The Indian economy has been a traditional economy where majority of customers are having preference towards home cooked foods. This is posing a significant challenge to the almighty global food giants such as KFC, McDonalds, Starbucks and others to perform rapid alterations that will reflect their underlying developments, which has been significant in terms of variety and quality of services offered. In this report, the various challenges that are being faced by the American fast food franchises while pursuing their business prospectus in Indian marketplaces had been considered and assessed in depth. The report has further analysed various issues that are restricting healthy business by these fast food retail giants. Keeping in mind the changing preferences and Indian habits towards consuming foods, the issues has been assessed and further recommendations has been provided for mitigation of those issues.
Over the last decade, fast food industry in India has witnessed an unexpected growth. The likeliness of the demographic trends further means it to become the next mega market for international fast food companies. Thanks to larger population comprising of young generation and ever changing customer preferences the fast food sales has increased almost double than it has been estimated (Simi and Matusitz, 2017). However, in comparison to the Indian population the supply of fast food restaurant chains has been little, where the India’s population is around 1.2 billion the number of fast food outlets are just nearly 3000. Fast food franchise is yet to expand broadly beyond the larger cities. The Indian government is also emphasizing to increase foreign direct investment. In such a scenario while Indian has been one of the easiest countries to initiate franchise business, it is probably the most complicated country in the world to franchise while opening outlets.
Franchising in India can be initiated with almost no compulsion in terms of franchise registration or franchise regulations. It is not necessary to have some training manual, operations manual or other such credentials as compulsion to franchise in India. However the restrictions comes in some other spheres in terms of marketing and no appropriateness in time frames of the government’s progressions before signing a franchise and post agreements in franchise business model (Janssen et al., 2018). The complicated parts are necessary to be taken care of. There is not a single franchising in Indian framework following which the American fast food companies can operate. The franchise businesses are subjected to a broad range of regulations, laws and compliances, which the American companies necessitate to adhere while pursuing their fast food retailing business in India. Furthermore, there are various other factors, which the American fast food players have to deal with such as variance in cultures, regions, tastes, habits, languages, preferences and other such attributes.
In Indian context, one of the biggest concerns is that the diversity is just too much which is disrupting the international companies to fit into one type of business model (Madanoglu et al., 2017). The American fast food retail giants have a perception that India is a country that variety of cultures and differentiation in every aspect in almost all states. Other barriers come from the religious aspects. The American fast food retail companies necessitate taking acute care of the religious sentiments on one side and compulsions due to political agenda on the other. The brands have to adhere to the dynamic situations while continuing their business in Indian marketplace (Shah and Mujtaba, 2016). Going ahead of this, there is black money or parallel economy that has become a norm in India today. Any product or service productised reaches the customer base through parallel market accompanied by without paying of taxes. On the reverse side of this, proceedings enforce authorized franchise partners to increase their cost of products, which is much higher as compared to the grey market.
The American fast food franchisees could easily get away with almost everything as legal rulings however, it takes a very long time. The situations at times get very frustrating for even thinking to go through the process. The legal system is comparatively slow and can be further delayed in case the company want to prolong their business case. The franchisees and franchisors both have hard mentality. Financing for franchises has become a problematic area, as numerous financial institutions do not recognize soft expenditure as a significant portion of the cost project.
Unlike USA, in India there are no strict laws that have been enacted solely to regulate the growing businesses due to franchising. In such a scenario, while franchisors are entering to do business in India, they are extensively governed by the enforcement of numerous varieties of regional and national statutes as well as codes rather than considering a single comprehensive series of regulations (Kretinin et al., 2019). Therefore, every region or stage necessitates to be evaluated. Key factors that are necessary to be taken under consideration in the Indian marketplaces are reflected in terms of regional approaches that are made to address diversity in market, local tastes and culture, expensive real estate, business and legal advices, royalty payments and negotiating fees, lack of legal framework and other major concerns.
The American fast food retailers coming in India to do franchising businesses are preferring appointment of master licences on a regional basis (Ghosh et al., 2016). This has become imminent, as India has been a large country having a diversified mixture of cultures and populations. Through understanding local tastes and culture along with innovative strategies such as “Indianization” of product like holds the key towards the success by franchising business. For instance, a huge percentage of Indian population comprises of vegetarian. A standard example of flourishing “Indianization” can be observed in the fast food retailing industry. Numerous American companies like Pizza Hut, McDonald’s and Domino’s have manufactured specialised Indian menus for catering the prospective Indian customers. In the big Indian metropolitan cities, retail space has continued to be more expensive and the quality is comparative deteriorating. However, with the enforcement of antiquated rent control rules and regulations it has become easier to find an affordable and suitable location difficult.
US franchisor necessitates a thorough and in-depth understanding of the business laws that are in relevance to franchising. Furthermore, recruitment of a good localised tax consultant for the provision of guidance with the purpose of avoiding pitfalls is recommended. It also holds the vitality for conduction of thorough economical and legislative due to diligence with the prospective franchisee (Mishra, 2017). Moreover, fast food retail business franchisors from USA necessities to be prepared in terms of facing stiff negotiating conversations with prospective Indian franchises regarding the royalty payments, franchise fees and other financial aspects that are typically expected to be on higher standards.
