McDonald’s eyes slice of Indian coffee chain pie

McDonald’s subsidiaries in India — WestLife Development (WDL),a part of the Mumbai-based BL Jatia family,which spearheads the burger chain’s operations in west and south India,along with Vikram Bakshi’s Connaught Plaza Restaurants,which is responsible for expansion in the north and east India in a joint venture with McDonald’s Corporation — will soon offer a selection of coffees,desserts and smoothies,among others,to target the youth.

While both the Indian subsidiaries declined to give details regarding the McCafé format,sources say pilot projects will be launched in the top eight to 10 markets. Initially,these will be launched as a “shop-in-shop” model in some of the 250 existing restaurants.

Through the new venture,McDonald’s is looking to counter the likes of KFC,Domino’s Pizza,Starbucks and Café Coffee Day,to whom it has been losing out as much as R20,000 crore in the organised QSR space.

“We continue to study the potential of launching McCafé in India. There are,however,no immediate plans to roll out the project,” a Connaught Plaza Restaurants spokesperson told FE in an email reply.

The food service industry is one of the largest in India,estimated to be worth R43,000 crore,of which the organised sector comprises 16-20%. The organised QSR business in India is estimated to be over R20,000 crore,growing at a compounded annual growth rate of around 40%. The share of this segment is expected to double from 16-20% of the Indian food services industry to 45% by 2015,says a report by retail consultant Technopak.

“Among the existing food formats,premiumisation is emerging as a strong trend owing to changing consumer habits. While McDonald’s is the core flagship business,diversifying into other formats will help it to improve margins,” said Saloni Nangia,president,Technopak.

Through the new venture,McDonald’s will be able to cash in on the coffee-cafe market,which is estimated at R2,000 crore and has seen a 30% year-on-year growth over the past three years. “Depending upon the format,a well-run QSR business in India can command 24-27% Ebitda margins compared to a cafe business,where it could be 15-20%,” said Samir Kuckreja,founder and CEO,Tasanaya Hospitality.