kfc_vs_mcdonald

7/31/2019 KFC_Vs_Mcdonald

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What's Cooking?

Both companies have begun an ambitious expansion strategy in India, powered by breakneckinvestments. KFC will add 50 restaurants to its existing 120 by the year end.

The company's ambition is to operate 500 restaurants in India by 2015. It has invested $100 millionto date. Plans are afoot to invest another $120 million.

McDonald's is no less ambitious. The company is targeting 1,000 restaurants by 2020. It opened 33

new restaurants last year. Hardcastle Restaurants, which runs McDonald's in the south and westand recently bought out the joint-venture stake of the parent company to become a licencee, plansto open up to 70 stores next year, says vice-chairman Amit Jatia. It will be the franchisee's biggestexpansion in the past 15 years. McDonald's also plans to invest Rs 1,000 crore to boost growth.

Vikram Bakshi, managing director of Connaught Plaza Restaurants that has a joint venture withMcDonald's in the north and east, says he is not worried. "Even if they [KFC] come right next to usthey do that often they realise they gain nothing." he says, Jalandhar outlet continues to beone of McDonald's' highest selling restaurants. Still, Bakshi admits to gaps in the pool of products.

"To their Zinger, we've had our Spicy Burger. [But] I don't have to tell you how worried they

were...they had to call their Zinger Hot Zinger," he chuckles. Jatia, however, sought to play downthe contest between the companies. "We compete with everybody in the market."

Niren Chaudhary, managing director of Yum! Restaurants India, which operates KFC, Pizza Hutand Taco Bell in the country, shared a similar sentiment. He pointed to the "gigantic" potential of theIndian restaurant industry. "The branded restaurant business is estimated to be less than 2% of thetotal industry," he says. That is piecemeal for an industry estimated at Rs 43,000 crore and growingat 5-6% a year. The organised segment is estimated at Rs 8,500 crore and growing at 20% a year.

Thought For Food

The National Restaurants Association of India views the market with the same rose-tinted glasses.India's 1.2 billion people are getting richer and eating out more, it said in a report last year. "With the

increase in disposable incomes of the average Indian consumer, the market size and potential ofrestaurants are expected to further grow."

Shushmul Maheshwari, CEO of research firm RNCOS, says the food consumption pattern of urbanIndian families have changed dramatically with the growing influence of western culture. "Indianshave started dining out and have moved on to accept different varieties of delicious food from theworld." As if on cue, plenty of restaurant chains, including Starbucks, Hooters, Burger King andGrand Canyon Coffee, are betting on India.

Given the impending entry of rivals, KFC and McDonald's seem to have combined the luck and skillneeded to be in the right place at the right time. The development in many cities of the infrastructureneeded for fast food to flourish, including malls with food courts and highways with drive-through

locations, has been a big help.

Today, after 15 years in India, both chains say with confidence that they have put fast food on theIndian menu. From modest beginnings KFC was forced to shut shop a year after it entered Indiain 1995 while McDonald's 100th restaurant took 10 years since its entry in 1996 they areexpanding fast, selling a broad range of foods wherever paying customers may be found.


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That includes rural areas and small towns, the unlikeliest of places for burgers and crispy chicken toflourish. Colonel Sanders and Ronald McDonald have made their way to airports, railway stations,BPOs and even SEZs. They have also taken root along the highways.

"There is a significant spring in their step now," says Arvind Singhal, managing director, TechnopakAdvisors. Piping Hot

They are also making money. KFC's Chaudhary says the company has grown nearly two times in

the past four years. McDonald's says its south and west offshoot has turned profitable. Theoffshoot's revenues grew at a compounded 35% in six years. The north and east division isdoubling turnover every three years. Both their investments will be funded through internal accruals.

Bakshi says McDonald's has finally reached a "takeoff point". Chaudhary says the market is readyonly now and KFC has the advantage of just starting out in India. Never mind that it took 16 years.Their optimism stems from a burgeoning population short of time and flush with money whofrequent hotels, restaurants and malls. Likewise, half the population is 25 years or younger. Theyare the target consumers for both KFC and McDonald's.

RNCOS' Maheshwari says the varied demographics in India present a big opportunity for fast-food

business. "Every age group represents a separate market Indians below 14 years of age aremore than the total population of most of the emerging markets."

The new markets look just as promising. McDonald's is considered the poor man's meal in theWest, but in India's small towns, the company's executives are pleased that it holds a halo ofaspiration around it. "In B-towns, people come to McDonald's as if on an outing in large numbersand in their best attire," says Bakshi.

