BURGER WARS

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He is not 100 per cent right if we think of the burger as a patty between two buns. The vada pav business has seen two Indian companies achieving scale - Goli Vada Pav and Jumboking. The burger, as an American construct, of course, is largely a multinational play, with the rivalry of global brands now spilling over to Indian shores. There's a stiff battle for the Indian stomach and is being fought by no less than seven American companies that operate through franchisees. McDonald's was the earliest - its first store came in October 1996. It has dominated the landscape ever since and has over 380 restaurants now, which annually use nearly 15 crore buns, 3.2 million litres of vegetarian sauce, 9.7 crore patties, 330 metric tonnes of cheese slices and 1,200 tonnes of iceberg lettuce.

But something spectacular happened over the past 12 months - rivals Burger King, Wendy's, Carl's Jr., and Fat Burger opened shop. Johnny Rockets started in January 2014 and Dunkin' Donuts in May 2012. Together with KFC, which also sells burgers, it completes the cast of characters vying for a space in India's fast food playbook, estimated by market research firm Euromonitor to be worth a mammoth Rs 1,01,770 crore in 2015. Of this market, the burger bite appears tiny - the research firm estimates it at Rs 1,555 crore this year and projects it to grow to Rs 1,688 crore by 2019.

Euromonitor's numbers, however, tell only part of the story. The research firm defines 'burger fast food' as outlets in which burgers constitute the main offering. But a gauge of the product's popularity is all the excitement restaurants of all shades display; almost everyone, from five-star chains to standalones, sells burgers. The Embassy, a restaurant that started in Delhi's Connaught Place in the 1940s, has Aloo Bonda Burger, Samosa Patty Burger and Daal Vada Burger on its menu. Nando's, known for its flame-grilled peri-peri chicken, sells five non-vegetarian and three vegetarian burgers. In the summer months, it ran a radio campaign advertising its 'Angry Mango Burger'. Yes! It put mangoes between the buns. Barcelos, yet another flame-grilled chicken chain, flirted with innovative red and black-coloured burgers. The Claridges, an iconic hotel in Delhi, recently concluded a beer and burger festival. Of course, burgers feature prominently on the menus of all bars and lounges. The amount of burgers consumed in Indian cities and its value ought to be much higher.

But, if you just focus on brands where burgers are the primary offering, the growing interest in India has many flavours. Consumption has slowed down in China. And other matured markets aren't doing too well in the quick service restaurants (QSR) segment either. McDonald's revenues for the nine months ended September 30 dropped nine per cent, while operating income fell 15 per cent. It didn't do much better in 2014 either - in its annual report, McDonald's discloses: "We experienced challenges growing sales and guest counts in 2014, as comparable sales decreased one per cent, reflecting negative guest traffic in all segments. While some of the challenges were anticipated, others were not, such as the impact of a supplier issue in China, Japan and certain other markets, and the volatile operating environment in Russia and Ukraine. Results were also impacted by under-performance in key opportunity markets that are significant contributors to consolidated results, most notably the US".

While India's growing economy and favourable demographics is a natural pull, the fast evolving Indian consumer is perhaps making this a right time for burger bigwigs to enter. The National Restaurant Association of India (NRAI), in a report, lists many reasons for the mushrooming of international brands in food services: consumers' increasing disposable incomes, the growth of consumers in socio-economic classifications A and B, the widening exposure to new cultures and cuisines, the increased propensity to eat outside, the growing popularity of takeaway and delivery services.

All the companies have charted an aggressive war plan. McDonald's doesn't want to cede any ground - Westlife Development Limited, the franchisee that operates in the West and South India, has planned 250 more restaurants in five years with an estimated investment of Rs 700-750 crore. Carl's Jr. thinks it can get to 100 stores in 10 years; it has raised $2 million and plans to raise $20 million in tranches to fund the growth. Burger King is spending between Rs 1.75 crore to Rs 2.5 crore to open each store. Prime Gourmet Pvt Ltd., the franchisee that runs Johnny Rockets, may end up spending more than Rs 40 crore to get to 20 stores by 2018, from just four currently.

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The burger battleground, meanwhile, is seeing a split right down the middle: between value-for-money burger chains and the premium ones; between mass market brands and the niche; between joints that appeal to children and those that attract adults; between QSRs and those that tend to be more on the casual dining side. In short, between those that sell burgers at below Rs 150 and those that charge more.

"Look at what Starbucks did to the cafe space," says Sanjay Chhabra, Promoter of Sierra Nevada Restaurants Pvt Ltd., which operates Wendy's in India. "It created a segment which people did not believe existed in cafes; it created a higher-priced slot. There was a segment of customers which was willing to upgrade. We have sort of entered that space in the burger business."

