Can Zinger become the Big Mac in India?
Shrugging off its early failure, kfc from the stable of yum! brands is now eyeing to replicate its chinese success story and trump mcdonald’s in the indian market. but the question remains – can it beat mcdonald’s first mover advantage in this market, and of course its robust supply chain?
Starting in 1996, after a slow and circumspect start, today KFC is Yum! Brands’ best performing subsidiary in India, well ahead of Pizza Hut – once the flagship for the US-parent company in India. It is worth noting that with KFC Yum! Brands is hoping to create a China like success story in India. Today KFC is 80% of the Yum! Brands’ over 4,200 outlets in China – a market which contributes 33% of its global revenue. That is because while India being a chicken loving country, the chances of KFC’s continuing success becomes stronger, more so as offerings like Zinger Burger, and the trademark KFC hot and crispy chicken offerings, are gobbled by urban India. Officially the QSR chain is growing at a blistering 70%. And the company has already started eyeing for bigger targets. When asked about the company’s target to hit Rs 10 billion turnover in India, Dhruv Kaul, Marketing Director, KFC India says, “With the kind of growth and expansion we are having, that looks a very humble figure, we are aiming much higher in the coming years.”
However, to achieve these bigger targets, KFC has to take the game away from McDonald’s, which has a very strong presence across the country. Certainly, the QSR that believes in finger licking taste has outlined few key growth areas to take the matter forward. While keeping its great taste USP alive by further expanding and localising its menu is its primary strategy, increasing its footprints to roughly 50 cities, increasing the serving hours and thus drawing a broader customer base – especially among the Indian youth – are the key focus areas for the company now. Working on the lines, the company recently introduced Streetwise range starting at Rs 25 to cater to the college going youths, and lure the mass that have been loving McDonald’s happy price menu (starts at Rs 20) so far. KFC now aims to expand to 100 items serving all kind of customer needs from health to indulgence.
McDonald’s on its part knows that KFC is the one to watch out for. As such the Big Mac maker is on a good move growing at 35% over a revenue base that’s much bigger than KFC in India, and doubling its revenue every three years. But then the fact that the past couple of years have seen KFC’s aggression bringing it good dividends is something hard for McDonald’s to ignore. A serious competition is already in place. The flow at which both players have started offering new products to hit the other’s menu, explains how spicy the chicken and the burgers have become in the board rooms.
Outside their menus, both players are busy in outpacing each other in terms of reaching out to the mass. While McDonald’s led by its first mover advantage in India is leading the pack with around 250 restaurants across 50 cities, KFC’s ambitious expansion plan is targeting to increase the tally to 500 outlets by 2015 from 150 in 35 cities at present. Interestingly, 50% of the 1,000 stores Yum! Brands wants to open in India in the next four years will be KFC. The overall strategy is in line with Yum! Brands’ ambition to hit $1 billion turnover in India by 2015, and KFC will lead the charge. The parent company is set to pump in an investment of $150 million for the cause. But then McDonald’s has no intention to lose its numero uno spot as the QSR has already put forward its own expansion plans to scale up its number of restaurants to 1,000 by 2020 with an investment of Rs 10 billion. However, spokespersons from both the company’s mute the competition by saying, the market is too big and un-tapped for several players to co-exist. The big fight between the two best burger makers is gaining momentum, at least in India.
Experts opine that when it comes to preference, KFC is the winner with its unique chicken-based offerings. McDonald’s having more variety doesn’t have novelty factor for Indian consumers taste. Agrees Akshay Bhalla, MD, Protiviti Consulting, “KFC clearly has the consumer preference. But it has to work hard on its real estate locations and supply chain. If it gets these two things right, it’s a serious threat for McDonald’s with its great product line.” As of now, McDonald’s supply chain is more robust and its store locations are much better than KFC. And the Golden Arches is leaving no stones unturned to turn more enviable by innovating across various formats like drive-throughs, highways, and important locations. Something which KFC haven’t been able to do, as its focus on ambiance and a certain type of store look and feel curtails its expansion anywhere and everywhere. Probably that’s where the key lies too as Ray Croc, the McDonald’s founder once said, “We are primarily in the real estate business.”
