McDonald’s, Domino’s Pizza success stories offer precious lessons for QSR players

By: | Updated: January 10, 2017 7:35 AM

The quick service restaurant (QSR) market has been going through a major overhaul in the past two-three years. Players, both domestic and international, are lunging at the prevalent fertile ecosystem, leveraging aggregators like FoodPanda and Swiggy while also rethinking their menus...

Even as many fast food chains, both desi and international, are busy battling for their share of the consumer wallet and appetite, western fast food giants McDonald’s and Domino’s Pizza are leading from the front with their nimble business models and agile adoption of technology.Even as many fast food chains, both desi and international, are busy battling for their share of the consumer wallet and appetite, western fast food giants McDonald’s and Domino’s Pizza are leading from the front with their nimble business models and agile adoption of technology.

The quick service restaurant (QSR) market has been going through a major overhaul in the past two-three years. Players, both domestic and international, are lunging at the prevalent fertile ecosystem, leveraging aggregators like FoodPanda and Swiggy while also rethinking their menus because of a rise in consumer preferences for healthier and wholesome food.

Even as many fast food chains, both desi and international, are busy battling for their share of the consumer wallet and appetite, western fast food giants McDonald’s and Domino’s Pizza are leading from the front with their nimble business models and agile adoption of technology.

Completing 20 years of operations in India, McDonald’s and Domino’s Pizza have both played key roles in growing the Indian food services market.

“They are leaders in the segment because of the way they control the supply chain, their constant product innovation and how they captured the lower spending strata without alienating them as they grew in India,” says Ravindra Yadav, associate director, food services and agriculture, Technopak.

BrandWagon looks into how the two goliaths are reinventing themselves to stay ahead of the pack and whether two decades of India operations and the first-mover advantage are sustainable in the ever-changing food retail landscape.

Piping hot from the oven

To commemorate its 20 years in India, McDonald’s has launched a thematic brand campaign A lot has changed. Nothing has changed. “Every two-three years, McDonald’s becomes a different brand. Even where we stand today, two-three years down the line, you will not recognise the McDonald’s you see now,” says Amit Jatia, vice chairman, Westlife Development.

Westlife operates McDonald’s in West and South India through its wholly-owned subsidiary Hardcastle Restaurants.

Over the past 20 years, McDonald’s has evolved from a basic burger company to a full quick service restaurant. Launched in 1996, McDonald’s spent its early years on focussing on the supply chain and getting the right product to consumers. Between 1997 and 2000, it revamped the menu, and thus, were born some iconic products such as McAloo Tikki and Chicken McGrill. From the launch of McDelivery in 2005, to dessert kiosks in 2006-07, the breakfast menu in 2010 and McCafé in 2013, McDonald’s has launched successful brand extensions.

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“A brand can never be one thing. Our focus is on building a differentiated brand through menu innovation and brand extensions like McCafé,” Jatia says. Its delivery business has grown 60% in last two years and there are now 100 McCafés. “This format works for McDonald’s as consumers are looking for various avatars of brew. Also, there is plenty of scope in the vending machine arena,” says brand expert Harish Bijoor.

Meanwhile Domino’s Pizza, which over a period of time has become a delivery plus dine-in from the delivery-only format, has innovation, customer experience and technology as its growth anchors. Domino’s Pizza, which first positioned itself as a snack brand, moved on to the meal replacement plank with Hungry Kya? featuring Paresh Rawal in 2003-05 to build on its narrative of a meal replacement and a home delivery company. The idea was later amplified with a series of emotional campaigns such as Khushiyon ki Home Delivery (2008) and Yeh Hai Rishton Ka Time (2012).

“We are very well entrenched with consumers at a functional and emotional level,” says S Murugan Narayanaswamy, SVP — marketing, Domino’s Pizza India. Jubilant FoodWorks, which operates Domino’s Pizza in India, is further evolving the menu with offerings like burger pizza and choco pizzas.

The digital toppings

“Both the players have been able to source raw material from India, reduce cost and optimise on logistics,” observes Anil Talreja, partner, Deloitte Haskins & Sells, adding, “Dovetailing with Indian culture is not that easy. What worked for these players are their domestic partners as they helped them get the Indian feel.”

Domino’s Pizza mastered delivery and online ordering much before the current wave of digitisation. “In 2007-2008, two-third of our business came from delivery. Today, it is near 50:50 for both dine-in and delivery,” says Narayanaswamy. According to its Q2FY17 numbers, the contribution of average online orders to delivery sales stands at 47%. Domino’s Pizza now features among the seventh most transacted e-commerce brand in the country according to the company, and has plans to open around 130 new outlets in FY 2017.

McDonald’s whose restaurant operating platform 2.0 became operational in 2016 also has eyes on technology, innovation, brand extensions and profitability. It was in 2002, when it launched its first restaurant operating platform that localised making the equipment and brought down the cost of operating the restaurant by 40 to 50%. “The restaurant 2.0 is more to do with margins. The platform has reduced the cost of building a new restaurant by 20% and brings down our operating cost by another 20%,” explains Jatia.

McDonald’s currently has 245 restaurants across 33 cities in 10 states across West and South regions. The company plans to take its restaurant footprint to 450-500 by 2022. Currently, the number of McCafé stands at 95 which the company hopes to double over the next 12-18 months. The American burger chain has an investment plan of R750 crore for the next five-six years. The focus remains on six key cities — Mumbai, Delhi, Pune, Ahmedabad, Bengaluru and Chennai, as 60-70% growth comes from here.

The glass ceiling

Brands are less flexible in the US, where a certain specific image has been built over decades. India, however, offers more flexibility, which has, for instance, enabled Domino’s to develop a strong dine-in presence in spite of being a delivery-oriented company. However, keeping market penetration objectives in mind, upscaling possibilities are limited by prices.

“QSR chains should get away from the price game. McDonald’s and Domino’s Pizza being leaders should try to change the market,” maintains Yadav.

However, experts say the fast food syndrome can make these players hit a glass ceiling in their growth story. Both Domino’s and McDonald’s are fighting the fast food syndrome, which can bite into both categories. “The next two decades will see shift towards wholesome food and how McDonald’s and Domino’s address the shift will be a game-changer,” says Bijoor.

The QSR market is estimated to grow at a CAGR of 22% between 2016 and 2021. Currently the QSR market size is at R9,125 crore, according to Technopak.

Ankita.Rai@expressindia.com

@rankita

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