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Small surprise that both Vikram Bakshi and Amit Jatia, the JV partners of McDonald’s in India (north & east and west & south respectively), vow that the slowdown is not bothering them the least. Instead same store sales have risen 20% y.o.y in January 2009, they say. No wonder a calm serenity pervades McDonald’s cozy corporate office in New Delhi these days, in stark contrast to the air of general gloom (and doom) that serenades most of corporate India and the world. And it’s not just the sun-kissed terrace, colorfull bougainvilleas and shiny red and yellow interiors in this corporate home (yeah! that’s what McDonald’s country offices are called!) that are behind the smiles on the faces of McDonald’s guys here... it’s also the secret knowledge that revenues from India are likely to go up soon, contributing a healthier chunk (than the present 5%) to the burger company’s global revenues. After all, McDonald’s is all set to raise prices over the next three years, simultaneously marking a shift in its India strategy in tune with the times. The new positioning being discussed is to gradually shift McDonald’s decade-old positioning in India from “affordibility” to “convenience”, with a thrust on the new breakfast menu and their McDelivery service. “We also plan to keep our stores open from 7am till midnight enhancing convenience for consumers,” says Vikram Bakshi.
So why the need to shift track now, especially if everything is as hunky dory as they claim? The answer, my dear friend, they tell us, is in the rising input costs over the last year. Given the pressure from their vendors, sources within McDonald’s India confirm that burger-happy consumers can expect a starting hike of at least 5% for almost every Big Mac product, by the second quarter of this year. In fact, the number of products under the Rs.20 tag – Happy Price Menu – have already declined from seven to four, with the food retailers’ new ads communicating the change with the ‘starts at Rs.20’ slogan. Explains Bakshi “McAkloo Tikki burger is our flagship product and that is why it continues at Rs.20.” A smart strategy indeed if one were to take into account the fact that most fast food chains have either already raised/ or contemplating an increase in their prices, in the wake of rising input costs, declining footfalls and a steep rise in real estate costs over the last year. Take Pizza Hut for example. Company sources admit that the dine-in pizza chain has “been disturbed” even in India. Pizza Hut rates have risen almost 40% over the last six months.
So how is it that McDonald’s India can afford to sit back and defer its price rise over three years? The answer to that question is also the solution to the many problems that organised retail in India is facing. It’s all about McDonald’s unique supply chain management that additionally ensures that every McD outlet across the world serves the same taste to flatter its consumer’s platter. Abhijit Upadhye, Director, Supply Chain Management, McDonald’s India believes that transparent relationship with vendors has ensured that price increases can be staggered over the next three years, instead of being implemented at one go. “We are working with our vendors to handle the cost issue,” he explains.
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Source : IIPM Editorial, 2009
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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