With a soaring economy that is helping to create a huge middle class and an enduring friendship with the United States, India is emerging as the new China for American restaurant brands eager to expand in Asia.
Given India’s status as the plan-et’s largest democracy, middle class the size of the entire U.S. population and world’s second-fastest-growing economy behind China’s, restaurant operators say the country offers growth opportunities as potentially rewarding as those they have pursued in China since the mid-1980s.
Chains such as Pizza Hut, KFC, McDonald’s, T.G.I. Friday’s and Domino’s Pizza already have staked a claim in India, where English is widely spoken as a second language and a 60-year friendship with the United States keeps pro-American sentiment high.
And even one of the biggest hurdles—a population boasting millions of vegetarians, many with well-known dietary restrictions regarding beef and other products derived from cows—is worth overcoming given India’s burgeoning economic might, they say.
“T.G.I. Friday’s is the most popular American casual-dining offering in India and presents a terrific growth opportunity for the brand,” says Ricky Richardson, senior vice president of international operations for Carlson Restaurants Worldwide Inc., which owns the Carrollton, Texas-based casual-dining chain.
Friday’s entered India in 1996 and now has seven company stores as well as seven units that are operated by a joint-venture partner, Richardson reports. The company plans to expand more aggressively to keep up with demand, he says.
“Friday’s is hugely popular in India and is enjoying strong growth in existing restaurants sales and guest counts as well as growing new restaurants,” Richardson says. “India’s middle class, which is rapidly growing in both size and income, is seeking ways to enjoy the results of their hard work and T.G.I. Friday’s offers them quality food and drink served in a fun and energetic atmosphere.”
Expatriate Indian entrepreneurs who made their fortunes in the foodservice and hospitality industries in North America also are looking to capitalize on their homeland’s resurgence.
Born in Punjab, India, Sant Singh Chat-wal immigrated to the United States 40 years ago and become a self-made millionaire by launching the 11-unit Bombay Palace chain of restaurants and hotels, now based in Montreal and New York, with properties located from Canada to Florida.
But Chatwal says his homeland’s flourishing economy and rapid ascent into a Western-style middle- and upper-income lifestyle have compelled him to expand his empire with a string of boutique hotels throughout India that could number as high as 25 and cost more than $1 billion to construct in the years to come.
While surveying potential sites in India, which is 12-hours ahead of Eastern Daylight Time, Chatwal communicated his intentions through a fax, noting that he had opened his first boutique hotel in his home-land just two months ago.
“I have big plans for India,” Chatwal says. “Having left India 40 years ago, I wish to return. After all, being here is actually being at home. I know it’s a big challenge, but I am willing to make it because I know there is a great potential in India.
“If I could do it in New York City 30 years back, which was an alien place, why can I not do it in my own home country?”
A close friend and political advisor to Democratic presidential candidate and New York Sen. Hillary Clinton, Chatwal adds: “Of course, America is also my own country since I have been living here so long. But my heart belongs to India.”
Louisville, Ky.-based Yum! Brands Inc. reports that India is one of the most important emerging markets it is developing, especially through its KFC and Pizza Hut divisions.
“India is one of Yum! Brands key, emerging growth markets,” says Virginia Ferguson, a company spokeswoman. “Over the past 10 years, Yum! Brands has become the largest and fastest-growing restaurant company in India, with 160 restaurants. The company is investing in the country and building a strong infrastructure, [has] a highly skilled workforce, and has created a menu that appeals to local tastes.
“Pizza Hut and KFC are growing at a tremendous pace in India. The company is building off the successes and learning they’ve had in China, and is integrating that knowledge into the local Indian market.”
Helping to rouse operator enthusiasm about expanding in India is the country’s impressive transition from a Third World country to a developing nation to a surging superpower whose economic growth almost rivals China’s.
According to the International Monetary Fund, India’s economic output, or gross domestic product, is expected to rise 8.4 percent for the year ended 2007, to $4.16 trillion. China’s is expected to grow 10 percent, to $9 trillion.
But nothing speaks more to the country’s mounting economic might than the recent news that an obscure Indian car manufacturer, Tata Motors, has put in a bid to buy the Jaguar and Land Rover car brands, both divisions of Ford Motor Co. Ironically, both of the luxury brands were created and are manufactured in England, India’s former colonial master.
Behind the country’s economic vitality, political stability and fondness for most things American, however, festers one of the largest poverty rates among any modern nation. As much as 25 percent of India’s 1.1 billion citizens live in abject poverty, according to a United Nations study. And as much as 70 percent of the nation’s population is believed to be under the age of 30, according to the UN.
The status of India’s poor is perpetuated by the continued practice of a medieval caste system that stymies upward class mobility and tolerates discrimination in the workforce and in educational opportunity.
