Sunday, October 14, 2007

Some McNuggets (Nuggets on McDonalds)

I am going to take up the Internet India market stagnation story (see my Oct 6 post) later. Meanwhile, having partaken of a beverage posting (Oct 2) earlier, now have an appetite for some food, so here goes.

Here is gyaan regarding McDonalds in India and in the U.S. home market. I have drawn on recent interviews in Economic Times & Pitch magazine given by the company's two master franchisees in India. With inputs also from their website and my own experience with the brand both in India and in the U.S.

I have grown to admire the company for the circumstances and manner in which it has recently revitalised itself in the U.S. market. Am also an admirer of the efficiency and consistency with which they run (the world's largest) franchise network.

And in India, they are one of few multinationals who got their strategy right first time and they have built a brand with an enviable following.

McDonalds (NYSE : MCD) is the world's largest single food outlet brand with 30,000 outlets in 100+ countries globally. The company was founded in 1955. McDonalds serve over 52 million customers daily. McDonalds is also the world's largest franchise chain, with over 70% of above outlets being franchisees. And in the brand rankings of leading consultancy Interbrand, McDonalds has been been in the top 10 global brands.

The company has been under attack in its home market in recent years thanks to the anti-obesity movement. The brand was witnessing stagnant sales.

However, what's creditworthy is that how well this large, mature organization has been able to pull itself out of the above hole it had got into. In 2003, during a time when I was working out of New York city, McDonalds had announced it's first ever quarterly earnings loss since it went public in 1965.

However,business has of late been booming, with a healthy increase in same-store sales over the same period of the previous year. There was 5.1% growth in the U.S. in same-store sales in Q3 '07 over the same period of the previous year.As against this, Pepsi's Yum Brands, the owners of Pizza Hut, KFC & Taco Bell, saw only a 1% growth during the same quarter. And the stock is outperforming analyst's expectations.

A revamped menu which includes chicken snack items and breakfast items has helped. Former Chief Marketing Officer Larry Light's "I'm Lovin' It" campaign has worked well. The campaign was produced - quite unusually - not in Madison Avenue - but by an office of DDB Worldwide, part of the Omnicom Group, in Unterhaching, Germany, near Munich. This ad outfit was selected after a global contest. The new theme had, as of Oct 2004, already helped contribute to 16 consecutive months of global sales gains after years of declines. In Larry King's words, it was a consequence of a realization at McDonald's that "we had to change our voice and let the customers speak for themselves."

Larry Light was also one of the first marketers to move away from exclusive use of mass media, as early as 2004.His strategy entailed employing many messages instead of one message to reach every one. He called his technique "Brand Journalism" and he said "it's the end of positioning as we know it".Some more nuggets on Light's tenure at McDonalds here.

McDonalds is a QSR or quick service restaurant with focus on Quality, (2000 food,safety & quality checks as it moves from farmhouse to restaurant), safety (72 quality protocols are conducted every day at each outlet), quick service and cleanliness . Under attack in the U.S. in recent years for it's - alleged - fattening menu, there has been a thrust on nutrition as also on CSR ( corporate social responsibility) initiatives.

The company spends over $1 billion p.a. on training. The employees are trained at the company's Hamburger University, for which they get credits towards a U.S. university degree.

In India :

They have 121 (here is an update from a feature in Hindu Business Line on Oct 16th) outlets in India, having invested Rs. 8 billion so far. They plan to invest an additional Rs. 3 billion over the next three years for back-end operations i.e. for improving productivity of food processing plants and suppliers,for expanding and testing new formats and for entering new markets.

The company operates through two 50-50 joint ventures between McDonalds Corp and two Indian businessmen. The first is Hardcastle Restaurants in Mumbai which is run by the husband-wife duo Amit & Smita Jatia and which is responsible for all outlets in the Western region. It commenced operations in April 1995.The other JV is Connaught Plaza Restaurats which is based in Delhi and which runs the North region. Here,Vikram Bakshi is the India partner.
The two companies between them employ about 5000 people, with between 60-80 hands per outlet.Every new employee is sent to the stores for four weeks training and goes through the entire rigmarole of duties such as serving people and cleaning the floors ad tables.

The company's plans include making French fries locally at a plant to be set up in Gujarat by one of its key supplier partners worldwide viz. McCain Foods.An outlet is coming up at Delhi airport, so also at old Delhi railway station. Towns like Meerut, Varanasi, Karnal,Kanpur & Gwalior will see expansion.

