (Mn) People (Mn) Classification

Indian Market Huge Sub-continent 4 times the population of the US Middle Class estimated at 300 Million Per Capita GDP $ 400- but at PPP- $2540 4 th largest economy- ahead of France, Russia,UK, Asia’s 3 rd largest-Behind China & Japan (PPP)

Huge Sub-continent

4 times the population of the US

Middle Class estimated at 300 Million

Per Capita GDP $ 400- but at PPP- $2540

4 th largest economy- ahead of France, Russia,UK, Asia’s 3 rd largest-Behind China & Japan (PPP)

KSA Technopak Survey Eating out sector growing, consumer spend increasing Rs 40000 Cr eating out market growing @ 6% Rs 1500 Cr urban fast food segment growing @ 20% “ McDonald’s is not a substitute for Indian food, it’s just one more option for people to exercise.” Local taste preference- “Indians want a slice of America, but only once in a while. Inflexibility in their product mix could be their undoing.”

Eating out sector growing, consumer spend increasing

Rs 40000 Cr eating out market growing @ 6%

Rs 1500 Cr urban fast food segment growing @ 20%

“ McDonald’s is not a substitute for Indian food, it’s just one more option for people to exercise.”

Local taste preference- “Indians want a slice of America, but only once in a while. Inflexibility in their product mix could be their undoing.”

Indian Market Size of ‘Eating Out’ market- substantial India’s food expenditure- $77 Bn / world $ 4000 Bn (2%) Highly fragmented food market Millions of roadside stalls / carts- major market share Udipi, Sandwich, PavBhaji, Chaats, Chinese, Namkeens, Pizza Organised chains- Narula’s, Wimpys, Udipis

Size of ‘Eating Out’ market- substantial

India’s food expenditure- $77 Bn / world $ 4000 Bn (2%)

Highly fragmented food market

Millions of roadside stalls / carts- major market share

Udipi, Sandwich, PavBhaji, Chaats, Chinese, Namkeens, Pizza

Organised chains- Narula’s, Wimpys, Udipis

Social Diversity 20 major languages, 800+ dialects 50% population literate Advertising-Billboards, Print , Electronic 8 languages for National launch

20 major languages, 800+ dialects

50% population literate

Advertising-Billboards, Print , Electronic

8 languages for National launch

Infrastructure Poor roads Power situation grim even in New Delhi (Capital) and Bangalore (Silicon Valley)

Poor roads

Power situation grim even in New Delhi (Capital) and Bangalore (Silicon Valley)

Political World’s largest democracy Fairly stable governments Armed Forces- Neutral Bureaucratic red tape omnipresent

World’s largest democracy

Fairly stable governments

Armed Forces- Neutral

Bureaucratic red tape omnipresent

Economic Entry & Exits in sectors controlled by Govt MNC restrictions Deregulation since 1991 but socialist / swadeshi mindset continues MPs comment on MNC in consumer sector “ We want computer chips, not potato chips ”

Entry & Exits in sectors controlled by Govt

MNC restrictions

Deregulation since 1991 but socialist / swadeshi mindset continues

MPs comment on MNC in consumer sector

“ We want computer chips, not potato chips ”

Pressure Groups Anti- Western / MNC factions Health activists Environmentalists Animal welfare activists Sons of the soil campaigners

Anti- Western / MNC factions

Health activists

Environmentalists

Animal welfare activists

Sons of the soil campaigners

1991- MNC Invasion Indian economy open to FDI Huge potential Over confidence Faulty Market Research inputs cost dear Major failures, Peugeot closed shop Repositioning & price reduction helped Lack of demand

Indian economy open to FDI

Huge potential

Over confidence

Faulty Market Research inputs cost dear

Major failures, Peugeot closed shop

Repositioning & price reduction helped

Lack of demand

KFC 1 st Restaurant Bangalore, 1995 Excessive MSG levels, outlets closed Restaurant ransacked –1996 Business closed for long periods No major expansions

1 st Restaurant Bangalore, 1995

Excessive MSG levels, outlets closed

Restaurant ransacked –1996

Business closed for long periods

No major expansions

Kelloggs Initial High price Much higher than average Indian breakfast cost + Milk No off take Targeted at family than kids Old habits took very long to change