There is no doubt that India’s rapid economic growth and integration with global economy has ensured that out of home consumption of food market grows as well. According to a RNCOS research report, the Indian Fast Food Industry is anticipated to grow at a CAGR of around 34% during 2011-2014. And organised retail accounts for only 2% of the roughly $90 billion Indian food industry pie providing both these players ample opportunities to thrive. But they have to deal with a stiff competition to be the market leader. In this while McDonald’s has the first mover’s advantage, KFC has the love of its trusted TG. But it is to be seen as to who will emerge as the eventual winner of the Indian QSR story.
So even as KFC will take heart from the fact that it has trumped McDonald’s in the China market, and might repeat the same in India as well, McDonald’s must be banking on its two franchisers (North & East) (South & West) to keep their smile intact from their knowledge of the Indian market.
Tags : zinger | KFC products | MC Donalds | |
The Sunday India Magazine
The web has evolved beyond our imagination. It has become quite uncontrollable and is rapidly changing. Social media has added to the complexity of online user behaviour. How do you – at ComScore – go about measuring the web, considering all its intricacies?
Just a couple of months after taking charge as President and CEO of Sony Corp, Kazuo Hirai visited New Delhi and Mumbai to strategise on new growth opportunities in India. The troubled global consumer electronics major saw its operating profit slid 77% to $80 million and it suffered a net loss of $314 million for the first quarter of the current fiscal ended June, results for which were announced in August. The figures, which incorporate Sony’s entire operation, represent a fourth consecutive year of losses for the struggling Japanese firm. With the company suffering losses globally due to adverse conditions in its major markets such as Europe and the US, Sony has set its sights on emerging markets like India to assuage the gravity of its losses. In line with this game plan, Hirai announced that Sony is targeting to treble its India revenue to Rs.200 billion by 2015. Sony India had clocked a turnover of about Rs. 63 billion in 2011-12 and is expecting a 35-40% growth in the current fiscal. 
According to Hibi, Sony’s inherent DNA is of a content and entertainment provider especially targeting the youth, rather than being a consumer electronics company in the mould of a Samsung, LG or Panasonic. “That’s why all our products have a high degree of lifestyle, entertainment and youth appeal value, be it the Bravia TVs, the Vaio laptops, the PlayStation or the Sony Pictures.” Sony’s roadmap for the Indian market focuses on growth based on three main pillars – TV, personal computers and smart phones – even as other segments like audio systems and cameras are expected to pitch in with their own share of contribution. “Demand here is strong and people are still coming to showrooms and buying our products,” says Hibi. He goes on to add: “We want to connect with consumers 24x7, both inside their homes through our Bravia range of televisions, and outside through our mobile offerings.” Sony is betting big on the replacement market of CRT TV users, 10 million of whom it feels is its target audience in the coming years, as they graduate to LCDs and LEDs.
While Sony’s exuberance for India comes from the fact that the country is already its fifth-largest (country-wise) market, the company has so far refrained from investing in manufacturing facilities here. Over time, as its share from India grows, the lack of manufacturing and sourcing capability within the country can come back to haunt the company. Currently, Sony imports 100% of its products from its plants in Malaysia (for TVs and cameras) and China (for mobiles, laptops). At a time when the company is facing exigencies globally and badly needs cash in hand, it is understandable that it does not want to spread its resources too thin. But with rising input costs, a weakening rupee adding to import pressures, and poor global economic sentiments, Sony has to walk a tightrope, watching its bottom line, besides having to price itself more aggressively in a market overflowing with quality products at competitive price tags. Probably it can learn some lessons from Panasonic, which is aggressively investing in India in a last ditch effort to remain globally relevant and is aiming to make the Indian market its manufacturing hub for the Middle-East and African market. Copying the Panasonic model may not work for Sony in India considering its different business portfolio. But maybe it’s time for Sony to shed its reluctance and start looking at localising its products to the needs of Indian consumers. The company seems to be taking initial promising steps in this direction. “I clearly see a shift in our design focus from Europe and the US to now also include the needs of the Indian market. Like our compact cameras have high zoom features, which is liked by Indian consumers,” informs Hibi.
