10 Oct 2019 17:26 IST

Go for short-term contracts with trusted joint venture partners

McDonald’s should stick to its value proposition of high quality products and shorter wait time

In 1996, McDonald’s entered into India through a JV with Connaught Place Restaurants Ltd (CPRL) for the northern and eastern regions. The partnerhip seemed to be working well over the decades and, in 2018, for the first time in 22 years, McDonald’s India posted a profit.

Shikha Bhatt

Shreya Bhardwaj

Why, then, did things unravel so rapidly and lead to a situation where the fast food major had to part ways with its JV partner? Here’s a quick look:

Sequence of events at McDonalds India

 

 

Q1. What, according to you, led to this situation at McDonald’s India?

The conflict between the joint venture partners, McDonald’s and Vikram Bakshi led to the present situation at McDonald’s India.

 

 

Q2. What is at stake for McDonald’s in an emerging market like India? Have its problems impacted the brand’s overall image?

 

 

The conflict resulted in closure of outlets, leading to a decline in the market share. Degradation in quality and unavailability of a few items led to customer dissatisfaction, affecting customer loyalty and brand image. Ultimately, McDonald’s lost its reputation in the market. Therefore, McDonald’s India’s problems impacted its overall brand image.

Q3. How can McDonald’s revive its brand awareness and customer interest in the north and the east and, going forward, what should its franchising strategy be in those regions?

More than the brand awareness, McDonald’s needs to focus on first repairing its brand image and then reviving the lost customer interest.

Strategy to revive brand awareness and customer interest

Focus on core value proposition: McDonald’s should focus on quick delivery of fast food that was initially its core value proposition.

Focus on target segment: McDonalds’ core target segments should be working professionals who are short on time and youngsters looking for a quick, affordable meal.

Standardisation of menu: McDonald’s should not try to compete with dining restaurants. Most of the customers who come to McDonald’s are short on time and expect quick food delivery. If McDonald’s offers a lot of items in the menu, the customers may take time to decide and it may even take longer to service. This is likely to make the customers impatient and reduce their customer satisfaction.

Evaluating various franchise models for McDonald’s

Master Franchise Model

Pros:

1) Can solely focus on business strategy because it does not have to go through hassle of managing operations

2) Local business partners would have a better understanding of the local market

Cons:

1) Conflicts and dishonest business partners may ruin the business

Company-owned franchise model

Pros:

1) Company has better control over quality since it is involved in supplier management

2) Ensures consistency since the team works closely with the franchise

Cons:

1) Has to go through the hassle of setting up the office

Company’s 100 per cent ownership

Pros:

1) Has complete control over the decision-making process

Cons:

1) High financial risk due to 100 per cent investment

Joint venture

Pros:

1) 50-50 risk sharing with the local business partner

2) Local business partner possesses better understanding of the local market

Cons:

1) Controlling the quality of products and services across all outlets

Our Recommendation: McDonald’s should establish short-term contracts with trusted and credible joint venture partners to revive its business in the northern and eastern regions. This strategy might also help McDonald’s reopen the 43 outlets that were closed.

Q4. How can the fast food chain reinvent itself to drive long-term growth in the country?

1. Focusing on internal customers: Employees are McDonald’s most important asset and it should keep these internal customers happy and satisfied. It should rehire its laid-off employees post its revamp. It should also recognise and reward its employees regularly for their service and contribution to attract other potential employees.

2. Careful selection of business partners: McDonald’s India should select business partners whose values align with McDonald’s values. This will help McDonald’s maintain a strong and long-term business relationship with its partners. Also, the suggested franchise model of short-term joint venture should help McDonald’s avoid conflicts in future.

3. Playing by McDonald’s strengths: McDonald’s should strictly stick to its core value proposition of maintaining high quality of suppliers and products, shorter wait time, standardised menu and low prices. It should also maintain consistency across all its outlets in terms of menu and service.

4. Customer-centric behaviour: McDonald’s should keep customer satisfaction at the centre of its business model. It should never repeat the mistake of running out of stock for popular items such as McFlurry, leaving customers unsatisfied.

5. Differentiation strategy: McDonald’s should maintain its differentiation strategy in each of the target segments:

i) Working professionals who are short on time: Increasing the number of drive-throughs

ii) Kids: Providing free toys with Happy Meals

(The Second Runners-Up are in the Post-Graduate Programme Class of 2020 at Indian School of Business, Hyderabad campus.)

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