Sales (actual numbers are a guarded secret) to kids are down in India, consciously so. Thanks to the junk food and obesity concerns.Kids now account for only 18% of customers down from 33% when the company started ten years ago.This percentage is believed to be the the lowest among all countries where McDonalds operates.

In India the company is fastidious about showing it's respect for vegetarians as also locals (read Hindus & Muslims). All cheeses and sauces are prepared from veg ingredients. Only vegetable oil is used a cooking medium. No beef or pork are used or served at all. Veg products are prepared in separate utensils and also procured through a separate chain.

Some of the innovations for which Indian consumers know and probably love McDonalds :

  • Low cost products such as the McAloo Tikki & McChicken Grill (just Rs. 20). In fact, the company has consistently followed a value for money pricing.
  • McDelivery (call and you can get their items home delivered).
  • A range of innovative Indian menu items

By itself, each of the above three innovations are not unique. However, in each case, McDonalds was one of the first MNC brands to make such moves in the Indian market - as also succeed at them. Not many MNC brands have launched themselves with value-for-money pricing and created localized products and services right from day one. And McDonalds has been doing such localizations ever since they launched in India over 10 years ago.

A footnote : Localization has been around at McDonalds in other countries too. Euro RSCG CEO George Gallate is quoted in Times of India of Oct 20 as saying that McDonalds learnt the importance of localization the hard way. "When McDonalds tried its one-size-fits-all model, it didn't get a huge amount of traction in markets like France, China or the Middle East.What the people at McDonalds realised that was that they needed a global brand that was tailored to local markets. So they started selling noodles in China, used beetroots in Australia and put falafel burgers onto the menu in Middle East. They delivered the core of what they stood for - fast food - tailored to local markets".

Saturday, October 06, 2007

India's Internet user base : A Hindu rate of growth

It is of some interest to understand why India's Internet user base is not really growing and remains stuck at a low penetration level.

Both the telecom and Internet sectors were privatised at around the same time in the late 90's. But the Internet user base has witnessed a Hindu rate of growth of about 20% p.a. ever since the year 2002. It was only in the boom period 1999-2001 immediately after privatisation of the ISP sector in late 1998 that the user base grew impressively, at over 200% p.a.

On the other hand, telecom has grown by an order of magnitude i.e. 10X faster. The number of Internet subscribers as of end June '07 (the latest period for which data is available from the TRAI) is 9.22 million. The thumb rule is to take at a conservative basis 3 Internet users for each subscriber (ISP industry association ISPAI's old thumbrule). Thus, there are a total of about 29 million Internet users (defined as users who access the Net at least once a month) as against 200+ million cellular users.

Yes, one hears that there is now traction in access to the Net via mobile phones. Economic Times (Oct 6,'07) reports that 38 million Indians now access the Internet via their mobiles. And that this number grew from 31 million the previous quarter. And Indian Cellular Association Pankaj Mahindroo is quoted as saying that of the 7 million handsets sold every month, over 4 million are net-enabled.Some confusion here. Not clear whether 38 million mobile users are today Net-enabled i.e. GPRS subscribers etc. or just Net-ready handsets. And, even if they are Net-enabled, whether they actually log in.

Even assuming these are all Net-enabled / GPRS-enabled handsets, it is likely that these 38 million mobile Net users overlap with the very 29 million ones who use the Net via the PC.

Thus on a population of over 1100 million our Internet penetration rate is close to 3%. This is among the lowest Internet penetration rates among all countries.

The world average Internet penetration is in fact 19% (Internetstats puts the Indian penetration at 5.3% and user base at 60 million : one reason they are higher than the TRAI-derived number is that they count "ever used" numbers and not the "logged in last month" numbers).

The stats on minutes of usage per user as well as broadband penetration are not too impressive either.

The niggardly Internet usage & growth is a matter of concern to many, among them bureaucrats, Internet industry folk, VCs and all well-meaning folk. The moot question is : why has the Internet lagged in India?

There are to my knowledge no indepth studies on this, though theories there are a few. Having been involved in the industry over the last 8 years, I shall - in subsequent posts - comment on these theories and hazard a few answers myself.

Tuesday, October 02, 2007

Beverage companies

One of the most interesting things for a marketer is facts about a category of interest.Here are some nuggets on the beverages industry that I picked up last few days.

Pepsi has divided it's product portfolio into three groups (the classification is telling) :
Fun-for-you e.g. Pepsi beverage
Best-for-you e.g. Diet Pepsi
Good-for-you e.g. orange juice
Currently, fun-for-you accounts for 70% of the total business and over the next decade, the company seeks to reduce this to 50% and increase proportion of best-for-you and good-for-you.

