Western Chains Flock to India

8/6/2019 Western Chains Flock to India

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Western chains flock to India as fast-foodcraving growsPublished on Thu, Apr 28, 2011 at 10:17 | Source : Reuters

Updated at Thu, Apr 28, 2011 at 13:50

Rakesh Jhunjhunwala niveza.in/Portfolio/RakeshJ

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McDonald's made its nameserving up hamburgers fast,but it took the world's biggesthamburger chain four yearsto enter India -- without itssignature dish.

A number of fast-food andcafe chains -- Starbucks andDunkin Donuts to name justtwo -- that are flocking toIndia would do well to takeaway lessons learned byestablished rivals such asMcDonald's in navigating a

market beset with obstacles.Industry experts say patienceand flexibility in a countrywhere dietary traditions rulemay well define successfulglobal restaurant brands inIndia.

The stakes are high, withIndia's quick-service

restaurant market worth USD13 billion and growingroughly 25-30% a year,according to Euromonitor and market research firmRNCOS. India's entire food-service market is estimatedat USD 64 billion.

Adapting menus to cater tolocal dietary needs may be a

winning strategy, analystssay. This is not as easy as it seems - Burger King had looked to enter India in 2007-2008, but hit roadblocks when trying to tweak its menu to suit local tastes, according toanalysts and several local media reports.

"If you're a global food retailer, you need to have an offering for the Indian consumer ...you cannot push global products," says Pinakiranjan Mishra, partner and national leader for consumer products and retail at Ernst & Young in Mumbai.

"For a select group of consumers you can, but not if you are looking at building a masspresence."

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India is the first country where McDonald's decided not to offer beef or pork items.Instead it sells chicken and vegetarian variants to cater to a significant portion of thepopulation that is vegetarian.

Some of its newer competitors such as Denny's Corp, which plans to enter India by mid-

2012, are following suit."We have had to strip beef and pork out of our menu. We have had to customise itcompletely," said William Edwards, chief executive of EGS, which is handling theinternational expansion of Denny's, well known for its all-day menu featuring eggs,sausages and pancakes.

Young and trendy

Analysts estimate that China's fast-food market is nearly six times as big as India's andforeign chains are targeting both markets to take advantage of rapidly growingeconomies.

Driving the growth in India's fast-food sector is a generation of young and increasinglywealthy consumers with an appetite for western tastes.

More than 60% of India's population, or 700 million people, are under the age of 30 -- aprime target for fast-food.

"It's a lot easier to grab a burger at McDonald's than order a vada sambar (savourydoughnut in lentil soup) at an Udipi which is time consuming," said Bidisha Mukerjea, a24-year-old content writer from Mumbai, referring to Indian local fast-food restaurants."Udipi food is cheaper but it's about foreign brand attraction, it's just fancy to eat at thesenew places."

It's no surprise that a host of foreign chains have their sights on India. Starbucks isexpected to open its first India store in July or August. Others wanting a foothold includeApplebee's, Pollo Tropical, a unit of Carrols Restaurant Group, and hamburger chainJohnny Rockets.

Existing foreign brands know the competition is heating up and have expansion plans of their own.

Yum Brands, which owns the KFC, Taco Bell and Pizza Hut chains, plans to invest USD100- USD 120 million in India this fiscal year. It runs about 108 KFC outlets in India,compared with 2,800 KFC outlets in China.

"The market here is competitive. There is competition among the existing foreign chainsand the ones who will clearly benefit are the ones who have scale," said DevangshuDutta, chief executive at retail consultancy Third Eyesight.

"This inflow of western chains does not pose a threat to local players such as Udipisbecause the market is big enough for both sides to grow."

India caps foreign ownership in single brand retail at 51%, forcing all foreign chains toseek partnerships to do business in Asia's third-largest economy.

Denny's plans to operate through regional licenses in India and Starbucks has signed apact with Tata Coffee . Dunkin Donuts said in February it planned to launch its brand in
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India, partnering with fast-food operator Jubilant Foodworks Ltd that runs the DominosPizza chain in India.

Value meals?

Analysts say that keeping menus affordable is crucial in a country where incomesremain low by global standards, and lunch from a street stall can cost less than 50 U.S.cents.

By comparison, a McVeggie meal at McDonald's, which entered India in 1996, costs Rs94 (USD 2.1) in Mumbai.

Low unit consumption and high attrition makes targeted turnover that much more difficultto achieve.

"When you train someone to make pizza or coffee, the skills needed are far more thanwhat is needed to sell clothes at a retail shop," said Third Eyesight's Dutta. "So it ismuch more difficult for these companies to find people who have the necessary skills."