Initial High price

Much higher than average Indian breakfast cost + Milk

No off take

Targeted at family than kids

Old habits took very long to change

Reasons for failure Low level indigenisation, high costs Lack of understanding of local tastes Over estimation of demand potential Rosy assumptions- Speedy bureaucratic clearances Infrastructural inadequacies Inappropriate strategies- Pricing

Low level indigenisation, high costs

Lack of understanding of local tastes

Over estimation of demand potential

Rosy assumptions- Speedy bureaucratic clearances

Infrastructural inadequacies

Inappropriate strategies- Pricing

Late Indian Entry Closed economy pre 1991 Significant Vegetarian population Limited purchasing power

Closed economy pre 1991

Significant Vegetarian population

Limited purchasing power

India Vision To be India’s &quot; best &quot; quick service restaurant experience - supported by principles and core values

To be India’s &quot; best &quot; quick service restaurant experience - supported by principles and core values

Targeting Markets Initial focus on metros- Mumbai, Delhi Relatively high incomes Exposure to western food & culture Move to smaller satellite towns (Gurgaon, Pune) Positive spillover effects of reputation Jaipur & Agra- To attract foreign tourists

Initial focus on metros- Mumbai, Delhi

Relatively high incomes

Exposure to western food & culture

Move to smaller satellite towns (Gurgaon, Pune)

Positive spillover effects of reputation

Jaipur & Agra- To attract foreign tourists

India-Entry Strategy Wholly owned subsidiary- MIPL Incorporated in 1993 McDonald's opened its doors in India in Vasant Vihar, New Delhi in October 1996 Entered into two 50:50 JVs with Connaught Plaza Restaurants-Vikram Bakshi- North & Hardcastle Restaurants-Amit Jatia- West Trained extensively, along with their Indian management team, in McDonald's in Indonesia and the US before launch

Wholly owned subsidiary- MIPL

Incorporated in 1993

McDonald's opened its doors in India in Vasant Vihar, New Delhi in October 1996

Entered into two 50:50 JVs with Connaught Plaza Restaurants-Vikram Bakshi- North & Hardcastle Restaurants-Amit Jatia- West

Trained extensively, along with their Indian management team, in McDonald's in Indonesia and the US before launch

Product Adaptation Asian product adaptations to local tastes Burgers with Thai Basil- Thailand Teriyaki Burger- Japan Rice dishes- Indonesia

Asian product adaptations to local tastes

Burgers with Thai Basil- Thailand

Teriyaki Burger- Japan

Rice dishes- Indonesia

Product Adaptation-The Indian Challenge Much higher degree of adaptability 40% Vegetarians – Vegetarian selections to suit Indian taste Maharaja Mac replaced Big Mac, Chicken Patty instead of Beef Respect for local culture- Special Indian menu, No beef or pork items in India McAloo burger, Veg Salad Sandwich, McMasala & McImli sauces

Much higher degree of adaptability

40% Vegetarians – Vegetarian selections to suit Indian taste

Maharaja Mac replaced Big Mac, Chicken Patty instead of Beef

Respect for local culture- Special Indian menu, No beef or pork items in India

McAloo burger, Veg Salad Sandwich, McMasala & McImli sauces

Product Adaptation-The Indian Challenge Common Menu- Chicken Nuggets, Fillet-O- Fish, fries, sodas, shakes Garlic free sauces to get in “hard core” vegetarian customers Re-formulated own products using spices favoured by Indians Eggless sandwich sauces, Soft serves & McShakes Freshest chicken, fish and vegetable products Only vegetable oil used as a cooking medium

Common Menu- Chicken Nuggets, Fillet-O- Fish, fries, sodas, shakes

Garlic free sauces to get in “hard core” vegetarian customers

Re-formulated own products using spices favoured by Indians

Eggless sandwich sauces, Soft serves & McShakes

Freshest chicken, fish and vegetable products

Only vegetable oil used as a cooking medium

Menu Development 1998- Menu development team Consumer feedback & research findings Do not entirely localise menu Wider product range More Hot food Low entry level prices Veg Pizza McPuff India-75% localised menu, 33% in Asian countries, Other countries < 5%

