India requests McDonald’s suppliers to not raise prices suddenly

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No wonder when McDonald’s India requests its suppliers to not raise prices suddenly (despite a rise in their input costs), the guys listen with patience and even make every possible effort to accommodate the request even agreeing to raise prices in a staggered manner across a few years! The way McDonald’s handles its suppliers, in fact, is a crucial lesson perhaps for all those organised retail players in India who are struggling hard with their logistics and supply chain management system.

As a result of these supply efficiencies, at a time when Nirula’s is postponing its global expansion plan and coffee chains like Barista are planning not to foray into new cities; McDonald’s is gung-ho on its earlier expansion plan of launching 40 new stores over the next two years, with an investment of Rs.150 crores. Naysayers say that the burger company can afford to expand as unlike Pizza Hut and Domino’s, it does not have a huge reach beyond metros & big cities. For the record, McDonald’s has just 155 stores across 27 cities; while even coffee chains like Barsita and CCD are present in as many as 40 cities with 170 and 200 stores respectively. Sure, not everything’s perfect at McDonald’s India and like every success saga, this one too is saddled with its own set of problems. Firstly, it was only in 2007 that Ronald thought of paying heed to the home delivery model. And unlike other players, the delivery is not free of cost. On this front, Domino’s (which generates 40% of its turnover via home deliveries) has stolen the show. Amit Jatia denies being bogged down by such issues and is instead focusing on the bigger challenges that face McDonald’s. “The real-estate slump is disturbing our growth,” he avers, pointing toward a possible hiatus in their expansion plans due to commercial projects being delayed or dropped by the realty biggies.

And of course, a little birdie told us that many in the New Delhi and Mumbai head office are already worried about the planned increase in their prices – after all, for more than a decade the Indian consumer has been ‘loving it’ for its affordability. Will the price conscious Indian still ‘love it’ with the new price tags? These hiccups apart, Jetia, Bakshi and Co. are loving this slowdown all the way!

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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