Foreign chains face other problems such as underdeveloped real estate for the retailmarket and food inflation, which has been in double digits for the much of the past year.

"Milk leading to cheese is our key ingredient and milk prices are shooting up," said AjayKaul, chief executive of Jubilant Foodworks. "Maintaining margins in an inflationaryenvironment is definitely a concern."

Amit Jatia, vice-chairman for McDonald India's west and south regions says that supplychains are an issue, although they are better then they were 15 years ago.

"India still lacks an effective cold chain network and storage systems are not very

efficient," he said.Roughly 30 percent of produce in India goes to waste due to transportation,warehousing and cold storage bottlenecks.

Still, the vast potential from entering India's fast-food sector outweigh the risks, analystssay.

"As a consumer market, India has everything going for itself. From strong GDP growth torising income, increasing urbanisation etc.," Ernst and Young's' Mishra said.

"Problems such as inflation and supply chain bottlenecks will be a deterrent, but only inthe short term."


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U.S. fast-food chains bet on India todrive growth

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Mon Apr 11, 2011 3:30pm BST

* Restaurants look for franchise partners
http://uk.reuters.com/business/deals/regulatoryhttp://uk.reuters.com/business/deals/regulatory


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* Denny's Corp to foray into India in 2012* Johnny Rockets, Pollo Tropical, Applebee's looking to enter By Nandita BoseMUMBAI, April 11 (Reuters) - The scramble by global food companies into India's

fast food sector intensified on Monday as several U.S. chains announced plans toenter the country, hoping to tap the surging spending power in Asia's third-largesteconomy.Restaurants like Denny's Corp , known for serving pancakes and sausages all day,and Rita's Water Ice, which would be the first foreign competitor to local water icebrands like Gola, which operates out of little stalls placed mostly on streets, plan toenter India over the next two years.Pollo Tropical of Carrols Restaurant , known for Caribbean-flavored chicken,Applebee's and Johnny Rockets, known for its hamburgers, are also looking to cashinto the Indian quick-service restaurant market worth $13 billion.

All brands will face challenges as they compete with incumbent McDonald's andYum Brands, not the least of which would be adapting a meat-centric menu to alargely vegetarian palate.Denny's Corp, which plans to make an Indian foray in 2012, has set up a supplychain network and customised its offering to suit local palates, William Edwards,chief executive of EGS, which handles the company's international expansion.He said the menus would be stripped free of beef and pork, and would focus on fishand vegetarian dishes instead."In India we are planning to have regional licencees with 10, 25 or 50 units,"Edwards said, adding that every 10 units required an investment of about $5 million.Others wanting a foothold include Wendy's, Arby's International, CKE Restaurantswith Carl's Jr and Focus Brands with Schlotzsky's Deli, all known for sandwiches andburgers.BannaStrow's Crepes and Coffee, Moe's Southwest Grill and Carvel Ice Cream arealso in line."We are excited about the opportunity in India and are hopeful that the franchises wehave brought with us will see an opportunity for expansion here," said Nicole Y.LambHale, the assistant secretary for manufacturing services, U.S. Department of Commerce, who accompanied the franchises into India.Starbucks Corp and Dunkin Donuts recently announced plans to enter India, takingadvantage of a growing preference for coffee and a culture that is increasinglysocializing in cafes.SEARCH FOR FRANCHISEESIndia caps foreign ownership in single brand retail at 51 percent, forcing all foreignchains to seek partnerships to do business in the nation of 1.2 billion people.The franchise owners plan to meet the Ministry of Commerce and Industry and theMinistry of Corporate Affairs in the coming days.The franchise market in India, estimated to be worth $3.3 billion, is growing at a rateof 30 percent.

Casual dining chain Applebee's and Johnny Rockets also said they were in talks withseveral players in the country as they sought franchise partners.


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"We are still in talks and will probably start our operations with Mumbai, Delhi," PhilCrimmins, president of Applebee's international division said.Johnny Rockets said it was also open to joint venture opportunities."We are hoping to sign a deal in the next 6-8 months and after that start operations

in the next 6-9 months," Steve Devine, senior vice president, internationaldevelopment at Johnny Rockets said.http://uk.reuters.com/article/2011/04/11/india-us-food-retail-idUKL3E7FB2A120110411
http://uk.reuters.com/article/2011/04/11/india-us-food-retail-idUKL3E7FB2A120110411http://uk.reuters.com/article/2011/04/11/india-us-food-retail-idUKL3E7FB2A120110411http://uk.reuters.com/article/2011/04/11/india-us-food-retail-idUKL3E7FB2A120110411http://uk.reuters.com/article/2011/04/11/india-us-food-retail-idUKL3E7FB2A120110411

Western Chains Flock to India

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