Big Mac’s different strokes


August 29, 2012

Raghavendra Kamath & Vinay Umarji, Business Standard

Mumbai/Ahmedabad Aug 29, 2012

Stung by a consumption slowdown and cut-throat competition from other quick-service chains, Big Mac is trying hard to give customers more reasons to come to its stores. So its latest India menu now comprises a differential pricing strategy and better in-store experience.

While Vikram Bakshi’s Connaught Plaza Restaurants, which has a joint venture with McDonald’s and has rights for the north and east, cut prices by 6-15 per cent from August 1 to boost sales, Hardcastle Restaurants, a development licensee of McDonald’s which runs West and South India operations, has refrained from doing so.

“When customers are feeling the pressure of inflation from all sides, we thought it is a good time to rationalise prices,” says Bakshi. He claims the chain has seen 10 per cent increase in sales, though it has taken a hit of 40 basis points in its margins after it cut prices. “We think 10 per cent growth is far superior than a 40 basis points hit on margins.”

Bakshi may have a point as early this year, Pizza Hut, run by Yum Restaurants India, launched the ‘Rs 29 pizza’ and KFC added two snacker burger and new beverage Krushers Frappe to its Streetwise Menu which starts at just Rs 25.

But Hardcastle’s Amit Jatia has a different take. “We do not need to reduce prices as we are seeing a strong comparable sales growth in our stores in the south and west. We believe consistency in offering ‘everyday low value’ has paid off for us,” says.

Doesn’t such differential pricing create confusion in the minds of consumers? Jatia does not think so. “Anyway, different states have different taxes which make prices different. The consumers’ perception of value is also different,” he adds.

Even retail consultants such as Devangshu Dutta, chief executive, Third Eyesight, see logic in the move. “Firstly, in India, McDonald’s has two JVs with separate P&Ls – so the opinions of the partners in their respective regions would have more weight than a simple franchisee’s would. Secondly, local relevance of product mix and pricing is a key driver of success in all retail products.”

Besides pricing, McDonald’s is also experimenting with different formats to woo customers. While Jatia’s Hardcastle is looking at bigger restaurants of 4,000 sq ft , Bakshi recently launched smaller-sized ‘remote kiosks’ which are within three to four kms of a “mother store” and located at metro stations, hypermarkets and high streets.

While Hardcastle has around 35 kiosks and 26 drive thru’s, it plans to have 25-30 kiosks and a similar number of drive thru’s in the next two-three years. It plans to open 35 to 40 restaurants this year.

McDonald’s is also opening new stores and revamping the existing ones under new designs to make them more appealing. So you have cushioned bar stools, plush LED lights and POS/EDC terminals from the earlier stainless steel furniture and dim yellow lightings. “We have learnt that design has to keep up with consumer demands,” says Jatia.

Being modern and contemporary also led McDonald’s to increasingly accept credit cards at almost all its new outlets.

Experts, however, say the improvement of McDonald’s stores should have happened much earlier. QSRs, which focus on coffee, have overtaken McDonald’s. There is no doubt that McDonald’s needs to look contemporary, soft and modern with cutting edge,” says Harish Bijoor, CEO of Harish Bijoor Consults Inc.

Even for Shripad Nadkarni, founder director, MarketGate Consulting, a brand consulting firm, McDonald’s stores had begun to look “dull” for some time now. “One of McDonald’s’ biggest successes is understanding the Indian palate. They draw on ‘glocal’ products which have been a huge success for them. However, where McDonald’s was lacking was in-store experience. Their stores needed improvement. It now seems the in-store experience is moving along the consumer preferences,” says Nadkarni.

When compared to its peers like Subway and KFC, McDonald’s also has to keep its target audience in mind while planning the in-store experience. “Subway caters to an adult audience, KFC looks to focus mostly on non-vegetarians while McDonald’s is about family and kids. Subway’s appeal is more towards a mature consumer segment while McDonald’s is more about family time,” says Nadkarni. Needless to say, McDonald’s’ new stores offer ample space for kids’ play area, thereby tapping its consumers’ family time.

The chain will first renovate those that are more than 10 years old. For the rest, it will adopt a ‘mini-market’ approach. “If we have five stores in the same area, then we’ll partially renovate all of them so that some consistency is managed in the design,” Bakshi says.