McDonald's cuts prices of extra-value meals to graduate from just a 'snack joint' to a lunch & dinner destination.
At a time when food prices are going through the roof, Big Mac is calling you for lunch and dinner that cost 25 per cent less than what you paid yesterday.
Beginning today, the world’s most ubiquitous chain of quick-service restaurants is reducing the prices of its extra-value meals – McVeggie and McChicken – to Rs 85 and Rs 96. The current prices are Rs 110 and Rs 120 respectively for a meal that consists of burger, French fries and soft drinks.
While the USP of McDonald’s all over the world has always been affordability, the move is surprising even by its own standards. But Arvind Singhal, Marketing Director of McDonald’s India (North & South), says it’s designed to increase the footfalls and increase the store utilisation. “Even the company’s board was surprised and asked us whether cutting prices at this point makes sense. But we have been able to convince them,” he says.
The rationale, Singhal says, is that McDonald’s has been known in India more as a snack joint. It is now keen to make its restaurants a lunch and dining option as well. Extensive customer feedback suggested that “people would come to us for lunch and dinner if we tweak the prices of our combo meals”, Singhal says.
All 165 stores will offer the extra value meal at the new prices from today and McDonald’s is ready with a new commercial which will go on air next week. The brief to the creative agency was clear: “Come to McDonald’s for your pet puja at an affordable price”.
Singhal says the basic idea is to encourage customers who come to McDonald’s twice a month to make their third visit. “The third visit will increase footfalls and that in turn will compensate us for the price cuts – that has been the McDonald’s principle anyway,” he says. And adding a breakfast or a lunch and dinner menu, longer hours of service, kiosks etc are all questions of leveraging the same area and rentals for deeper bill size.
With an average 3,000 walk-ins every day in each of its 165 restaurants, India is a significant part of McDonald’s worldwide network, but the restaurant chain wants to grow that number substantially. The average ticket size is small, but McDonald’s would prefer it that way as the strategy has worked in its favour. McDonald’s, which started operations in India in 1996, broke even last year and has started making profits.
McDonald’s has two joint ventures in India: One for the North and East and another for the West and South. The two companies collaborate on marketing (single creative and media buying agency), menu and supply chain management.
Amit Jatia, MD & JV partner, McDonald’s India (West & South), says the price cut move is a result of constant innovation around the marketing mix to build an emotional connect with the Indian family. The initial challenge was the perception of the brand being expensive. To overcome it, the brand started focusing on affordability, introducing its ‘Happy Price Menu’ at Rs 20. It then launched Drive Thru outlets keeping in mind the increasing number of car owners and the need for convenience. Then came the breakfast service, which is still on a trial run.
Globally, breakfast is big business for McDonald’s. In Europe, for instance, it began offering breakfast in the 1980s. Now, it accounts for 25 per cent of its turnover. In South East Asia, breakfast fetches McDonald’s 12-15 per cent of its total revenue. Clearly, there was an international menu that could be transported to India. Only, it had to be tweaked to Indian tastes.
Jatia says the main reason why McDonald’s has been able to keep its prices low is the extensive backend infrastructure. The entire raw material is sourced from Indian farmers within its strict quality parameters.
Jatia feels the move to go beyond just a “snacking option” will help McDonald’s achieve its targeted 35-40 per cent sales growth this year. A part of this growth will also come from newer restaurants (the company plans to set up 35-40 new stores every year). It generally takes around Rs 3-crore investment to open a restaurant apart from the real estate costs.
The interesting thing is all the restaurants are directly owned by the company and the funding is done through a mix of internal accruals and debts. Why this option when almost all others have opted for the franchise route? Jatia says direct ownership helps in keeping control over the operations at this stage of McDonald’s business life in India. He however is keeping the franchisee option open when the restaurant chain goes to towns where it doesn’t have any outlet now. ‘At the moment, however, our focus is really in trying to change the eating habits of people,” Jatia says.
Big Mac would nod in appreciation.
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