Since time immemorial, Indians have been bombarded with snacks-to-go by street vendors; fastfood is neither a modern phenomenon, nor a western innovation. But as increasing numbers of international players enter the domestic market, there are bitter lessons to learn about what local consumers will and will not welcome. just-food.com’s Debasish Ganguly reports from India on the evolving sector and the challenges facing new entrants into the fastfood market.
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Fastfood is not an alien concept to Indians; roadside shops have offered snacks-to-go since time immemorial and the country has a long tradition of indigenous fastfood served by a variety of street vendors. Whether the southern ‘Dosas’ or the ‘Phulkas’ in the north, the ‘Vada’, ‘Samosas’ or ‘Bhelpuri’, this inexpensive cuisine is still going strong, and street selling is a low-cost method of food distribution.
However, since the arrival of established fastfood chains such as McDonald’s, marketing savvy and dollar power have given fastfood a very western orientation. The weekend stampedes outside any McDonalds restaurant are standing testimony to this fact.
But the burger behemoths still have a long way to go. Local fastfood is not easily undermined by these interlopers, since methods of mass production have not been perfected and, in any case, they would have to compete with low cost ‘artisan’ production. On the other hand, the reality is that established local fastfood chains, like Nirulas, Wimpys or Haldiram, are sensing competition by the growing popularity of McDonald’s and other international chains. Though Nirulas does not admit to any drop in sales overtly, industry sources reveal that they have lost 18% of their original market share.
So far, the fastfood chains have gained their popularity among the major metropolitan cities of India and some smaller cities, such as Pune or Baroda. Before the arrival of these fastfood chains, Nirulas was the market leaderin Delhi. In fact, Nirulas taught Delhi-dwellers what pizzas and burgers were all about. Nirulas was commanding a monopoly until western chains arrived in India.
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By GlobalDataOpposition to western chains
Initially, when the larger fastfood chains first started to enter the Indian market, they bore the brunt of domestic opposition to foreign investment. Even when permission was secured to open an outlet, companies faced organised boycotts and threats of violence. In one celebrated instance, a KFC outlet was closed for breaching local hygiene regulations.
As late as 1998, the Hindu extremists of the Vishwa Hindu Parishad (VHP) party campaigned against a new McDonald’s outlet at Ville Parle in the Mumbai area, initially against its supposed use of beef (untrue – McDonald’s bowed to Indian tastes and dietary practices by eschewing beef or pork in favour of using mutton). Later the VHP took a ‘swadeshi’ line, accusing the company of taking away local jobs. Ironically, local catering businesses did not support this campaign – they saw it as threat to free trade.
Market size and brands
The organised fastfood market is estimated to be worth around Rs2000m (US$41.8m) with Delhi accounting for almost 40% of this, closely followed by Mumbai with 30%. The major fastfood chains operating in India include McDonald’s, Dominos, Pizza Hut, TGI, Pizza Express, Pizza Corner, Nirulas, Wimpys,and Haldirams. Pizza Express, Nirulas and Wimpys have all restricted themselves only to Delhi, whereas others have presence in major metro cities. Dominos has the largest spread, across 12 cities.
Consumers
High-income Indian consumers are seeking variety in their choice of food. Urban Indian consumers are aware of various international cuisine (Continental, Chinese, Mexican, Italian and Japanese) and increasing numbers are willing to try new foods. Middle class and affluent Indian consumers prefer snack foods and are driving the growth of fastfood chains. Over 16% of the population of Indian women work full-time and spend most of their time away from home. Due to these social changes many Indian consumers are opting for convenient meals solutions on-the-go.
The Indian desire to indulge the taste buds with spicy flavours is, however, something of a problem for the international chains, with their typically bland foods. All of the chains have therefore been trying to address this problem by adapting their menus to the particular Indian food style. McDonald’s has proved particularly successful at catering to those tastes. The global giant is often criticised for standardising tastes, and serving the same burger the same way everywhere in the world, but that is far from the truth. Though the core menu – including hamburgers, Big Macs and fries – is available in any McDonald’s outlet, it is often complemented with an array of localised choices. Usually in Asia, about a third of the menu is made up of dishes unavailable elsewhere, like Pizza McPuffs in India. In fact, all the McDonald’s outlets in India feature a menu that is 75% locally developed.
Strategy
The leading domestic fast food chain – Nirulas – has meanwhile been playing on the fact that it has an extensive menu, insisting that other factors such as restaurant ambience and the whole eating experience also make a big difference to the customer. McDonald’s, for instance, plays very heavily on the ambience factor, combining it with affordability. The international chains have also changed the concept of ‘fresh food’. While Nirulas still operates with a centralised kitchen in Okhla, Delhi, supplying the food to all of its restaurants, others chains such as Dominos, Pizza Express, Pizza Hut and Pizza Corner, hand toss their pizzas after the order is placed.
McDonald’s has taken freshness to another plane all together, by establishing an extensive cold chain system. For example the lettuce used in burgers is exposed to the open air for less than six minutes, this makes sure it is as fresh as possible when it reaches the consumer.
Raw materials
Gathering the raw materials from domestic sources has been a challenge for the international chains. At first dependent on the imports, many have however been able to gradually develop their sources. For example, TGI Friday’s outlets source chicken from major domestic supplier Venky’s, spices from Kancor in Cochin, cheese from ABC Farms and vegetables from Mumbai-based Trikaya Farms.
McDonald’s meanwhile is now in a situation to provide advice to local farmers on how to produce the kind of food ingredients it requires. McDonald’s is helping lettuce supplier Ooty Farms with seed selection, drip irrigation technology and cold transportation. It procures mutton from exporter Al-Kabeer. Cremica Industries, a small Bakery in Punjab, is supplying bun and bread products and McDonald’s has entered into arrangements with other small Indian companies for products such as cheese, sauce and potatoes. Some other chains like Dominos procure foreign food ingredients from Indian importers, while Nirulas imports its food ingredients directly from overseas manufacturers.
New entrant
The largest domestic and internationally reputed dairy product manufacturer Gujarat Co-operative Milk Marketing Federation (GCMMF) has forayed into a fastfood chain business very recently. Their brand has been a huge success in India. The organisation now plans to set up around 2000 pizza parlours across India. The basic idea behind this is to establish consumption of ‘mozzarella cheese’.
Industry sources reveal that the next largest competitor to McDonald’s worldwide, Burger King, is also eyeing India.
Fastfood chains spreading fast (Number of outlets)
Brand 1996-97 1998-99 2000-2001 2005
=========================================================
Dominos 5 28 60 100
KFC 3 5 Discontinued -NA-
McDonalds 3 15 30 80
Pizza Hut 2 10 15 30
TGI Friday 1 1 2 5
Pizza Express 1 1 2 4
Pizza Corner – 4 25 50
The above table indicates the way the fastfood chains are spreading in India. McDonald’s has plans to establish new outlets at the newly constructed highways and expressways in and around Delhi. The only unsuccessful story is that of KFC which did not blend well in the Indian market.
Challenges for international fastfood entrants
- Cold Chains in India are inadequate so sector entrants must have their own system.
- Raw materials sourced from India sometimes may not match the international standards.
- Continued competition from the culturally embedded ‘artisan’ sector.
- A large majority of Indian consumer still prefer traditional style and ethnic cuisine in restaurants.
By Debasish Ganguly, just-food.com correspondent in India