Analysts tend to agree. Ina Dawer, Research Manager at Euromonitor International, says a clear segmentation between value-for-money players (McDonald's) and premium chains (Carl's Jr.) will emerge over the next couple of years. "The new international burger fast food chains such as Burger King have products priced at higher price points, while value-for-money chains, including McDonald's, have a wider offering at lower price points. With their existing pricing strategy, it is clearly evident that these two chains are catering to different consumer segments," Dawer says.

To understand how the Indian customer has evolved, there is no better place to start than McDonald's.
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Kalamboli, August 25

In 2001, McDonald's opened its first Drive-Thru in the West, in Navi Mumbai's Kalamboli - people driving to Pune wouldn't need to leave their cars; order at one end of the restaurant, pick up from the other side and move on. It's buzzing today. Employees take orders, thaw the patties out of a chiller and fry them, before serving. Heavy rains splash against its large glass windows, while outside, Chief Happiness Officer Ronald McDonald sits still on a bench. He's drenched. This writer orders a Chicken Maharaja Mac and a coffee. The Maharaja is a big burger with two layers of grilled chicken patties and is certainly not the cheapest, at over Rs 100, but McDonald's has plenty to please everyone. McAloo Tikki, a combination of potato and peas patty, comes at Rs 29. McEgg is a steal too. This 'Happy Price Menu' has made McDonald's a mass brand. "Being affordable to as many consumers is really what McDonald's stands for. Making McAloo Tikki affordable really cracked the barrier. What Maruti Suzuki did many years ago by introducing the 800 (model), is what we did with our value price menu," says Amit Jatia, Vice Chairman of Westlife Development Limited.

The company didn't have it easy in the mid-90s when India's supply-chain was non-existent. Investments had to be pumped into creating a backbone and then making it more efficient.

Not far from Kalamboli is the factory of Vista Processed Foods, a supplier of patties, fresh produce and eggs. It set up shop in 1996 primarily to cater to McDonald's. CEO Bhupinder Singh says it was tough, initially, to convince farmers to grow bigger birds. "When we started in 1995-96, the average weight of a chicken used to be 1.5 to 1.6 kg. Today, the weight is 2.4 kg," he says. Vista invested in better feed and growing environment, along with superior bird variety, which translated into a higher yield in the same number of growing days. "This is how bird efficiencies came into play. When the flesh is more, the output increases," he adds. Similarly, Vista played a role in the reduction of egg breakage when transported over long distances. The shell thickness was enhanced by increasing a bird's calcium intake.

Farm practices required improvements as well. "When a farmer picks his vegetables, a lot of foreign particles come along. We had to put in a lot of extra effort. Secondly, cold chain did not exist in India. It cost us more. So, our supply-chain now allows us to give consistent quality to customers," says Jatia.

Around 2003/2004, consumers were using McDonald's over the weekend to celebrate special occasions. By 2010, Jatia thinks, people started using it to "refuel" - as their place to eat. "We became a part of their lives," he says. Westlife's annual report states that families in Tier-I cities spend about Rs 6,000 annually on eating out, whereas families in Tier-II cities spend Rs 1,500 to 2,000, annually. "This spending is expected to grow significantly".

Is 2015 the next evolution cycle? McDonald's rivals have all capitalised on the same supply-chain the company helped establish -Vista, for instance, also supplies to Burger King and Carl's Jr., among others. It doesn't bother Jatia. "We like it. We are way ahead. Two, it doesn't matter because as my suppliers' volumes improve, the benefit of the cost comes to everyone," pat comes his response when quizzed on eroding competitive edge.

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Jatia dismisses any threat the new competition poses to McDonald's with an interesting terminology. "The new boys on the block...they are toddlers. When they grow up a bit, we will talk," he says, quickly adding: "They are global brands, and I am sure they know what they are doing. All I am saying is that till they don't get scale - people say they will impact us - but that will happen when they get scale. Today, there is zero impact."

Let's look at how small the toddlers are - between its West and North franchisees, McDonald's has 382 restaurants. Dunkin' Donuts has 67, Burger King 33; Johnny Rockets has just four, while Wendy's and Carl's Jr. have two each. Some of the toddlers are growing up fast though. Nearly everyone cites "humbling numbers". Burger King's restaurant in Bangalore's Phoenix Market City Mall raked in Rs 10 lakh on day one. The toddlers can talk back too.

Cyber Hub, Gurgaon, October 23

It is 9.50 in the morning and Cyber Hub, a high street for everything gastronomy, is still sleepy. The Dunkin' Donuts' store, however, has a few customers. This writer settles for a 'Naughty Lucy Chicken Burger'. The boy at the counter promptly asks for this writer's number.

"Why?"

"For loyalty programme."

"No, Thank You."

"Some extra cheese?"