For Coca-Cola, 30% of all beverages are consumed in emerging markets as against 70% of business from the developed markets and the former are enjoying unprecedented growth with large numbers joining the middle class. The company has 400 brands across carbonated soft drinks,juice,water,tea,sports drinks, sparkling water and energy drinks among others.The company had problems in the early 2000s due to an inward looking culture,lack of focus on customers and innovation and lack of alignment with bottlers. However, in the last 18 months the company has grown in both emerging and developed markets and the stock price has risen by 40%. The company's President & COO Muhtar Kent says it is because it has become better at commercialising it's innovations and succeeding with it's new product launches. Also, a "winning culture" defined by him as "belief in knowing what we are doing and where we are going".

And India is the only market where a local brand (Thums Up) has done as well as the flagship brand Coca Cola.

UK's Datamonitor Group's data shows that carbonated beverage sales have been nearly flat last 6 years (growth at 1% p.a.) while the overall beverage market has grown reasonably at 6% p.a. :
Carbonated drinks $1.31 bio (1999) $1.32 bio (2006)
All drinks $3.15 bio (1999) $3.34 bio (2006)

Tata Tea has some interesting plans.They overtook Hindustan Unilever two months ago to become the volume leaders in the tea market (HUL remains the value leader). The tea market in India is valued at Rs. 110 Billion with a tonnage of 950 million kg. Black tea volumes are stagnating causing tea companies to push the other varieties.

Tata Tea has now launched a new campaign "Jaago Re" to position the Tata Tea brand as an umbrella brand to the four product brands of the company. The multimedia campaign is targetted at youth, uses a 45 second commercial and revolves around the theme of awakening youth vis-a-vis various social causes. A cup of Tata Tea "awakens" you, seems to be the subliminal message.

Starbucks which has it's stores in 40 countries already,has for the moment shelved plans to enter India. However, it has entered into a global arrangement with Pepsi to market its ready-to-drink products through Pepsi's distribution system. This could well result in Starbucks bottled drinks hitting the market here in India ahead of it's retail stores. Incidentally, all of Starbucks' 11,000 odd stores are owned, not franchised.

Hey, marketing guru Seth Godin has this number for the different number of customized beverages one can get made at Starbucks : 19,000,000.

Joseph Mitchelli, author of book The Starbucks Experience who was in Mumbai recently for the Asian Brand Congress has this to say on what a Starbucks (customized) beverage is : 'customization - with the handcrafted assistance of the barista or coffee preparer - is about satisfying each customer's unique expectations, and often involves special temperatures,soy milk, and various pumps of flavor. It is not uncommon to hear customized orders for drinks as complicated as "quad,two-pump vanilla, one and one-quarter pumps sugar-free hazelnut,ristretto latte, with one-quarter soy, one-half non-fat,one-quarter organic milk,extra hot,with three ice cubes and whip!' This is what Seth Godin refers to when he mentions 19 million variants.

Mitchelli further quotes Starbucks founder Howard Schultz on the Starbucks brand :
The success of Starbucks demonstrates ...that we have built an emotional connection with
our customers...We have a competitive advantage over classic brands in that everyday we touch and interact with our customers directly. Our product is not sitting on a supermarket shelf like a can of soda.
(This reminds me of websites which are interactive too in somewhat similar fashion!) Our people have done a wonderful job of knowing your drink,your name, {and} your kids' names.
Further, says Schultz:
We are not in the coffee business serving people, but in the people business serving coffee.
The equity of the Starbucks brand is the humanity and intimacy of what goes on in
the communities...The Starbucks environment has become as important as the brand itself.

U.K based Costa Coffee (their brand graphics have a close resemblance to Starbucks, no idea how they got their copy-cat trademark through!) has entered Mumbai through an arrangement with Ravi Jaipuria who is also the franchisee for Pepsi's Pizza Hut & KFC. They have an outlet in Juhu at a you can't miss it location, right where a Sony outlet used to be. Understand from HT Cafe columnist Vidhi Bhargava's column that they are in Agra, Amritsar & Lucknow already. The chain was started by Italian brothers Sergio & Bruno Costa in London in 1971.Vidhi rates it a cut above many cafe joints but says it's too early to say whether it will pose serious competition to CCD, Barista and Mocha.

This is me

Hey, this is me. Clicked by my photography-enthusiast daughter Anisha - on the occasion of our son Rahul's 15th birthday on 25th April '09 in our club next to our Mumbai home.The pic below was clicked by Anisha too, outside the doorway of our Mumbai apartment way back in '07.