McDonald’s had adopted the franchise business model to penetrate new markets. CPRL (for the North & East) and HRPL (for South & West) were the two primary franchisees for their respective regions. McDonald’s converted HRPL from a joint venture to a Master Franchise while CPRL remained a JV. Soon certain issues cropped up regarding the workings of CPRL, with the allegations including mismanagement of funds, lack of attention to the joint venture and conflict of interest because of diversifying into other businesses.
Sayan Choudhury
Sharmi Saha
The situation deteriorated with the refusal to renew the franchise partner’s health licence and the risk of unsafe food being supplied at the outlets. McDonald’s India closed the outlets concerned, warned customers about the potential health hazard of eating from the unauthorised outlets and finally terminated the agreement with Bakshi. This exacerbated the issue and so began the fall of McDonald’s in India.
What is at stake for McDonald’s in an emerging market like India? Have its problems impacted the brand’s overall image?
Threats to McDonald’s surviving in a highly fragmented emerging market such as India:
From the Google trends since 2004, we find that after these problems began the brand’s popularity has fallen. The brand awareness among people has started decreasing and the fast food QSR’s image has taken a beating.
At the same time, competitors (Domino’s and others) started gaining market share and the gap kept on widening.
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?
Here are some ideas to revive brand awareness and customer interest in the north and the east:
Choose a suitable time for a product launch : Target major regional festivals as a suitable time for launching any new product. It is that time of the year when people like to eat out in the evenings. If the consumers like the product, the brand image will certainly be boosted.
Effective promotion : Use the nostalgia factor. Highlight stories of consumers experiencing a happy time with their friends and families at McDonald’s. Touch the emotional chord of consumers through advertisements and promotions. Indians are deeply rooted in tradition and highlighting the nostalgia factor associated with festivities and cultural events can rebuild their relationship with the brand.
Highlight the health benefits : Make clear announcements regarding safe consumption of the product. Ad promotions and campaigns must clearly explain that the brand’s products are absolutely safe for consumption. Mention the credibility of the authorities performing the safety tests. This would generate the customers’ trust in the brand name.
Innovative promotional schemes : Come up with specific campaigns for consumers and promote them on social media. As the major target segment is the millennials, the most effective channel of promotion would be through social media. The current Facebook page of McDonald’s has about 3 million likes, while the Instagram page of McDonald’s India has about 157,000 followers. Several events, like ‘Birthday of the Month’ or ‘Name of the Week’, can be conducted in order to create brand pull.
Franchising Strategy
The company should not go for a business format franchise, where the franchisor gives trademarks, trade names and business processes to the franchisee to sell the company’s products for free. It should carry out proper background check of the franchisee, ensure adequate prior experience in the area, and provide proper training and support. Also audit them at regular intervals to eliminate any chance of fraud.
How can the fast food chain reinvent itself to drive long-term growth in the country?
McDonald’s should focus on increasing its profits. Increases in profit will mostly come from increase in sales volume. The company can achieve long-term growth if it follows the VRIO framework (see graphic below).
Strategies of reinvention to drive long-term growth
Business-level strategy
Product differentiation : Customise the product portfolio. India being a highly diverse country, the food habits of the people vary widely across regions. To gain a pan-India presence McDonald’s should study the needs, wants and demands of the target customer segment, and bring in certain product innovations according to regional preferences. For example, people in the East and South prefer rice, while those in the North prefer breads. McDonald’s should bring in a certain regional touch to its product portfolio and keep innovating constantly according to the changing preferences of the customers in order to re-establish itself and drive the fast food major’s long-term growth in the country.
Corporate-level Strategy
Go for strategic alliances : McDonald’s can consider forging strategic alliances with competitors such as Domino’s or KFC. This would create a win-win situation for both the companies and would help both survive in the long run.
Opt for mergers and acquisitions : With smaller players like Burger King evolving in the market, McDonald’s can go for mergers or acquisitions with these small emerging players, thus gaining a larger market share. Emerging firms might have the potential to emerge as big players in the long run, and this might pose a threat to McDonald’s.
About 40 per cent of the market is currently made up of smaller, emerging players. Going for mergers or acquisitions with the small emerging firms can help in the long-term growth of the QSR chain in the country. Also, strategic alliance with any of the reputed competitors would make the alliance one of the market leaders.
Sayan Choudhury | Sharmi Saha
(The Fourth Runners-Up are in their Second Year PGDM at TA Pai Management Institute, Manipal.)