1998- Menu development team

Consumer feedback & research findings

Do not entirely localise menu

Wider product range

More Hot food

Low entry level prices

Veg Pizza McPuff

India-75% localised menu, 33% in Asian countries, Other countries < 5%

Restaurant Management System (RMS) 2 separate menus; green- veg, purple- nonveg Separate veg, nonveg kitchens with dedicated staff , preparation and wrapping areas Different uniforms for kitchen crew to distinguish roles Clear segregation: Kitchen staff Printed brochures of RMS to customers Customer kitchen tours to assure

2 separate menus; green- veg, purple- nonveg

Separate veg, nonveg kitchens with dedicated staff , preparation and wrapping areas

Different uniforms for kitchen crew to distinguish roles

Clear segregation: Kitchen staff

Printed brochures of RMS to customers

Customer kitchen tours to assure

International Standards India's local suppliers provide highest quality, freshest ingredients. Adherence to Indian Government regulations on food, health and hygiene, benchmarking with own international standards. Fast, friendly service - the hallmark of McDonald's restaurants world over Stringent cleaning standards, trays sanitised several times each hour. Meticulous attention to cleanliness beyond lobby,kitchen to pavement & area outside

India's local suppliers provide highest quality, freshest ingredients.

Adherence to Indian Government regulations on food, health and hygiene, benchmarking with own international standards.

Fast, friendly service - the hallmark of McDonald's restaurants world over

Stringent cleaning standards, trays sanitised several times each hour.

Meticulous attention to cleanliness beyond lobby,kitchen to pavement & area outside

Family Restaurant The McDonalds XP for the family Focus on kids, gifts galore High chair concept Brightly lit, casual, comfortable & contemporary look Friendly, smiling, fast service Emphasis on cleanliness

The McDonalds XP for the family

Focus on kids, gifts galore

High chair concept

Brightly lit, casual, comfortable & contemporary look

Friendly, smiling, fast service

Emphasis on cleanliness

Value Pricing Happy Meal- Small Burger,fries, coke+ toy Medium Meal Combo- Burger, fries, coke- Veg Rs 75, Maharaja Mac meal- Rs 94 Family dines under Rs 300 (2003) Pricing lower than Pak, SL, 50% lesser than US

Happy Meal- Small Burger,fries, coke+ toy

Medium Meal Combo- Burger, fries, coke- Veg Rs 75, Maharaja Mac meal- Rs 94

Family dines under Rs 300 (2003)

Pricing lower than Pak, SL, 50% lesser than US

Cost Control / Pricing Strategy “Customers attracted purely by these unsustainable but attractive low prices would not pay repeat visits” Development of a low cost supply chain – crucial enabling factor

“Customers attracted purely by these unsustainable but attractive low prices would not pay repeat visits”

Development of a low cost supply chain – crucial enabling factor

Competitive Pricing KFC- Rs 59- Rs 79 ( Burger/KFC, Drink) Chicken, rice, gravy meal for Rs 39 Pizza Hut- Family meal (2 medium pizzas, Pepsi- Rs 350 Wimpys- Mega meals starting @ Rs 35 McDonalds- Value meals @ 39, Quick bites @ 25, Soft serve ice creams @ Rs 8 Even these low prices afforded a 40% margin ‘ I will never become unaffordable, as I’ll then not be able to generate volumes” Vikram Bakshi

KFC- Rs 59- Rs 79 ( Burger/KFC, Drink)

Chicken, rice, gravy meal for Rs 39

Pizza Hut- Family meal (2 medium pizzas, Pepsi- Rs 350

Wimpys- Mega meals starting @ Rs 35

McDonalds- Value meals @ 39, Quick bites @ 25, Soft serve ice creams @ Rs 8

Even these low prices afforded a 40% margin

‘ I will never become unaffordable, as I’ll then not be able to generate volumes” Vikram Bakshi

Widening the Customer Base Surveys indicated “Perceived as Premium” Ensure trials thro’ selective price cutting & periodic promotions Harness the prosperity & feel-good-factor around festivals across regions & religions

Surveys indicated “Perceived as Premium”

Ensure trials thro’ selective price cutting & periodic promotions

Harness the prosperity & feel-good-factor around festivals across regions & religions

Children’s painting competition across cities Maintaining gardens, parks, heritage structures Effluent treatments, Pulse Polio, recyclable paper bags ‘ Litter Patrols’ to ensure a cleaner neighbourhood. Huge donations to Latur/ Bhuj / Gujarat earthquakes Co-Sponsor of Inter-School Science Quiz Competition. 2002, tie up with Nalanda Foundation - education of the underprivileged Girl-Child. Community Partnership / CSR

Children’s painting competition across cities

Maintaining gardens, parks, heritage structures

Effluent treatments, Pulse Polio, recyclable paper bags

‘ Litter Patrols’ to ensure a cleaner neighbourhood.

