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BW Businessworld

Sweet Strategy

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Big Mac is aiming for the sweet spot.  It is cutting prices on select items, creating a new category with egg-centric additions to its menu, and wooing new customers with stand-alone dessert kiosks that will retail its hot-selling McFlurrys and McSwirls.]

The first ‘remote' kiosk — set some distance away from the mother store — is coming up at Barakhamba Road metro station in Delhi.  "The attempt is to create more customer touchpoints," says Vikram Bakshi, MD and joint venture partner (north and east), McDonald's India.

From 1 August, the fast food chain will be slashing prices of some of its entry-level products. The price cut is in the range of 6-15 per cent.

"Our margins will take a hit," admits Bakshi. He says the decision to cut prices was taken after conducting a price sensitivity study.

In recent months, despite the rising input costs and food inflation, other players in the QSR  (quick service restaurant) segment have either cut prices or introduced cheaper items. Pizza Huts run by Yum Restaurants India, for instance, introduced the ‘Rs 29 pizza' earlier this year.

Rohit Bhasin, leader, retail and consumer practice at PriceWaterhouseCoopers, feels the move could be because of slowing growth in the QSR segment. "The same store growth for most QSRs has come down to single digit. The recession is making people feel the pinch, and curtailing eating out."

Bhasin says the move to cut prices may be good, even if it hits margins, because at this point, the thinking among QSR chains is that "let the growth continue".

Pankaj Gupta, practice head (FMCG and retail), Tata Strategic Management Group, says, "Retailers undertake strategic price reductions in times of slowing growth in consumer demand. The purpose is to attract newer customers, drive new consumption occasions and upsell to existing customers."

Putting eggs on the menu and creating detached remote kiosks are innovations by McDonald's that are in line with this "new customer acquisition" and "creating more occasions to consume" strategy.

"When we first set up the dessert kiosk outside the store, the idea was to decongest the front counter during peak time. But over a period, the sheer volume of dessert items we were selling told us we should take the next big step," says Bakshi.

The next step was to set up a whole lot of detached kiosks, which would be in the same mall as the mother store but on a different floor. Now comes the final push — the remote kiosk model.

So how many kiosks is the chain targeting?  While Bakshi is reluctant to be pinned down with numbers, he says, "In the next few years we will set up far more kiosks than restaurants. In other words, three years down the line, if we double the number of restaurants, we will be tripling the number of kiosks." Currently, McDonald's has 123 outlets in the north and east regions.

Asked if McDonald's in India would introduce the McCafe coffee chain any time soon, Bakshi ruled it out for the next couple of years. "It's definitely on the agenda, but one thing at a time," he says.

(This story was published in Businessworld Issue Dated 06-08-2012)