It holds much significance in acknowledgement of unlikeliest in the US and other western countries India has never enforced any kind of specific laws with respect to franchising. Franchising has always been considered within the broader prospective of transference of technological aspects. Therefore, the legislative framework for upcoming franchisors who has reflected their keen interest to set up master franchises while doing their business in India exists in relevance to brand protection as well as rules in terms of payment of regarding franchising fees (Dandage et al., 2017). In spite of having potential challenges in terms of legislative ambiguities, high real estate prices and regional differences all over India, many US franchisors are enjoying immense success. Most of the fast food franchising companies have strategically adapted their products or services in accordance to localised market preferences and thereby pursued prospective market entry as well as expansion strategies to extend their business prospective and profitability.
In relevance to the contemporary market scenario, McDonalds has strategically tweaked nearly 70 percent of their menu considering the Indian market. That entails that it is necessary to stay away from beef meat in a country where cows are considered of having religious significance and thereby appeal to population that intends of enjoying spicy food with available other options such as Chicken Maharaja Mac and McSpicy Paneer. They have also installed some sort of restaurants that are 100 percent vegetarian. A significant challenge for the American fast food joints to proliferate their business strategies in India is towards maintenance of the cohesion of global players who are also tempting to make their way in the local market (Porter and Kramer, 2019). It is worth mentioning the India has always been a marketplace, which has been dominated long by homegrown businesses. Dominos has introduced their 30-minutes-or-free delivery service in India, for instance, in spite of having nations most prominently complicated traffic jams. In recent times, Domino’s has numerous outlets all over India in comparison to any Western competitor have, with estimation of over 850 locations. McDonald’s is running their operations in merely around 400 locations.
Moving ahead of some issues that are faced by fast food retail chains in India is the issue related to pricing strategy. Inflation in food price acts as the key factor, which is significantly influencing food services market across India. This is intensively impacted by immense delay during monsoons for this economic slowdown accompanied by unfavourable demand-supply conditions (Sharma and Bothra, 2017). The inflation on fast food prices meets abrupt fluctuations, which at times reach a peak of even 10%, whereby it is affecting customer indulgence in all formats and is hitting the profit margin hard that is realised by fast food retailing players. Taking under consideration all the food service formats, it is challenging that food costs in terms of raw materials at times accounts to approximately 30-35% of the revenue generated by the company. The continual ascend of food costs is significantly narrowing down the players’ margins and thereby compelling the companies towards increasing their menu prices (Anand et al., 2015). This is eventually accentuating the existing challenges along with retention of customers who have always been conscious regarding value and thus tentatively showing their interest in evaluation of all varieties of available consumption options carefully.
The Indian fast food servicing market has numerous small and medium sized and unorganized players who are intensively engaging into competition with large chain players. This fragmented market is reflecting a number of challenges, which includes imprecise layout segmentation, diverse customer preferences for eating outside and finally unavailability of company best practices in deliverance of food services in outlets (Sumaedi and Yarmen, 2015). There are numerous players in Indian markets, who are offering their products at a more or less similar and competitive price.
Not a single player is prospective enough to lead the market and thus resulting of lowering of consumer loyalty, which is gaining prominence and citing as a great and unavoidable challenge to American fast food retail companies. These are making it a challenge for fast food retailing players for being engaged, thereby retain consumers, and ultimately heighten their performance in relevance to uncertain situations (Kundu and Chatterjee, 2018). As the one-size-fits-all advancement would never pander towards the variegated customer palate, it has imperative that food servicing American players are tailoring their menu offerings with the passage of time in terms of menu inclusion, its format or the implemented concept, with the purpose of establishing a unique business proposition and thereby attract diversified customer segments.
An in-depth analysis of the current fast food industry is necessary to be carried out for having a better understanding of the loopholes that are restricting the business proliferation of the American fast food retailing brands in India. The supervisory in terms of public relation as well as marketing strategy of McDonalds is facing immense challenges as it necessitates production of non-vegetarian and vegetarian foods in India (Dhemla and Varma, 2015). The variances in product line have elevated cost and budget during planning time of the menus price. Consequently, McDonalds has also confronted with dynamic business environment in India in terms of competition of fast food. Problems have been acute in relevance to taxes paid to the government and necessary land for setting up the outlets (Gillespie and van den Bold, 2017). The rules and regulations for McDonalds have been passed lately through union government and therefore after 3 months the organization could successfully establish their business in Bangalore. Issues has always been present while encountering in terms both ethical and political aspects, which in other concepts is the higher demand of bribes from business in return for the rights to function within the country.
As McDonalds has never supported this protocol thus, it followed foreign corrupt practice act, which eventually helped the brand against illegal documents of bribery from some foreign government official for obtaining and maintaining their business. In this regards, Starbucks has also faced intense challenges in regards to location and pricing structure. The price sensitiveness in Indian market has affected the business of Starbucks. Another issue that has been faced by Starbucks is about several competition and appropriate location to promote their business. In India, quick service restaurant (QSR) business has been floundering after a significant blow has been infused by demonetisation, the banning of liquor sales in the highways and finally introduction of goods and services tax (GST) (Rao and Parekh, 2016). Numerous QSR and café outlets have been observed to shut down their operations between 2013 and 2016 by the uncontrolled expansion of 2015. At present, the fast food retail sector has bounced back being galvanised by their confrontation with unexpected challenges. Smaller scale stores, innovations in food recipes, moving out on the high streets and immense focus on same-store sales growth (SSG) are driving significantly that resurgence.
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