Huge donations to Latur/ Bhuj / Gujarat earthquakes

Co-Sponsor of Inter-School Science Quiz Competition.

2002, tie up with Nalanda Foundation - education of the underprivileged Girl-Child.

Marketing Strategy Promotional strategy to convey world class xp, Indian adaptations, freshness, nutrition & value Shift from worldwide positioning of drive-in convenience and speedy service Segment- The Young family (<30 years) Target- The young family who eats out Focus- Attracting children, so family follows Positioning- ‘ McDonalds mein hai kuch baat’ – a place for the entire family to enjoy Differentiation- highlighting brand, food & variety Happy meal film on Cartoon Network, Zee Special promotions during festivals

Promotional strategy to convey world class xp, Indian adaptations, freshness, nutrition & value

Shift from worldwide positioning of drive-in convenience and speedy service

Segment- The Young family (<30 years)

Target- The young family who eats out

Focus- Attracting children, so family follows

Positioning- ‘ McDonalds mein hai kuch baat’ –

a place for the entire family to enjoy

Differentiation- highlighting brand, food & variety

Happy meal film on Cartoon Network, Zee

Special promotions during festivals

Get Lucky- Promotional scheme Collaboration with Coke, MTV, Hungama.com, Sony Music & GM Scratch cards on Large combo meals Prizes- caps, tshirts, CDs, internet cards, free tickets to a Lucky Ali contest Purchase of a 2 nd meal in a month qualifies for- Opel Corsa / NZ trip Snags- Neither Lucky Ali contest materialised nor Corsa nor NZ trip- issues of credibility

Collaboration with Coke, MTV, Hungama.com, Sony Music & GM

Scratch cards on Large combo meals

Prizes- caps, tshirts, CDs, internet cards, free tickets to a Lucky Ali contest

Purchase of a 2 nd meal in a month qualifies for- Opel Corsa / NZ trip

Snags- Neither Lucky Ali contest materialised nor Corsa nor NZ trip- issues of credibility

Promo Spends June’00- Rs 10 Crore March’01- Rs 20 Crore- Doubled March’02- Rs 18 Crore March’03- Rs 24 Crore Emphasis on generating repeat visits Positioning changes from “ McDonalds mein hai kuch baat” to “ To aaj McDonalds ho jaaye ” A Shift from ‘ special ’ to ‘ acceptable and enjoyable ’ McDonalds positioned as a comfort zone for young families

June’00- Rs 10 Crore

March’01- Rs 20 Crore- Doubled

March’02- Rs 18 Crore

March’03- Rs 24 Crore

Emphasis on generating repeat visits

Positioning changes from

“ McDonalds mein hai kuch baat” to

“ To aaj McDonalds ho jaaye ”

A Shift from ‘ special ’ to ‘ acceptable and enjoyable ’

McDonalds positioned as a comfort zone for young families

Target Markets Only < 10% population- possible target market “ We want to first concentrate on metros, then open branches in other cities. We want to set up outlets only in cities where we can ensure the quality of products” Vikram Bakshi Phase I- Focus on cities of relatively high incomes where citizens are exposed to western food & culture Phase II- Move to smaller satellite towns (Gurgaon, Pune)- Positive spillover effect of reputation Jaipur & Agra- To attract foreign tourists Phase III- Malls, Multiplexes, Highways, Stations & Airports No plans for South, East, Goa?

Only < 10% population- possible target market

“ We want to first concentrate on metros, then open branches in other cities. We want to set up outlets only in cities where we can ensure the quality of products” Vikram Bakshi

Phase I- Focus on cities of relatively high incomes where citizens are exposed to western food & culture

Phase II- Move to smaller satellite towns (Gurgaon, Pune)- Positive spillover effect of reputation

Jaipur & Agra- To attract foreign tourists

Phase III- Malls, Multiplexes, Highways, Stations & Airports

No plans for South, East, Goa?

