A Case study of family run fast food was threatened by world brand McDonald
Situational summary:
Nirula’s had been doing well, but since the arrival of a competitor, in Delhi, conditions for enterprise were changing. The new competitor was McDonald’s, and its presence was a potential threat to existing entrepreneurs, such as members of the Nirula family. Meanwhile, Wimpy’s – a British chain – was advertising “the original hamburger since 1954″.
Nirula’s
Nirula’s was India’s first fast-food chain. This company was started by Mr L.C. Nirula and his brother, Mr M. Nirula, both originally from Lahore, when the city was still in India, prior to the creation of Pakistan. The brothers moved to New Delhi, and in 1934 they created Nirula’s, a restaurant with a 12-room hotel. Later, they expanded with a cabaret. During the 1950s, Nirula’s introduced fast-food burgers and chips (fries).
Lalit and Deepak Nirula, the sons of the founding brothers, left India to study in New York State. They attended the Cornell University School of Hotel Administration, and upon their return, they elaborated Nirula’s menu, adding Indian food and 21 flavours of ice cream. They trademarked a logo with pink and white – almost identical to that of Baskin Robbins. A favourite here is zafrani badaam pista ice cream, a pungent blend of almonds, pistachio and saffron. Tables I to IV show Nirula’s 1997 price lists.
Nirula’s had grown to include ten locations in New Delhi, feeding 40,000 people daily. Uniformed employees prepare curries, pizza, tandoori chicken, mutton-burgers and sandwiches. Other popular dishes include dal (a lentil dish) and matar paneer (a mixture of cheese with peas). The chain has also internationalised by opening three outlets in Nepal.
Nirula’s caters to an eclectic crowd; sari-clad women eat the vegetarian dishes, side-by-side with their children eating “Western” meals. Annual sales are estimated to approach US$25 million. As huge international chains penetrated the Indian market, Nirula’s began promoting itself heavily. It even embarked on joint-marketing campaigns with Lee (jeans). In contrast to foreign companies which pay a corporate tax rate of 48 per cent, the corporate tax rate for local firms has fallen from 43 per cent to 35 per cent.
McDonald’s
McDonald’s learned that despite the cost savings inherent in standardisation, success is often a function of being able to adapt to an environment. Product lines were constantly evolving, reflecting taste preferences, and potential profitability.
The McDonald’s outlet in Delhi, the first in India, was a partnership with local entrepreneur Mr Vikram Bakshi. It opened in late October 1996, substituting the Big Mac with the Maharaja Mac, made from mutton, and offered vegetarian rice-patties flavoured with vegetables and spices.
The Indian market
Up to the 1990s, India was greatly influenced by parochial conflicts of caste, religion and region. Class mobility was limited, and poverty was widespread. The average consumer lacked sophistication; cloth was sold by the yard, tea leaves by the kilo, and soap was cut into chunks to be sold by weight.
Technological and regulatory changes, however, transformed society. Significant economic reforms raised GDP growth, while the spread of electricity and technology contributed to industrial output.
Rising literacy along with rising incomes increased the demand for quality. The spread of electricity also increased the demand for electrically-operated gadgets; among these is television, a medium used to persuade people to spend whatever money they have.
Eating in India
Eating has long been central to the culture of India, as diet is linked to notions of purity and self-control. Among high castes, meat is regarded as impure, as it could lead to undesirable lust. In Hindu society, meat is often shunned, especially among unmarried women and elders. In contrast, Jews and Moslems in India eat meat, provided that is has been slaughtered according to religious ritual. Rose-flavoured ice-cream is enjoyed by all, as is mango pickle.
There are literally countless restaurants in India – 20,000 in Delhi alone. Most fast food in that country comes from dhabas, which are roadside stands. Food is good, but often covered with flies, and utensils may be crusty. Since 1984, Wimpy’s, the British chain, has been a leading fast-food chain in India. Table V shows a sampling of Wimpy’s prices. In June 1995, KFC opened its first franchise in India.
Application questions
- (1)Mass marketing in India, by large multinational fast-food outlets, is a potential threat to Indian entrepreneurs such as the Nirulas, with their family business. Prepare a report in which you demonstrate your expertise on this subject. Refer to the tables.
- (2)A dairy shop near Connaught Circle, in New Delhi, sells glass bottles of fruit-flavoured milkshakes for 12 rupees. As shown in Table V, at Wimpy’s, customers pay 33 rupees. Comment.
- (3)Some fast food establishments in India sell tea for 3 rupees. In fancy settings, tea costs 5 rupees. At Wimpy’s tea costs 12 rupees. What should Nirula’s charge? Explain.
- (4)When India was closed to multinationals, Coca-Cola, Pepsi and other American products were absent. However, Hindustan Cocoa Products Limited continued manufacturing Cadbury chocolates in Bombay (later Mumbai). When India opened up, the existence of Cadbury chocolates, in some parts of India, helped establish brand recognition and distribution channels for Cadbury-Schweppes beverages such as Canada Dry and Crush. In Mumbai, Crush was heavily promoted at the Regal Cinema, in conjunction with the movie 101 Dalmatians. During the mid-1990s, Coca-Cola was almost unheard of in Mumbai. In Delhi, however, Wimpy’s teamed up with Coca-Cola, and introduced a promotion involving unlimited free refills of Coke, Fanta and/or Limca. Meanwhile, PepsiCo benefited greatly from the distribution channels of Duke’s Mangola and Lehar Slice. In Delhi, neither Cadbury’s chocolate nor beverage items were dominant. How could this be an opportunity for Nirula’s?
- (5)In 1997, Sunnex (jeans) launched a print campaign: “Not made in America thankfully” Sunnex also produced a commercial in which the narrator asked the questions, “Do you spell colour c-o-l-o-r?” and “Do you ever call your father ‘old man’?” The selling point was that if Indians do not use American spelling and American slang, then they should not buy American products. Comment on this and on its applicability to Nirula’s.
- (6)Make recommendations for Nirula’s in Nepal.
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