Still, some analysts have chafed at the snail-paced growth of the fast-food giants in India."Hundred-odd outlets in 15 years is minuscule," says Singhal. "They have underestimated India'spotential and over-hyped the challenges." He says the opportunity was there 15 years ago. "I wouldhave gone to eat a burger 15 years ago."

he growth of the two chains in India is the polar opposite of that in the US. According to financialservices company UBS, three-quarters of Americans already live within three miles of a McDonald'soutlet. Two-thirds live within three miles of a KFC.

"They have not been able to expand yet as the majority of the population in India still prefer home-prepared food to fast food," says Maheshwari.

Trouble Ahead

Local rivals, meanwhile, are chomping at their tail. Restaurants such as Bikanerwala and Haldiram'shave learned to sell traditional road-side cuisine and dishes in a clean and hygienic environmentthrough modern-format setups. A clutch of ethnic fast-food chains such as Jumbo King and GoliWada Pav of Mumbai, Kaati Zone of Bangalore, Ashrafilal Kulfi and Honest Pav Bhaji of

Ahmedabad too is bracing for a fight.

There is also the threat of Domino's Pizza, which has emerged stronger after initial hiccups, andother MNC rivals such as Subway, Papa John's, Texas Chicken, Chilli's Grill & Bar and Cinnabon.Domino's runs 392 stores across India as of June 2011. Ajay Kaul, chief executive officer ofDomino's, says the company will continue to expand the store footprint. "Even in existing cities,there are opportunities for opening more stores."


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For their part, McDonald's and KFC say the slow-paced progress was intentional. "What we havedone in these 15 years is getting our model right, from the menu to pricing to the viability of thebusiness," says Bakshi. KFC's Chaudhary says one has to be careful against getting misled by the"1.2 billion number". "The macro-economic environment in India is far better now than it ever was,"he says.

Restaurants, they say in unison, are unlike other retail businesses. For one, the infrastructure isboggling. And the chains are willing to wait out to open a restaurant at a prime location. McDonald's'first shop in Delhi did not come up at the central Connaught Place but at Basant Lok.

Pinakiranjan Mishra of Ernst & Young, a consultancy, gives the companies credit for the caution."They have spent years looking at the price points and the fare in India. They have understood themarket."

That's not to suggest the future is bright. Besides competition, the restaurant business in India isalso fraught with troubles. Supply remains iffy in small towns and rural areas while the cold chaincontinues to be patchy. KFC and McDonald's are known for fattening products. India is no differentand the scrutiny will only increase in future. Rentals and real estate prices continue to escalate andcould take a take a toll on liquidity. There has been no letup in commodity prices in recent months.

Loyalty is not one of the virtues of the teenager, the target consumer of these companies. The restare finicky, to put it mildly. During the initial years, McDonald's' service time averaged 75 seconds.Today, it has improved ito 58 seconds. But the customer thinks "we've become slow", says Bakshi.

And both restaurant chains sorely miss skilled people.

In this setting, industry watchers predict an interesting fight between the two rivals. Besides theirnewfound affinity for breakneck expansion, they share a similar growth strategy. They plan to fillgaps in metros and flock to emerging towns. KFC is present in Kochi and McDonald's is studyingthe market there. McDonald's will launch a dessert called McFlurry in September. Its dessert menuappears thin while KFC serves three varieties, including sundaes.

Bakshi says McDonald's holds huge advantages over KFC. "Our entire logistics and backend allowus to keep prices at a certain level." Truth is KFC has managed to keep prices on a par with its rivalon most of its fare. For now, the verdict among experts is overwhelmingly in favour of McDonald's.Future Brands MD and CEO Santosh Desai says McDonald's has got it right from the beginning."They have been careful to portray itself as a family restaurant."

Maheshwari says McDonald's has been faster in understanding the Indian market. "KFC is stillperceived as a non-vegetarian restaurant."

Still, KFC has hit the ground running in India after its re-entry in 2003. Its 100th store came up inChennai's T Nagar in 2010 while McDonald's took 10 years to reach the milestone.

"India is a land of infinite opportunities. They [McDonald's] are chasing their own destiny and weours," says KFC's Chaudhary.

Regardless of how they fare, experts say the upshot of the competition will be fast food becomingcommonplace in India, a fact of modern life, though Singhal says it will take a great deal of doing todislodge the samosa in India. A McSamosa then? Yes, if it is on a tray off the counter and wrappedin paper.

kfc_vs_mcdonald

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