Why McDonald's is Not Afraid of Competition in India

Even as new entrants like Burger King, Wendy's and others flood the Indian market, McDonald's - which was one of the first multi-national fast food chains to enter the domestic market - says that it is glad that competition is hotting up.

"The more competition that comes in I feel it will expand the QSR (Quick Service Restaurants) business in the country. Consumers will have more and more opportunities to use QSR which brings them back in, so it's a bit of a cycle that is fuelled further by competition so it's not a bad thing in totality," Amit Jatia, vice chairman, Westlife Development told NDTV in an interview.

Westlife Development Limited focuses on putting up and operating Quick Service Restaurants (QSR) in India through its subsidiary Hardcastle Restaurants Pvt. Ltd. (HRPL). The company operates a chain of McDonald's restaurants in west and south India, having a master franchisee relationship with McDonald's Corporation USA, through the latter's Indian subsidiary.

"I genuinely believe that competition is good because it pushes brands like us which have been around for a while to keep innovating and to stay current with the consumer and one of the biggest innovations we have done in the recent past in the Indian market is around McCafe - today we have over 45 McCafes and we intend to more than double- triple that in the next 12-18 months."

McCafe is McDonald's in-house chain of coffee shops.

"And the whole idea is that today you can get a premium coffee at a McDonald's at a reasonably affordable price and along with that we have re-imaged all our restaurants so that they are relevant and current for today's consumers," Mr Jatia said.

The company plans to invest Rs 750 crore to double the number of restaurants it has in the next 5 years.

Following are edited excerpts from the interview to NDTV: (Watch full interview)

The reason why competition helps is sometimes when there is demand and there is no availability of that particular product, it does not grow the market.

While the demand is there as consumer gets more and more opportunity to use the brands, overall it grows the market and what I mean by that is the frequency of eating out which is currently at eight or nine times a month in a (city like) Mumbai, we believe will then get pushed to 12 or 13 times and we believe that everybody who is operating in the QSR industry gains with that.

So I think in a nascent market where the penetration of the category is very low, when you grow the penetration of the category it helps everybody, all players.

Infrastructure and early mover advantage: Of course from a McDonald's point of view we believe we have a phenomenal infrastructure, the work we have done with our supply chain, the work we have done with the 200-300 million customers who have used McDonald's for these 10 or 15 years clearly puts us at a strong advantage and we think that as the category grows, we feel that we will be among the first ones to get advantage of that.

Between 2003 and 2013 what happened in the eating out segment, the same thing is happening with home delivery. The good news is that given the 215 restaurants that we have across the country, these are all platforms that allow us to do delivery business as well.

Even if you go 10 years back, the frequency of eating out in a month even in a city like Mumbai was only three times, from 2003-2013, the frequency of eating out went to eight times to nine times.

Consumer sentiment: As far as the current consumer sentiment is concerned we do believe it will take another three quarters or so - it is obviously a guess, nobody can really predict when it is going to change but we believe that as that changes with us the new foundation, things that we have done with re-imaging, McCafe, the work we are doing with our delivery business, our dessert kiosk and some menu work - we think it will all help us get back the same positive same store sales in the coming months.

Home delivery business: So we reported in FY15 last year that we grew the total delivery business by 30 per cent, so the good news is that McDonald's is a strong player in the delivery business therefore we are also taking advantage of the growth in that segment.

The last point is that delivery is always a different sector and a different segment, just because you can order food at home doesn't mean that you're going to stop going out.

So going out, meeting with friends, celebrating with friends at restaurants, that's all part of life, which I don't think is going to change and delivery will be an incremental business for all the players who are in the delivery business.

Online orders: As far as online is concerned we are fortunate that we have a very strong online platform, in fact today you can use McDonald's by ordering on the web, we have an app that you can use to order as well and in the last almost 18-24 months 40 per cent of delivery business is coming through online, so the good news is that McDonald's has a very strong presence there as well.

Healthy initiatives: Recently we reduced the calorie content of our sauces by 60-70 per cent, which effectively reduced the calorie content of our burgers by 7-9 per cent. On top of that our ice-creams, our milkshakes are 3 per cent fat, additionally we provide enough options to consumers for example, our egg burger is a steamed product and is a high-protein product, we have a salad wrap also. And the whole idea behind what we are trying to do is to be innovative.

P&L drag: Because we are in the development phase and right now for us it is about building capacity, building restaurants - what happens is when you build more restaurants, it takes two-three years before you start making money from those restaurants. Today almost 42 per cent of our restaurants are less than three years old and therefore there is drag on the P&L (profit and loss) with respect to that.