Unlike in America and Europe where Sony has been overshadowed by the likes of more innovative and nimble players like Samsung and Apple, the company has managed to remain on a strong wicket in India. Sales of its Bravia TV, Viao laptop and Cyber-shot digicam continue to swell and rack up higher revenues for the company. And with plans to introduce greater product customisation and beef up its operations on the retail front, Sony could indeed well be on its way to taking the share of India’s contribution to its total revenues to 10% from its current 5% in the next couple of years. 
Whether Samsung will be able to sustain its leadership in India will also depend on how it sustains its leadership in the smartphone and tablet spaces globally. Though Apple is its biggest competitor, Samsung also shares a symbiotic relation with the former. Since Apple doesn’t make the iPhone itself, it depends on various suppliers, and Samsung provides some of iPhone’s most important components: the flash memory for apps, music and operating software; the working memory or DRAM and the applications processor, which account for 26% of the component cost of an iPhone. Samsung thrives on this business model; acting as a supplier of components for others gives it the scale to produce its own products cheaply. But if the Nokia-Microsoft combine can make a mark (considering the stakes for both, they are expected to be extremely aggressive with product launches) and if Apple starts getting more aggressive in third world markets, Samsung may find its leadership tougher to sustain. The threat will also be significant as the Apple-Samsung war intensifies in the IP arena. Samsung was recently stopped from selling the Galaxy Tab 10.1 in Australia. The two are in the midst of around two dozen patent wars in 10 countries. 
However, the possible threats for Samsung can be linked to it’s very penchant for going wide rather than deep. That may lead to the company losing its ability to successfully synergise businesses across categories (a problem that afflicts companies like Sony currently, see related story in this issue) and also keep bringing out successful products. For instance, who do you know drives a Samsung car? Moreover, Samsung has had great leaders in Chull and Lee so far, but who can guarantee the same in future? The current boss Lee Kun-Hee is already 68, and has initiated his 42-year-old son into the leadership role. Due to the complex family holding structure, it will be difficult for shareholders to oust a bad leader, unlike in the case of a GE or even a Nokia. Hence, Samsung will do well to shed off its Chaebol style of management, and get some management reforms going, even though it has done exceptionally well by bringing in a diverse mix of Western and Eastern (read Japanese mainly) management practices. If the rapid expansion strategies make the company relatively unmanageable, its remarkable advantages can erode very fast. 
Late last month, HCL Infosystems Ltd, a subsidiary arm of the $6 billion global technology and IT enterprise firm Hindustan Computer Limited, or HCL, announced that it was planning to hive off its hardware business into a separate unit in order to bring a sharper focus to its computing business and to streamline operations and bring in better economies of scale. The move did not come as a surprise as HCL’s hardware business has been in a trough for the past four years and its remarkable underperformance has stood in sharp contrast to the company’s software business. 
as it will heavily hit the parent company’s top line. But hiving off its PC business makes better sense. “It can then focus on mobility devices like smart-phones and tablets, though I still wonder why HCL hasn’t got into the smartphone space,” says Gupta. There is a big vacuum after Samsung, and people hardly buy that many LGs or Sony, so there is a chance of HCL tapping that market, as it can play on its strengths of producing better apps and localized content, besides also riding on its distribution strength. “If it can develop apps for others, why can’t it do the same for itself,” asks Gupta. 
Anirudh Dhoot is the scion of the Videocon Group. He is currently serving as the Director of Videocon Industries, and looks after many divisions, including the Consumer Durables vertical, DTH, Videocon Mobile services and Videocon Mobile (hardware). Before moving into his new role, he was heading the Electrolux business for the Group in India. Dhoot is an alumnus of the Cardiff University, UK, from where he completed his MBA. Having joined the family business straight after post graduation, at the age of 21, he became one of the youngest CEOs of India Inc. It was under him that the company’s State-of-the-Art greenfield plant in Kashipur (Uttarakhand) was set up. 
Manu Anand, Chairman and CEO of PepsiCo India joined the FMCG major as CFO of Pepsi Foods in 1994. Over the years he has worked his way up the company ladders with stellar deliverables and is often credited with the success of PepsiCo’s food business in India. It was during his leadership as CEO of Pepsi Foods that Kurkure, the largest salty snacks brand in the country, and Frito Lay, were launched. In this interview with Onkar Pandey, he shares his views on what all PepsiCo is doing to scale up its business in India and taking it to the next level of growth. 