Supply Chain Critical for success Local network for supply chain & distribution Local suppliers, distributors to match international quality Operations & training to match international quality and hygiene standards Invested Rs 50 crore in setting up, before opening 1 st outlet By 2000- Investment in supply chain – Rs 300 Crore

Critical for success

Local network for supply chain & distribution

Local suppliers, distributors to match international quality

Operations & training to match international quality and hygiene standards

Invested Rs 50 crore in setting up, before opening 1 st outlet

By 2000- Investment in supply chain – Rs 300 Crore

Cold Chain Integral to Supply Chain Network- Food procurement, warehousing, transportation and retailing under controlled temperatures Cold Chain cuts down on operational wastage Necessary to maintain food temperatures to retain their freshness and nutritional value. Products to be used on a daily basis, stored within a temperature range of –18ºC to 4ºC. 52% food products need to be stored under these conditions before they are used.

Integral to Supply Chain

Network- Food procurement, warehousing, transportation and retailing under controlled temperatures

Cold Chain cuts down on operational wastage

Necessary to maintain food temperatures to retain their freshness and nutritional value.

Products to be used on a daily basis, stored within a temperature range of –18ºC to 4ºC.

52% food products need to be stored under these conditions before they are used.

Supply Chain Trikaya Agriculture – Supplier of Iceberg Lettuce Advanced agricultural practices enabled specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm infrastructure - Specialised nursery, agricultural experts, pre-cooling room, cold room for handling, refrigerated truck for transportation.

Trikaya Agriculture –

Supplier of Iceberg Lettuce

Advanced agricultural practices enabled specialty crops like iceberg lettuce, special herbs and many oriental vegetables.

Farm infrastructure - Specialised nursery, agricultural experts, pre-cooling room, cold room for handling, refrigerated truck for transportation.

Supply Chain Vista Processed Foods JV of OSI Industries-US & McDonald's-India Range of frozen chicken & vegetable foods at world class infrastructure plant at Taloja, Maharashtra. Separate processing lines for chicken and vegetable foods Capability to produce frozen foods even at -35 Degree C temperature to retain total freshness.

Vista Processed Foods

JV of OSI Industries-US & McDonald's-India

Range of frozen chicken & vegetable foods at world class infrastructure plant at Taloja, Maharashtra.

Separate processing lines for chicken and vegetable foods

Capability to produce frozen foods even at -35 Degree C temperature to retain total freshness.

Supply Chain Dynamix Diary , Baramati Supplier of Cheese Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein, whey protein and humanised baby food Supplier to McDonalds & Nestle

Dynamix Diary , Baramati

Supplier of Cheese

Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein, whey protein and humanised baby food

Supplier to McDonalds & Nestle

Supply Chain Amrit Food Milk and Milk Products for Frozen Desserts Installed capacity of 6000 lit / hour for producing homogenised UHT (Ultra High Temperature) processed milk and milk products.

Amrit Food

Milk and Milk Products for Frozen Desserts

Installed capacity of 6000 lit / hour for producing homogenised UHT (Ultra High Temperature) processed milk and milk products.

Supply Chain Radhakrishna Foodland Distribution Centre- Specialises in handling large volumes, provide entire range of services like procurement, quality inspection, storage, inventory management, deliveries, data collection, recording & reporting. Effective process control for minimum distribution cost 1-stop shop for food distribution management services. Dry / cold storage facility to store/transport perishables at temperatures up to - 22 C

Radhakrishna Foodland

Distribution Centre- Specialises in handling large volumes, provide entire range of services like procurement, quality inspection, storage, inventory management, deliveries, data collection, recording & reporting.

Effective process control for minimum distribution cost

1-stop shop for food distribution management services.

Dry / cold storage facility to store/transport perishables at temperatures up to - 22 C

Supply Chain Cremica Industries , Philaur, Punjab- Working with McDonald's European suppliers to develop technology & expertise allowed Cremica to expand businesses from baking to provide breading & batters to McDonald's India & other companies.

Cremica Industries , Philaur, Punjab-

Working with McDonald's European suppliers to develop technology & expertise allowed Cremica to expand businesses from baking to provide breading & batters to McDonald's India & other companies.

