This is the second interview in the series ‘Present and Future of Catering Services in India’. Mr. Amit Jatia, McDonald’s India (West & South), talks to Karan Mude, Senior Correspondent | indiaretailing.com
Q. Why are so many foreign players interested in fast-food retailing in India?
Ans: There has been a new breed of consumers in India which has been increasing rapidly – young, increasingly wealthy, and willing to spend on everything from mobile phones and speakers to French fries.
The eating-out market in India is very big and has a huge potential that is fuelled by what can be termed as a perfect ingredient for any industry – large disposable incomes. The market has been witnessing a marked change in consumption patterns, especially in terms of food. Households in the middle-, upper- and high-income categories have grown significantly. These households have higher disposable income per member and a greater propensity to spend more. There has also been an increase in the number of dual-income households, which has led to more meals eaten away from home.
Eating out no longer marks a special occasion. Not only does the traditional eat-at-home type now prefer to eat out more, he is very demanding too. He wants value for his money in terms of quality, service and variety.
The estimated industry growth in 2006 has been between 25 per cent and 30 per cent.
Q. How has the growth of malls helped in promoting catering services?
Ans: The growth of malls has certainly helped in promoting the market as this facilitates a complete shopping experience for the customer. Factors such as convenience, dining experience, affordability, quality and hygiene all come into play and influence the customer decision. McDonald’s provides all of the above, and some more. Malls allow the customer to choose from a wide range of products to shop from, with the presence of various food and beverage outlets helping extend that choice.
Q. Where will this sector be in India by 2010?
Ans: For Indian retailing, things started to change slowly in the 1980s, when India first began opening up its economy. The textiles sector was the first to see the emergence of retail chains. Later on, Titan, maker of premium watches, successfully created an organised retailing concept in India by establishing a series of elegant showrooms.
For long, these remained the only organised retailers. The latter half of the 1990s saw a fresh wave of entrants in the retailing business. This time around, it was not the manufacturer looking for an alternative sales channel. These were pure retailers with no serious plans of getting into manufacturing. Players like Shoppers’ Stop were entering the market to change the retail scenario in India.
The USD 180-billion (approximately Rs 8,000 billion) Indian retail sector has undergone a complete transformation in recent times. For a long time, the corner grocery store was the only choice available to the consumer, especially in urban areas. This has slowly given way to international formats of retailing. From supermarkets and hypermarkets to department stores and convenience stores and one-stop shops, a retailing wave is currently sweeping the country. From food to music and from apparel to tea and juice bars, companies of all hues are indulging in retail speak. The ‘retail boom,’ about 85 per cent of which has so far been concentrated in the metros, is beginning to percolate down to the smaller cities and towns.
The retail sector in India witnessed significant transformation in the past decade – from small, unorganized, family-owned retail formats to organised retailing. Indian business houses and manufacturers have set up retail formats, while real estate companies and venture capitalists began investing in retail infrastructure. Many international brands entered the market. With the growth in organised retailing, unorganised retailers are fast changing their business models.
Never mind the fact that the organised sector hardly accounts for even two per cent; it has the potential to grow up to 10 per cent over the next 6-7 years.
The Indian retail market is rated the fifth most attractive emerging retail market in the world. By 2020, India is expected to become the fourth largest food retail market in the world. The Indian food retail industry accounts for 10 per cent of the GDP and 8 per cent of the employment of employable adult Indians. As a gradual increase in disposable incomes of the middle and upper-middle class households is seen, the period from 2005 to 2010 is expected to see over US$12 billion being pumped into Indian retail, with almost half of it slated for food retail.
Q. Where do you see yourself in the coming years? What are your plans for the future?
Ans: In the coming years, we will continue to see ourselves as leaders of the food retailing industry. By consistently providing our customers with quality and efficient service, we have managed to stay ahead of the pack for a sustained period of time.
McDonald’s West and South will be focusing at the southern market, and expect to grow exponentially in the region. However, we will also continue to penetrate and increase our presence in the current markets.
This year, McDonald’s will be opening 35 restaurants across India. We have earmarked an investment of Rs 3 crore per restaurant, with the additional cost of real estate. The total cost of investment was around Rs 100 crore in calendar year 2006.
Another focus area, besides providing QSC&V principle, will definitely be to increase the level of convenience for our customers by further expanding and developing drive-thru restaurants.
The development of more drive-thrus through our oil alliances is a natural response to the changing lifestyles of urban consumers. Just a few years ago, owning a car was a dream for most people, but now it has become a reality for many. The purchasing power of consumers has been growing rapidly in India. And with this increased affluence also comes a faster pace of life, wherein people are looking for greater convenience and new lifestyle options. The McDonald’s drive-thru restaurants are, therefore, the perfect dining option for this group of consumers.
While the first decade saw us focusing on building a strong foundation for the business, the next decade will definitely witness expansion of the brand. We will provide more eating-out options to customers, while not losing the focus on our USP – Quality, Service, Cleanliness and Value.
We will continue to build on consumer convenience to ensure that we take the brand from being a ‘special occasion experience’ to being ‘part of the consumer’s everyday life.’
Q. Facts suggest that 70 per cent of the catering service is unorganised, and the prices that they offer are much lower. What will be your pricing strategy in the future?
Ans: It would not be right on our part to comment either on behalf of the organisation or on the functioning of the catering industry on the whole.
We, at McDonald’s, have spent an abundance of our preliminary stages getting systems and backend functioning into place, thus laying the foundation for a successful food retailing chain.
As far as pricing is concerned, we plan to stick to our concept of ‘branded affordability’ – the Rs 20 Happy Price menu, which has been instrumental in helping us penetrate across various markets.
Q. To be able to capture a major share in this sector you will have to penetrate tier I and II cities, which is when the real competition starts between other major players, the unorganised sector, and you! How do you see the competition developing?
Ans: We have been pioneers in the quick-service restaurant (QSR) category in the country. Besides, we already have our presence in tier I and II cities. Depending on the market response, McDonald’s will further penetrate these markets.
There have been a lot of players in the market and the competition is growing at a fast pace. Competition is healthy as it continuously gives us the push to strive for the leadership position. McDonald’s has maintained their leadership position in the last 10 years.
Q. The expansion spree has already started. Major players have started entering the airports. The railway ministry is also considering allowing multinationals in the railway stations. Where do you think this expansion spree will take the industry?
Ans: This expansion will only add to the growth of the market. There will be more players entering the market and the competition will get stiffer. The one good thing about all this is that in the competition, the consumer emerges the winner.
We already have a restaurant at Mumbai Central Station. It only adds to the convenience of consumers and provides them with the choice.
Q. What according to you are the most important things that a player entering this sector needs to do?
Ans: We think the most important thing would be to have the right infrastructure in place for supporting the business.
Prior to launching in the market, McDonald’s set up an extensive cold chain distribution system that involved the transfer of state-of-the-art food processing technology by McDonald’s and its international suppliers to pioneering Indian enterprises who, today, are an integral part of the McDonald’s cold chain.
The right infrastructure as well as understanding the market with a right product mix and pricing strategy, will be some of the important areas one must look at.