McDonald's believes in mass market domination: Amit Jatia

Burger chain McDonald's today faces much more competition in India than even three years back. The company, however, is on a firm footing, Vice Chairman of Westlife Development Limited Amit Jatia explains. Westlife, through its subsidiary Hardcastle Restaurants Pvt. Ltd., operates McDonald's in west and south India.

Q. How has the burger market in India evolved since you first started in the 90s?

Jatia: Every category and product has a life cycle. When we came in 1995-96, we introduced burgers. People started understanding what a burger means; they started eating and coming to a QSR like McDonald's. They understood its more than burgers - there were french fries, sides, ice creams, shakes etc. We established our proposition in the minds of the consumer. What started as a fad and a status symbol, became a necessity. What do I mean by that? In 2003/04, people were using McDonald's as an occasion to celebrate, over the weekend. By 2010, people were using it to refuel - as their place to eat. We became part of their life.

Q. The market is now seeing a price segmentation. How will the competitive landscape pan out?

Jatia: People read too much into price segmentation. We don't only operate with aloo tikki. We have a whole range. Spicy Chicken is over Rs 100. We have our wraps that are over Rs 100 as well. But in 2003, when we launched our 'Happy price menu', it made burgers affordable to the mass market. Because it became mass market, it exploded. Because we created the market, people think that we operate at the value segment. Value is relevant for the product. It is not about low price. Nobody likes to pay more.

McDonald's is a mass market brand. Being affordable to as many consumers is what McDonald's stands for. Making aloo tikki affordable cracked the barrier. What Maruti Suzuki did many years ago by introducing the 800 (model), is what we did with our 'Value price menu'. But doesn't Maruti have higher end products and still remains the leader? We have kept introducing products over the last 20 years.

So where are we today? More the competition, the market grows more. All these new people have one restaurant or two restaurants. If you collectively take the older guys (in QSR), they have over 1,000 restaurants. It is not an impact issue as yet from the new brands. Given that there is a certain positioning many of the current brands occupy, most people are reading the market by product cycle evolution. Once people get used to a product and understand that, the next cycle is that they want more features - bigger burgers.   Let's understand bigger burgers. If you go at 4 P.M. to a Mc Donald's, would you eat a big burger? Probably, no. But if you go for dinner, would you eat a small sandwich? No. So a company has to have a range of products.

To my mind, it's the natural evolution of a product cycle.  First, there was an introduction. Now everybody is competing by adding bells and whistles, which is excellent. The sector penetration will go up.

How would the marketing landscape look like, going ahead? Wendy's, Carl's Jr and Johnny Rockets wants to position themselves as adult burger chains … In a large market, there is a niche play available. It depends on your ambition. You take detergents or cars, there are always players who own the mass market and then there are players who play in certain pockets of the market. McDonald's believes in mass market domination. Mass market penetration rather.

There are niche players and it is their strategy - I am not saying it's right or wrong. But it depends on how quickly the market of India evolves; it also depends on what consumers are willing to pay  today for burgers versus pizzas versus Chinese versus something else. All of that matters. Second, if you are playing in a certain segment, your total scale available might be only so much. For us, we want the market size to be large. We have a breakfast menu, we have lunch, dinner, snacks, desserts, beverages. Because we cross vertically and horizontally, we are able to capture a very large part of the total market.

Q. Are customers now willing to pay more for a better burger?

Jatia:  What you are saying is that if the burger is cheap, it is not better. If you buy a Honda City and compare that to the highest brand of Honda, it doesn't mean that the City is a bad car. My point is that just because you are priced higher, it doesn't mean you are a better burger. The foundation that McDonald's has built in the supply-chain is unparalleled. If you speak to any food supplier, they would tell you that the standards we have puts them to test. The ingredients and quality we insist on … there is not a another brand that has the same standard.

Q. Lot of your India success is because of the supply-chain?

Jatia: It is one of the key ingredients. There are many that lead to the success of QSRs. The foundation of supply-chain is important. Second is the right real estate. Third is people - trained and those who can handle a services business.

Q. Has the efficiency of the supply-chain lead to better cost management?

Jatia: First, better quality. Then as your scale grows, it deals with the cost as well. But by putting up the whole cold chain and ensuring that it works, the real cost goes up. People don't understand the value chain. Farm practices in India aren't developed. When a farmer picks his vegetables, there are a lot of foreign particles that come along. We have to put in a lot of extra effort. Two, the cold chain does not exist in India. It costed us more. So our supply-chain allows us to give consistent quality to our customers. The cost structure changes when you get the scale.  While we think Mc Donald's is really large in India, in a QSR business, 400 (odd) restaurants is very small. Typically, you need 500-1000 restaurants to get scale.We are far ahead of our competition but our quality standards are also very demanding. That raises our costs. But we will continue to reap the benefits.

Now the competition has also tapped into the same supply-chain?

Jatia:  Many of them. Absolutely.

What does it mean as far as competitive advantage goes?

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. More to us because our volumes are far higher. So we don't mind. Our formula is different. The quality of potatoes we demand is high. It is also the way we process, about transportation and what equipment is used in the kitchen. The kitchen equipment we use is amongst the best in the world. The cold chain allows us to transport the product better and our distribution centre has the highest standards. So it doesn't bother us if they use our supply-chain.