Dilemma “ In some cases, Indian suppliers had the technology - but no market for the products they produced besides McDonalds”

“ In some cases, Indian suppliers had the technology - but no market for the products they produced besides McDonalds”

Geographically diverse sourcing Buns from North Chicken & Cheese from West Fish, Lettuce & Pickles from South 98% paper, locally sourced French fries imported from Indonesia 40 suppliers in the chain

Buns from North

Chicken & Cheese from West

Fish, Lettuce & Pickles from South

98% paper, locally sourced

French fries imported from Indonesia

40 suppliers in the chain

Local Sourcing Committed to local sourcing from suppliers and farmers. Restaurants constructed using local architects, contractors, labour and maximum local material content Relationship mutually beneficial as supplier gets opportunity to expand business, access to latest technology, exposure to advanced practices and the ability to grow or export.

Committed to local sourcing from suppliers and farmers.

Restaurants constructed using local architects, contractors, labour and maximum local material content

Relationship mutually beneficial as supplier gets opportunity to expand business, access to latest technology, exposure to advanced practices and the ability to grow or export.

Distribution Dedicated Matching supplier production with deliveries to meet schedules & restaurant needs 2 centralised distribution centers at Mumbai & Kochi, each capable of catering to 25 outlets Aim to enhance quality of storage operations Emphasis on economies of scale-storage volumes high

Dedicated

Matching supplier production with deliveries to meet schedules & restaurant needs

2 centralised distribution centers at Mumbai & Kochi, each capable of catering to 25 outlets

Aim to enhance quality of storage operations

Emphasis on economies of scale-storage volumes high

Interaction with suppliers & logistic firms to ensure optimum stocking QIP (Quality Inspection Program)- Quality checks at 20 points in the supply chain movement HACCP (Hazard Analysis Critical Control Point) Food safety standards emphasizing prevention of faults than detection thro inspection “ With a Cold Chain in place, there is practically no need for a knife in the restaurant. Chopping & food processing is done in the plants. Restaurants are confined to only the actual cooking” Amit Jatia Distribution

Interaction with suppliers & logistic firms to ensure optimum stocking

QIP (Quality Inspection Program)- Quality checks at 20 points in the supply chain movement

HACCP (Hazard Analysis Critical Control Point) Food safety standards emphasizing prevention of faults than detection thro inspection

“ With a Cold Chain in place, there is practically no need for a knife in the restaurant. Chopping & food processing is done in the plants. Restaurants are confined to only the actual cooking” Amit Jatia

Logistics to move RM to restaurants AFL logistics- 50:50 JV between AirFreight & FX Coughlin of USA- McDonalds international logistics partner AFL responsible for temperature-controlled movement of all products from suppliers to distribution centers Distribution

Logistics to move RM to restaurants

AFL logistics- 50:50 JV between AirFreight & FX Coughlin of USA- McDonalds international logistics partner

AFL responsible for temperature-controlled movement of all products from suppliers to distribution centers

Inculcating a Service Orientation Physical logistics important to retain food freshness “ The truck drivers had to be explicitly and specifically conveyed not to switch off the truck’s ignition to save on fuel & electricity as the refrigeration system also automatically shuts off. We installed trapping devices to log temperature charts through the entire journey” Amit Jatia

Physical logistics important to retain food freshness

“ The truck drivers had to be explicitly and specifically conveyed not to switch off the truck’s ignition to save on fuel & electricity as the refrigeration system also automatically shuts off. We installed trapping devices to log temperature charts through the entire journey” Amit Jatia

An Employer Of Opportunity Employer of opportunity, providing quality employment and long-term careers to the Indian people. Average McDonald's restaurant employs 60-80 people from crew to restaurant manager. World class-training inputs to 2000 employees in Mumbai and Delhi annually.

Employer of opportunity, providing quality employment and long-term careers to the Indian people.

Average McDonald's restaurant employs 60-80 people from crew to restaurant manager.

World class-training inputs to 2000 employees in Mumbai and Delhi annually.

