Mumbai: Slowing economic growth and high inflation haven’t hit McDonald’s Corp.’s growth or expansion plans in India. In fact, if anything, the quick service restaurant chain that introduced Aloo Tikki burgers more than a decade ago might just step up its expansion pace as other retailers go slow, and realty becomes cheaper and more easily available, says Amit Jatia, vice-chairman, Hardcastle Restaurants Pvt. Ltd, which runs McDonald’s restaurants in western and southern India. Edited excerpts from an interview:
How has the business evolved since you started 16 years ago?
It’s not been a smooth ride. Firstly, getting consumers to understand who we were was not easy. When we did focus groups with customers—even with consumers who had been to McDonald’s—if we asked what did you eat, they would say pizza, for example. Then we did a focus group, asking why a family outside the restaurant was not entering and there we got feedback like consumers may not be knowing how to place an order, or they don’t know what’s on the menu or how to do things once inside. So we dealt with all this through advertising. That was one set of challenges.
Expansion drive: Jatia says he plans to open 35-40 restaurants every year over the next three-four years. (Hemant Mishra/Mint)
What percentage of the menu is Indian?
A large part of the menu is Indian—take the Aloo Tikki, Pizza Puff, Chicken McGrill, McVeggie burger, the entire range of spicy burgers, all that is local. Also globally you might have the Big Mac, but in India, it’s not the Big Mac, because we don’t do beef and pork; it’s just the Maharaja Mac, so even that is local. So, I would say very safely that roughly 80% of our menu is local.
You have started experimenting with global ingredients such as African peri peri chilli with fries and ‘Paneer’ Mexican wraps. Will we see more international offerings now?
When customers come to McDonald’s, they want something that’s uniquely McDonald’s. So how do I take a spice the consumer is not familiar with and put in something they are familiar with, therefore a wrap, which is like a roti and put paneer, which they recognize, and a spice mix, which they don’t recognize? That is how it becomes uniquely McDonald’s.
Do you think the time has come to introduce pork and beef burgers in select restaurants?
No way. This is about our commitments when we entered. The first one was, no pork and beef. More importantly, separate kitchens for vegetarian and non-vegetarian. That meant double the investments and we didn’t stop at the restaurant level. At our processing facility, Vista, we invested in two lines for vegetarian and non-vegetarian with a wall in between. When you go from one line to the other, you have to take a shower. That is our commitment to India, for 16 years we have kept it and I see no reason why we won’t keep it for another 100 years. We don’t need it (pork, beef). If we did, we would think about it. We are doing quite well. Chicken is working well for us, fish is doing extremely well, vegetarian is an extremely strong menu. We will soon have eggs too. We have enough variety.
Did it help that you were a Marwari?
I have helped, see, because I understand the vegetarian psychology. See even if a non-vegetarian were to touch a plate, I wouldn’t touch it. I wouldn’t even eat eggs for that matter. But you see, before I said okay to McDonald’s to take this franchise, I went to Singapore and worked with a restaurant, because I wanted to see how it is. But because everything is done at the supply chain level and when it comes to the restaurant, it was all right, it worked for me.
Smita, your wife, is the managing director. How do you divide work?
She is the real boss. She looks at the day-to-day operations of the business, including the strategic planning. My focus is more on growth. I am trying to see where we can go from where we are to a different level.
Do you take work back home?
No. We learnt that very early on, that does not work. In fact, in office also we hardly see each other, except at meetings where we have the whole top management team together. You know, like I said, I am quite focused on the growth side, restaurant opening, location of restaurant, strategic direction of what we need to do and how are we thinking around the menu. And then it’s Smita who breaks it down, and from there it goes to the functional heads and from there to the regions, who are the real implementers.
So, what is the growth plan? Will the slowdown impact it?
We call the industry informal eating-out. According to Euromonitor, this is a $82-83 billion (in the range of around Rs 4.6 trillion) business of which QSR (quick service restaurant) is 19%. QSR is the segment we operate in; Indian fast food, Western fast food, all that is a part of this segment. QSR is a $15-16 billion business growing at 13-15% as of December 2011. The industry is growing, the segment is growing and we are very well placed to grow.
How do you see your growth pan out?
There are over 250 McDonald’s restaurants in India. With HRPL (Hardcastle Restaurants Pvt. Ltd), there are 140 restaurants or so. Essentially we are growing at 35-40% topline and have plans to open 35-40 restaurants every year over the next three to four years. This is an investment of Rs 500 crore.
So are you still in an investment phase?
We will be in an investment phase for the next 10 years, because the opportunity is so huge. But having said that, we are a zero debt company and all our new restaurants will be built from internal accruals. We have been able to get returns from our investments from the past. We could look at taking short-term debt, but financially we are solid.
Does inflation impact the value chain?
You know we may think as a brand or seller or retailer that a rupee or two don’t matter. But, at the end of the day, the customer is very clear that when I am eating out today, this is what I am intending to spend today. If the price goes up, then they cut back on their eating. Eventually, what we find is that if we don’t manage it right, then we can immediately see it in the spend.
So how do you deal with inflation?
So, first and foremost, if inflation is running between 8-10%, we would move prices up by 3-5%, basically half of inflation. The minute we do that, we are getting more value to the customer as we stay behind inflation.
How important is India to the parent in terms of priority?
McDonald’s is a very large company with system-wide sales of $85 billion, so we are a very small part of the turnover. But we are a very important country and business as India is part of the BRIC (Brazil, Russia, India, China region) and fortunately, the economy is doing well. 6% GDP growth in the Western world is you are singing, it’s not bad at all.