"No, Thank You."

The bill: Rs 220. Is that a gourmet burger?

A corporate presentation from Jubilant Food Works, the handlers of Dunkin' Donuts in India, has a rather complicated description of this product: "A highly innovative burger with a herb spiced whole wheat and potato/ tender chicken patty centre-filled with creamy molten cheese at the centre of the patty, drizzled with green mango relish and chipotle sauce, and layered with yellow bell pepper, red bell pepper, white onion, jalapeno and crisp iceberg lettuce." Woo-hoo!

Well, Dunkin' Donuts doesn't want to be perceived as "infantile" - it wants to strictly cater to the evolved consumer who knows his food. Dev Amritesh, President and Chief Operating Officer at Dunkin' Donuts India, calls his format 'adult QSR chain'. According to him, that's the sweet spot between a cafe and the QSR market. "The cafe market is adult in its DNA - young adults meet for coffee, for social occasions," Amritesh explains. "The profile of the consumer is more evolved in terms of preferences and tastes. However, coffee shops are not taken seriously for their food. QSRs, on the other hand, are not really adult. Evolved consumers find them somewhat infantile," he adds.

So, Dunkin' Donuts thinks it can provide the best of both worlds. The restaurant in Cyber Hub does have a cafe feel; it plays peppy music, has a mix of high chairs, sofas and metal seating. And the walls are peppered with funky graffiti - not the usual red tinge that dominates all QSRs.

Burgers, today, account for a third of Dunkin's India revenues, coffee and donuts make up the rest of the pie. It is on a fast expansion mode. The CEO is planning 17 restaurants more, from the current 67, by the end of March 2016.

Of course, there are other brands who aspire for similar branding and, perhaps, no one can get more 'adult' than Carl's Jr. "Most international chains might be catering to the pre-teens. McDonald's, for instance, has the clown. "We are the bad boys of the burger industry," says Sam Chopra, Founder of CybizCorp, the franchisee holder of Carl's Jr. in India. His first restaurant in Delhi's Select Citywalk serves beer. Waiters who serve wear tees with edgy messages: "Bite Me, Baby"; "It's Gonna Get Messy", "We've Got Great Buns!", "Hot Enough for You?", "Love Me Tender". The company ran a campaign on Tinder, the social dating app, with a "flirt with the burger" theme.

The food is fun too - one has the option to get honey wheat buns. Second, there are char-grilled options."The health freak society is excited we are in town," says Sana Chopra, a director in CybizCorp. "We also batter bread and fry our chicken tenders, legs, wings and onion rings. It is done in the restaurant fresh. It takes longer to do it than other QSRs, but we are in the middle segment - not QSR, not fine dining either," she adds. Her cheapest burger sells for Rs 99; the most expensive is priced at Rs 289.

The other American brand in the middle segment is Wendy's, whose highest priced burger comes for Rs 199. "That's the middle," explains Chhabra, Promoter of Sierra Nevada Restaurants. "We are not in the category of McDonald's, and we have not gone into fast casual pricing." The brand's Sector 29 outlet in Gurgaon appears more like a casual dining restaurant though. The food is served in bone china plates - there is no wrapper around the burger either.

The new kids on the block do have challenges. For fast growing companies such as Burger King - it has started 32 restaurants since its launch in November 2014 - one of them is choosing the right real estate. "The malls can be done quickly, but there are not many malls in the country. The growth will come from high street and zeroing in is a challenge," says Rajeev Varman, CEO of Burger King India. More competition for real estate implies higher rentals and, thereby, pressure on margins. A second challenge is recruitment of the workforce - on an average, one Burger King store can have 35 to 40 employees in different shifts. For chains such as Johnny Rockets, where burgers can cost Rs 400, scalability can be the itch: will it find enough takers beyond large cities? "Johnny Rockets fits all formats - we can be in a food court, a smaller footprint store, standalone or even a sports bar. We are flexible," defends Bakshish Dean, Executive Director at Prime Gourmet.

Most of the "toddlers" are nimble. And the fact that most have started out by building their North Indian bases first, says something about the problems at McDonald's - the company is in the middle of a legal quagmire with Vikram Bakshi, the former Managing Director of Connaught Plaza Restaurants Private Limited (CPRL), the joint venture company of McDonald's, responsible for North and East India. The dispute was sparked by McDonald's decision not to reappoint Bakshi as Managing Director in August 2013. "It is understood that the present situation is causing a lot of harm to the brand. Growth is petering out. There is no doubt it gives added advantage to other QSRs, especially in the North and East," says Bakshi, adding "this is my personal opinion." McDonald's opened 27 restaurants in 2012 in North and East India. It slid to 13 in 2013, and to nine in 2014. In 2015, it has opened two, thus far.

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