Export Base Indian Cheese & Lettuce exported- Sri Lanka, Hong Kong & UAE Plans to export to Russia, EU, SE Asia “ Things are becoming global in nature. Once you set up a supply chain in a strategic location, it can service other countries as well.” Amit Jatia

Indian Cheese & Lettuce exported- Sri Lanka, Hong Kong & UAE

Plans to export to Russia, EU, SE Asia

“ Things are becoming global in nature. Once you set up a supply chain in a strategic location, it can service other countries as well.” Amit Jatia

Past Performance 51 Nov 2003 46 Dec2000 13 Del, 10 Mum, Pune, Jaipur 25 Mid 2000 8 Del,6 Mum 14 End 1998 6 Million customers (2002) 3.5 Lacs Maharaja Macs 50% revenues from veg menu 40000 customers daily (2003) No of transactions grow @ 15% Average spend / customer Rs 45 (2002) 4 Del, 3 Mum 7 First 12 months Milestones Place Out lets Period

6 Million customers (2002)

3.5 Lacs Maharaja Macs

50% revenues from veg menu

40000 customers daily (2003)

No of transactions grow @ 15%

Average spend / customer Rs 45 (2002)

Indian XP In 1997 consumers classified food as bland By 2000, it was sought for its taste Most popular- Veg pizza Mcpuffs (Samosa + Pizza ingredients) Chicken Mcgrill (with extra tangy Indian spices)

In 1997 consumers classified food as bland

By 2000, it was sought for its taste

Most popular-

Veg pizza Mcpuffs (Samosa + Pizza ingredients)

Chicken Mcgrill (with extra tangy Indian spices)

Growth Strategies Increasing seating capacity Adding Birthday party areas Enter new ‘A’ cities- Ludhiana, Ahmedabad, Baroda- lower spending power , population density ISBT terminal Delhi Airport & Railway station- Mumbai & Jaipur Highways & Petrol Pumps Malls & Multiplexes- Lower outlet investment than traditional

Increasing seating capacity

Adding Birthday party areas

Enter new ‘A’ cities- Ludhiana, Ahmedabad, Baroda- lower spending power , population density

ISBT terminal Delhi

Airport & Railway station- Mumbai & Jaipur

Highways & Petrol Pumps

Malls & Multiplexes- Lower outlet investment than traditional

Points to Ponder Would customer profile on highways & railway stations be appropriate Would they generate enough traffic Dispersed outlets- effective catering? Expanding too fast? Break even ? Successful in developing supply chain & creating a satisfied customer base, opportune time to expand

Would customer profile on highways & railway stations be appropriate

Would they generate enough traffic

Dispersed outlets- effective catering?

Expanding too fast? Break even ?

Successful in developing supply chain & creating a satisfied customer base, opportune time to expand

CEO Speak “ Meticulous planning went in before opening a restaurant. It took us 6 years to open our first outlet because we carried out a detailed survey, then identified the local sources, closely studied the Indian food habits and tastes, before taking the plunge.” “ We have been very careful with regard to our expansion plans. McDONALD’s currently operates 50 fast food restaurants in India. We are satisfied with the progress in India so far and want to take the total number of restaurants to 100 by 2006” “ McDonald’s fits in neatly with the multiplex culture as our restaurants provide a bright and cheerful ambience and a pleasurable dining experience for the family. McDonald’s has so far invested Rs 500 crore in its operations in India. This figure would be raised to Rs 800 crore by 2005.

“ Meticulous planning went in before opening a restaurant. It took us 6 years to open our first outlet because we carried out a detailed survey, then identified the local sources, closely studied the Indian food habits and tastes, before taking the plunge.”

“ We have been very careful with regard to our expansion plans. McDONALD’s currently operates 50 fast food restaurants in India. We are satisfied with the progress in India so far and want to take the total number of restaurants to 100 by 2006”

“ McDonald’s fits in neatly with the multiplex culture as our restaurants provide a bright and cheerful ambience and a pleasurable dining experience for the family.

McDonald’s has so far invested Rs 500 crore in its operations in India. This figure would be raised to Rs 800 crore by 2005.

