Reasons and Strategies for McDonald's Penetration to Indian Market

Reasons for McDonald’s to enter Indian market

1. Consumer Market
India represents one of the most promising consumer markets in the World. It is the world’s
second most populous country with estimated population level of more than 1 billion people – to be
exact, 1,149,335,939 as of today (http://www.geohive.com/). See the graph of the countries with
highest amount of people in the World in attachment A. The population is growing at 2 percent (or 20
million people) a year, which is equivalent to the entire population of Australia (Goldammer, 2001).
With the existing population growth trends, India is estimated to become a most populous country in
the World in the nearest future (see attachment B).

2. Food Market
The Indian food market at the moment is approximately $69.4 billion, of which value-added food
products comprise $22.2 billion. The Confederation of Indian Industry (CII) has estimated that the
food processing sector has the potential of attracting US$ 33 billion of investment in 10 years and
generating additional employment of 9 million persons (Seth, 2008).

3. Buying potential growth

India’s economic growth has accelerated significantly over the past decade and so is the spending
power of its citizens. The average income has doubled since 1985 and projected to triple in just 20
years, according to the Mckinsey Global Institute consumer report (McKinsey, 2007). Based on these
projections, Retail sales in India's consumer goods market are expected to grow to $400 billion by
2010, making it one of the world's five biggest (McKinsey, 2008).

4. Economy Liberalization
From 1991, India is continuing to move forward with market-oriented economy liberalization
reforms. Recent development includes liberalized foreign investment and exchange regimes, industrial
decontrol, significant reductions in tariffs and other trade barriers, reform and modernization of the
financial sector, significant adjustments in government monetary and fiscal policies and safeguarding
intellectual property rights (Wikipedia, 2008).

5. Lessons learned from competitor’s cases

In spite of the overly proactive approach entering new markets around the World, McDonald’s did
not storm the Indian Market for long, understanding the possible difficulties to be accepted by the
Indian consumer. However, by 1997, the comprehensive research has been completed on the positive
perspectives for market penetration. The lessons from the competitors were learnt (as temporary
closure all KFC restaurants in India in mid-90), and the strategic changes were approved (Coleman,
2006).

Two strategies that McDonald’s could develop to overcome the barriers of Indian Market

1. Product Localization
 One of the main obstacles in the process of introduction of the McDonald’s traditional food to the
Indian market was related to the local religious and traditional customs, as cow-worshiping and not
consuming beef (82% of the entire population), and being completely vegetarian (20% of the entire
population). To overcome these difficulties, McDonald’s revised its recipes to comply with the food
restrictions of the Indian population (Kannan, 2005). Beef and pork products are not served to cater
to Indian religious sensitivities. Chicken and fish are the only meat products used. The McDonald’s
traditional Big Mac has been replaced with the Maharaja Mac, which was originally made with lamb but
is now made with chicken (see attachment C).

Significant part of the Indian McDonald’s menu is vegetarian to satisfy needs of the local
population, not interested in the meet products. To show clear distinction between meat burgers and
vegetarian burgers, these meals are prepared in separate areas of the restaurant because of the strict
religious laws about preparation of food for vegetarians and meat-eaters. Cooks preparing vegetarian
dishes wear distinctive green aprons (Wikipedia, 2008).

To make the food closer to the traditional tastes, McDonald’s has blended various Indian spices to
prepare specific meat and vegetarian menus. Experts say the fact that McDonald’s has altered its
menu inIndia, with choices adapted to local tastes, gave a significant boost to the market penetration
(IANS, 2004).

2. Geographical Targeting
To succeed on the Indian market, McDonald’s has to investigate carefully all the featured locations
for the new restaurants establishment, making necessary adjustments to already localized menu.
Potentially promising locations were chosen in the urban areas of Hi-Tech employment and fast rising
middle-class population. Thanks to the boom in technology and outsourcing trends to India, rapid
development of the software industry and call centers, the young professionals, leaning to the
Western lifestyle, are the easy target for McDonald’s (IANS, 2004). In the metropolitan areas, the
restaurant has increasingly become a convenience brand enjoying great popularity among children as
well (Coleman, 2006).

For the smaller cities with less developed industry and thinner layer of middle class population,
McDonald’s “serves as luxury inspirational brand where “climbers” or those aspiring to move up the
social ladder would want to go,” explains Vikram Bakshi MD, McDonald's (North India). MacDonald’s
should make geographical adjustments not only for the restaurant outlook, location, and menu, but
also introduce tailor-make prices to suit Indian wallets in various locations (Coleman, 2006).

The further geographical targeting includes building new sites for McDonald’s near major highways
to accommodate growing amount of the hungry drivers, and opening trade locations at the major
railway stations (starting from the Old Delhi Railway station).

Conclusion
 As of beginning of this year McDonald’s had 123 restaurants in India, and is planning to double the
number by the end of the year. Smart, carefully planned strategy for the market penetration appeared
to be very successful in India, overcoming the cultural obstacles to the product introduction