By Raunak Haldipur
The fast-food industry in India includes the unorganised sector, which also has standalone fast food outlets, food trucks and street-food vendors and the organised sector, ones that have the big players like McDonald’s, Domino’s, Pizza Hut, Burger King, Subway and the likes of them. Euromonitor International, the research agency predicts that the fast food market will grow by 5.8% this year to become a $21 billion market. The one player that has done well in the last couple of years has been Jubilant Foods which owns the Dominos brand. They have been growing the fastest and the Euromonitor report also mentions that India is a pizza-loving country. Furthermore, Domino’s has capitalised and gained a higher market share following the battle between McDonald’s and Connaught Plaza Restaurants Pvt. Ltd., who run the McDonald’s franchise in the north and the east.
McDonald’s issue in India
In August 2017, McDonalds India Pvt Ltd (MIPL), the Indian subsidiary of the McDonald’s, announced the termination of its franchise agreements with Connaught Plaza Restaurants Pvt. Ltd. (CPRL), which runs 169 McDonald’s outlets in the North and East India. It has also asked CPRL to cease from using any of McDonald’s intellectual properties at these restaurants within 15 days of the termination notice. CPRL is a 50:50 joint venture between McDonalds India and CRPL.
The feud between MIPL and Vikram Bakshi, who is the MD of CRPL has been going on since 2013. Bot, Bakshi and MIPL claim different things. MIPL had Bakshi of multiple wrongdoings which is why they didn’t want him to be the MD of CRPL. They accused him of mismanagement of funds, lack of attention and a conflict of interest. The allegations were based on the fact that he had other businesses and that he rented out his properties to other food chains.
Vikram Bakshi, on the other hand, claims that McDonald’s had planned to buy CRPL out in 2008 at a very low valuation and since have been trying to oust him from CRPL. The articles of the company stated that the sole partner would be the MD of CRPL and yet the directors of MIPL voted against Bakshi’s re-election as MD in 2013. This battle has from there on becoming messy and it doesn’t look like any resolution will be reached soon.
How Domino’s came out on top
When 169 restaurants in North and East India stopped projecting the golden arches and the McDonald’s logo on them, slowly began seeing a fall in revenue. CRPL’s revenue growth fell to 6% in 2014-15 compared to 29% in 2010-11. While all of this was unfolding, competitors like Dominos, KFC, Burger King and Subway took most of the moolah away from McDonald’s. In 2013, Dominos conveniently overtook McDonalds as Indias largest fast-food brand. In 2016, they reached a landmark figure of having 1000 restaurants in India.
The shares of Jubilant Foods have more than doubled in the past year, which is not at all surprising as their quarter ending profit for December 2017 more than tripled to ?66 Crores. This year they are steering towards opening at least 30 more outlets to add to their existing 1,127-strong network across 265 cities.
Future of India’s fast food market
Euromonitor International predicts that the fast food industry will grow by a value CAGR of eight per cent. This is expected to be driven by a younger population base in the age group of 10-15 years, who are not overly concerned about their health and wellness. Furthermore, the floating population in metropolitans, in the age group of 20 years and above, who have lower disposable incomes and are not used to cooking every day, will also continue to eat fast food.
The potential threat to the growth of fast food over the forecast period is the rising awareness regarding health and wellness amongst consumers. This will lead to the mature consumer base in the age group of 25 years and above to shy away from eating fast food.
Leading players will most likely provide healthier options in their menus, such as wheat or multi-grain bread instead of white bread and more options for fish and chicken over the lamb and other meat. This way, consumers will still be able to enjoy fast food, without worrying about the health aspects. McDonald’s themselves have salad burgers in the US and European countries. I won’t be surprised if McDonald’s introduces it in India soon.
At least till 2 years ago, it looked bleak for the unorganised sector to compete with the large players who have mastered online ordering and delivery. However, with increasing trust that consumers place in food delivery aggregators like Zomato and Swiggy, they have levelled the playing field for the small fast food restaurants in the unorganised sector.