McDonald’s Indian operation is growing fast

Launching of the ice cream McFlurry

McDonald’s is eager to launch an aggressive national campaign for its newly introduced ice cream McFlurry. It wants to push its revenue from Rs.120 crore to Rs.140 crore in its 235 outlets in India. McDonald’s has an annual advertising budget of Rs.60 crore in India. Ice cream market in India is a Rs.2000 crore business and is growing in double digits. McDonald’s is confident of capturing a sizeable market share in this competitive segment. But the problem is that food habits cannot be changed overnight. In USA and European countries, ice cream is taken almost daily by the people as part of their food. In India, ice cream does not form a part of the food (party dinners are an exception). People consume less ice creams in India. This is the reason ice cream market has not grown to a big level in India.

Festival season will help increase sales

McDonald’s already is an established player in ice cream cones. It claims to sell 200 million people a year. Its ice cream cones are priced at Rs.12 and above. McDonald’s has priced McFlurry at Rs.69. It is projecting McFlurry as a dessert and a standalone snack. It has facilitated home delivery of the ice cream. The approaching festive season will help McDonald’s to increase its sales. Kraft Foods has custom-designed its Oreo biscuits for McDonald’s’ one variation of its ice cream. McFlurry is already being tasted in more than 100 countries. McDonald’s restaurants in India open at 7 am and close at 11 pm. McDonald’s has introduced new breakfast menu in Mumbai, Delhi, Bangalore and Pune. Next year, it will be extended to Hyderabad and Chennai.

Furnishing calorie information of food served

McDonald’s is famous for its burgers and fries worldwide. Now McDonald’s is printing detailed information about calorie counts and other ingredient information in all its foods. McDonald’s Indian outlets are the fastest ten growing markets world over. The display of calorie count includes display of level of sodium, vitamin and sugar content on its burgers, fries and puffs on its leaflets, menu, trays, front counters and also in its website. As the habit of eating healthy food is developing across the world, this information will serve many people to decide the quality and quantity of the food they eat.

More nutritional food in the offing

Globally, McDonald’s is also trying to offer healthier food to its customers. Some of its plans are to introduce Happy Meal with apple slices, smaller fries, reducing calorie count of menu items, introducing nutritional food as per medical prescription, reducing sugar level in its food items, reduction of saturated fats, reducing sodium level by 15%, introduction of fat-free chocolate milk as a beverage choice and some other measures in the offing. In India, most of the restaurants do not offer fruit slices as a part of the meal and McDonald’s move is an innovation towards healthier meal. But at the same time, McDonald’s should be careful that the offered fruits do not increase the sugar content. In Australia, s recent survey indicated that drinking fruit juice every day may result in bowel cancer.

Good second quarter results

McDonald’s set up its first restaurant in India in New Delhi in 1996. McDonald’s is competing with its peers KFC and Pizza Hut in India. McDonald’s is the largest food services company in the world with 33000 restaurants in 118 countries. Worldwide, McDonald’s handles 17 lakh workforce. It is well experienced in Human Resources Management. McDonald’s second quarter profit increased by 15%, topping analysts’ estimates. It owed to McCafe beverages that boosted the sales of the company. Net income increased to $1.41 billion from $1.23 billion. In terms of net income per share, McDonald’s registered an increase from $1.13 to $1.35. In USA, McDonald’s sales were boosted by frozen strawberry lemonade, oatmeal, chicken McNuggets, coffee and cold drinks. During non-peak lunch hour, many customers entered McCafe restaurants to drink coffee or cold drinks. Frozen drinks became very popular with the customers. Immediately on announcements of the quarterly results, the shares of McDonald’s rose by $1.80 or by 2.1% to $88.34. In the current year, the share price of McDonald’s increased by more than 10% in New York Stock Exchange.

Cost saving measures

World over, McDonald’s has been struggling against high gas prices. In India, McDonald’s problem is high food inflation. McDonald’s has been taking a host of steps to arrest cost increase like sourcing ingredients directly from the farmers instead of buying through middle men and using energy efficient technologies. McDonald’s is adopting a ‘super heat recovery’ technology whereby hot air generated by the air conditioners in its restaurants could be used to prepare hot water. In order to reduce the burden of increase in milk prices, McDonald’s is sourcing milk from milk surplus areas like Baramati in Maharashtra. McDonald’s is investing Rs.500 crore to expand its restaurants from the current 115 to 250 in the next three years. It will be financed through the company’s internal accrual and debt. The company has positive cash flows to sustain its Indian business.

High real estate cost

But scouting and finding suitable properties in the metros and other cities is a problematic one with shooting land prices. But to offset this cost, the company derives higher sales turnover and profits in big cities. For the new restaurants, McDonald’s opts for an optimum size of around 4000 sq ft. But there are exceptions. Sometimes larger space is required for doing big business. McDonald’s will be opening its biggest ever branch near the London 2012 Olympics site Stratford. The restaurant is coming up in 3000 square metres of space and will have two floors. It is equal to half the length of a football field. It will employ around 475 staff and will have 1500 seats for the eaters.

Ownership change with HardCastle

HardCastle runs 116 restaurants for McDonald’s in the South and the West and employs more than 5000 people. McDonald’s has exited HardCastle restaurants in India and is converting it into franchisee operation. It is selling 50% of its stake to the Indian partner B L Jatia family for an undisclosed amount. Jatia is happy that this move will give him the freedom to grow aggressively and take quick decisions. The change in ownership will imply that McDonald’s will no longer invest in HardCastle, but will assist in training, knowledge and development. For the use of the McDonald’s brand, HardCastle will pay a royalty to the company.