The Compliment “ McDonald’s products sold in India have been Indianised & produced in accordance with Indian tastes & preferences. Hugely popular products like aloo-tikki burger are now being exported to the Middle East where too they have proven to be a big hit. These evolved products are being studied closely in western countries” “ On any given day, McDonald’s restaurant at Doraha near Ludhiana on NH 1, serves up to 2000 customers which is as good as a restaurant in Connaught Place” “ We want the right location, right size for a 150 seat restaurant & the right deal which does not involve subletting of the premises. In Chandigarh, we find most commercial properties rented out or embroiled in disputes. We don’t want to get involved in any such deal”

“ McDonald’s products sold in India have been Indianised & produced in accordance with Indian tastes & preferences. Hugely popular products like aloo-tikki burger are now being exported to the Middle East where too they have proven to be a big hit. These evolved products are being studied closely in western countries”

“ On any given day, McDonald’s restaurant at Doraha near Ludhiana on NH 1, serves up to 2000 customers which is as good as a restaurant in Connaught Place”

“ We want the right location, right size for a 150 seat restaurant & the right deal which does not involve subletting of the premises. In Chandigarh, we find most commercial properties rented out or embroiled in disputes. We don’t want to get involved in any such deal”

MIPL- points to ponder Investment / outlet excluding real estate- Rs 3 Cr Jun 2003, 50 outlets, Planned- 80 outlets by end 2003 30 additional outlets = investment > 100 Cr Area, Location, Size, Seating- Crucial but expensive Scale back expansions by 20% to 64 outlets in India, close 250 outlets in emerging markets Can lead to delayed Break-even as huge investments in supply chain, branding, infrastructure Figures NA Recent lackluster financial performance of parent Critical juncture in evolution

Investment / outlet excluding real estate- Rs 3 Cr

Jun 2003, 50 outlets, Planned- 80 outlets by end 2003

30 additional outlets = investment > 100 Cr

Area, Location, Size, Seating- Crucial but expensive

Scale back expansions by 20% to 64 outlets in India, close 250 outlets in emerging markets

Can lead to delayed Break-even as huge investments in supply chain, branding, infrastructure

Figures NA

Recent lackluster financial performance of parent

Critical juncture in evolution

Urban Indian Fast Food Market-03 (Estimated 1500 Cr)

MCIL Today “ We’ve established ourselves firmly in the mind of the consumer. Now is the time to expand and extend the brand in whatever manner we can” Vikram Bakshi

“ We’ve established ourselves firmly in the mind of the consumer. Now is the time to expand and extend the brand in whatever manner we can” Vikram Bakshi

Reaching Out Gunning for volumes through home delivery Extend reach at home, malls, food courts, multiplexes, highways , area with heavy footfalls (metro, stations, bus stands) Kiosks stocked with beverages, desserts Limited menu restaurants offering most popular fare Consumer reach minus expenditure of a full restaurant

Reaching Out

Gunning for volumes through home delivery

Extend reach at home, malls, food courts, multiplexes, highways , area with heavy footfalls (metro, stations, bus stands)

Kiosks stocked with beverages, desserts

Limited menu restaurants offering most popular fare

Consumer reach minus expenditure of a full restaurant

Home Delivery Home delivery in Mumbai & Delhi outlets to areas within 15 minutes Extreme action for a company that prides itself on trashing anything that remains in the ‘ bin’ for longer than 8 minutes . Slowly waking up to the fact that every player in the eating out sector in India door delivers . McDonald’s only delivers in Indonesia & Egypt . Traffic, parking issues deter consumers due to heavy traffic where McDonald’s are located as a matter of strategy.

Home delivery in Mumbai & Delhi outlets to areas within 15 minutes

Extreme action for a company that prides itself on trashing anything that remains in the ‘ bin’ for longer than 8 minutes .

Slowly waking up to the fact that every player in the eating out sector in India door delivers .

McDonald’s only delivers in Indonesia & Egypt .

Traffic, parking issues deter consumers due to heavy traffic where McDonald’s are located as a matter of strategy.

Increasing Operational Excellence Footfalls up 25% per outlet per day “ We’ve reached a stage where operational excellence is going to drive the growth from now on. So the focus is back on training , which had taken a back seat due to the needs of rapid expansion in the last few years. We’ve increased the number of managers who are going back to training, and are sending more senior managers abroad to gain international exposure ,” Bakshi.

Footfalls up 25% per outlet per day

“ We’ve reached a stage where operational excellence is going to drive the growth from now on. So the focus is back on training , which had taken a back seat due to the needs of rapid expansion in the last few years. We’ve increased the number of managers who are going back to training, and are sending more senior managers abroad to gain international exposure ,” Bakshi.

Strategic Analysis SWOT Trend Analysis Performance Key Uncertainties Key Certainties

SWOT

Trend Analysis