You are here: Home » Specials » Strategist
Business Standard

Has McDonald's bitten off more than it can chew?

STR Team 

Over the years McDonald’s has beefed up its menu in India, adding new items that are not available globally. Now, it has abandoned the traditional pre-made and kept-warm fare for food made-to-order. Will this take away the original promise of McDonald’s — that of offering consistent food, at a reasonable price, served fast in a clean environment?

Deepak HalanDeepak Halan
Associate Professor — School of Management Sciences, Apeejay Stya University

It has been about 15 years since Big Mac entered India and in this time span it has established over 280 restaurants, making it one of the largest in the quick service restaurants (QSR) space. The philosophy of QSC&V — quality, service, cleanliness and value — forms the core of McDonald’s marketing strategy, and is a big reason for its success in India like everywhere else. Today, if a family of four with a budget of less than Rs 300 wants to go out and have a non-Indian meal, they would probably head towards a McDonald’s outlet because no one else will be able to offer a better value proposition. A KFC, a Pizza Hut, or a Domino’s will be well beyond their budget.

A lot of its success globally has to do with speed, thanks to its MTS, or made-to-stock, concept. Now, we are told, it is migrating to the made for you, or MFY, route. Here the food is cooked only after an order has been placed. Under the MFY platform that uses modern technology and is based on JIT, the objective is to deliver fresher and more customised food and also incur less wastage due to better inventory management.

I would not recommend adoption of this strategy by McDonald’s India. Given its value for money offerings, McDonald’s outlets attract very high footfalls on weekends as well as weekdays. Its customers cut across socio-economic classes. Visit any McDonalds’ outlet and you will see that even if one order counter is unmanned or out-of-order, there is chaos. Visit any food court in a mall on a weekend and you will see many high income group consumers choosing McDonald’s over several other food and snack brands. Among the visitors is a large price sensitive segment, a time sensitive segment as well as a division that is both price and time sensitive.

Currently, many McDonald’s outlets still follow the earlier process, where pre-cooked burgers, pizza puffs etc (the numbers are calculated on the basis of earlier experience regarding store sales) are placed on holding bins under heating lamps. However, if, say, the prepared meat is going to be grilled once a chicken hamburger order is received or each and every customer’s meal is going to be cooked to order, this waiting time is bound to go up. Doesn’t that run counter to the whole McDonald’s proposition of speed?

While the MFY production process looks like a natural extension of McDonald’s penchant for process automation, it could create stress at peak times with customers who are used to Big Mac’s quick service losing their patience. The ‘perceived cost’ of longer waiting time is likely to outweigh the ‘perceived benefit’ of tastier, fresher, warmer food. In any case, given the high footfalls at McDonald’s outlets in India and the quick customer turnaround, the reduction in wastage is expected to be less vis-à-vis other countries where footfalls are lower.

The more discerning customers may thank MFY for better food, but there is a chance that many more will begin to think that MFY means total customisation. Given the highly heterogeneous customer base, there will be consumers who will expect to be given choices like no-garlic, no-onion burgers and wraps and not just burgers with or without cheese! Where will McDonald’s draw the line?

McDonald’s would also need to pour in considerable investment in the technology, training and promotion of the MFY concept. While it may be a successful business model in countries such as Hong Kong and the US, it could boomerang in India where consumer expectations and behaviours are very different. McDonald’s is known for its Indianised menu and should perhaps focus more on that, and may think in terms of adding Indian dishes, such as gulab jamun, lassi etc.

McDonald’s could probably think of having two different lines of outlets — mass and premium — a la Barista (but certainly not at time critical outlets such as airports and railway stations) and establish the difference by offering completely different experiences at the two types of outlets. We will, thus, know how the costs stack up against the benefits and if the MFY meal is indeed a happy one.

Harminder SahniHarminder Sahni
Founder, Wazir Advisors

All successful businesses always have two choices — either to become prisoners of their business model or take liberty with their business models to try innovative stuff. In either case, the business managers are depending on their customer loyalty. In one case they don’t wish to challenge it, while in the other they count on it. I belong to the latter school and always propagate challenging the status quo, else someone else will. Most businesses are started by pioneering entrepreneurs, who actually tried to solve a problem and eventually came up with a product or a service offer to do the same. Subsequently, the business managers take over and create processes and systems to run a large organisation that can grow the business profitably. In this process at some point the organisation, the processes and the operating model become the “business”.

The sustenance of the same and growth by doing more of the same becomes the accepted way of life. There is little or no effort to see where the customers are going and what their changing needs are. That’s when someone else comes in to fill that vacuum and takes away the business. Even while the competition is right in front of their faces, the incumbent leader’s managers choose not to react by saying this is not our segment .

McDonald’s is facing the same dilemma. It can choose to stick to the knitting and play the game it has always played or pick the harder option: tweak the model even if it contradicts its hugely successful business model and carefully crafted brand image. My take on this matter is that McDonald’s should do what is right for its customers today and for its future. What was right in the past has brought it so far and should be changed to meet the market realities. McDonald’s enjoys great brand equity with billions of consumers who have looked for and found McDonald’s at times when they least expected it to be around. Customers have a huge dependence on McDonald’s to offer a quick meal at a reasonable price at a convenient location… always. As long as McDonald’s keep delivering on this promise, the customers won’t mind changes in menu or in the way it delivers meals.

The customers are looking for healthier, wider and fresher options across consumption segments — be it clothing, footwear, homes and now food as well. In the case of food, consumers are most definitely becoming much more demanding and are visiting more and more QSRs or restaurants to try new, different and hopefully, better food.

Players like Whole Foods Market, Pret a Manger and Subway have become market leaders with billions of dollars of revenue, serving the consumer demand for fresher and healthier food. The success of these chains has thrown up an excellent opportunity to a company such as McDonald’s to innovate its offering — the menu as well as the service model, and in the process relinquish parts of its old way of doing things.

The biggest challenge for McDonald’s will not be from customers but from its own people. McDonald’s people are tuned to doing things in a certain manner and have been trained rigorously on the same. Also, the back-end of the whole organisation as well as that of the suppliers have been designed and structured to operate in a certain manner. Implementing such significant changes across such a vast network of stores will be a big task and may take a fairly long time and immense patience to execute. I am certain that the McDonald’s management would have thought through all these issues and have embarked only after careful evaluation.

The customers will certainly be happier to enjoy wider choices and also to have fresher meals in a QSR, instead of paying a premium in a fine dine restaurant. It may attract many new customers who may have earlier perceived McDonald’s as a place that hawks readymade burgers and may not have patronised it.

First Published: Mon, October 08 2012. 00:30 IST