In addition, from time to time the nation suffers violent flare-ups between the dominant Hindu majority and its large Muslim minority. This long-simmering discord between Muslim and Hindu is at the heart of the long-running hostility between Pakistan’s and India’s Kashmir region, which occasionally erupts into border battles on the frontier between the two nuclear-armed powers.
While India’s class and religious struggles may defy American understanding, most foreign restaurateurs respect the Hindu population’s veneration of cows by keeping beef products—with the exception of a range of dairy items and cheese—off their menus. In recognizing that India probably has more vegetarians than any other country and tens of millions of Muslims, pork is rarely seen on American brands’ menus either.
Another aspect of India that operators need to understand is that the middle class is relative to the nation’s economic well-being, says Mike Lawton, vice president of international development for Domino’s Pizza in Ann Arbor, Mich.
“Middle class in India is not what we’d call middle class in the U.S.,” Lawton says. “The economic level is still very low, but I believe Indians are very fond of [Domino’s] because of our price point, the quality, the store image and appearance.
“Although we charge them less than what we’d charge domestically, they have less disposable income, even though it grows every year, than what you’d typically associate with the middle class here.”
Lawton says the unit economics in India are different, too. Unlike in the United States, where food costs are affordable and labor is expensive, in India the script is reversed—despite the fact that all of the food ingredients are sourced locally, he notes.
Lamb sausage and chicken are popular protein toppings in the market, Lawton says. Despite the prohibition against harvesting cattle for meat, the dietary restriction does not disallow processing dairy products and cheeses from living cattle, especially one breed Lawton described as an indigenous black cow.
While pizza delivery is still the signature business model executed by the 180 Domino’s units operated in India by a master franchisee, Lawton says a large percentage of the stores offer indoor seating, something seen in only 5 percent of Domino’s 5,140 domestic units.
Of those 180 Domino’s in India, a slight majority are in one city, Mumbai, even though Lawton says Domino’s units can be found throughout the nation.
“We deviate from our model with indoor seating in India,” he says. “With traffic congestion there, if people are willing to travel to our units, we want them to stretch out. We offer nice-looking buildings with air conditioning.”
Most units have about six tables, with some boasting more, he notes.
When customers do call for delivery, their pies are delivered via a fleet of scooters, all equipped with a large plastic box to hold the steaming cargo, Lawton says. The boxes also display Domino’s logo, providing marketing as drivers negotiate India’s notoriously congested streets.
Archrival Pizza Hut also is carving out a lucrative trade with both on-premise dining and home delivery in India.
Ferguson, the Yum! Brands spokeswoman, says all of the 130 Pizza Huts in India are franchised and operating in about 30 cities. While she did not cite a source, she insists that Pizza Hut wins high consumer praise in India.
“For the past three years, Pizza Hut has been ranked as the No. 1 most-trusted foodservice brand in India,” she says. “Delivery is also a popular and growing part of our business. Our franchisees in India are continuing to invest behind the brand.”
In a Fortune magazine article published last fall, the rivalry between Pizza Hut and Domino’s for market share was depicted as an all-out war for consumers’ hearts and wallets. Both brands depend on units that bare little resemblance to their domestic counterparts, festooned with jazzy architectural features, thumping dance music and hip waiters—all intended to cater to the young and upwardly affluent.
The article also stated that Domino’s and Pizza Hut units often are located directly across the street from one another.
Both chains feature more vegetarian pizzas in India than domestically. Operators in India also adopt local spices, flavors and meat alternatives for toppings. For example, Pizza Hut says that some of its more popular offerings in India include masala—a savory blend of such spices as cardamom, coriander and mace, a kind of nutmeg. Units also feature tandoori ovens for finishing the pies.
Domino’s counterpunches with pizzas featuring toppings made of paneer cheese, which is derived from buffalo milk and curdled with lemon, giving it a consistency reminiscent of cottage cheese.
Pizzas with tomato sauces enjoy high demand at both brands, but vie with other indigenous sauce flavors, ranging from searing to mild.
Chicken, one of the most widely accepted proteins in the world, is winning customers to KFC in India, Ferguson reports.
Although there are only 30 KFC units, both franchised and company owned, in nine Indian cities, she says Yum is plotting a more aggressive growth spurt based on local demand.
“KFC has a great future in India as chicken is the country’s favorite protein,” she says. “We’re very optimistic about the future of KFC and believe it can be a big business because the price points are lower.
“KFC’s development in India will be a mix of franchise development and equity development. We’re building very contemporary assets, have adapted the menu to suit local tastes and have a significant vegetarian menu.”
After establishing a joint-venture partnership with two local entrepreneurs, Mc-Donald’s India opened its first store in 1996 and currently operates 105 outlets, says Tara Handy, a corporate spokeswoman.
Because of the high percentage of Indian consumers who are strictly vegetarians, Mc-Donald’s menu there has items that would hardly whet the appetite of Big Mac lovers at home.
“We don’t offer any beef or pork, but we have learned to develop a special menu with vegetarian choices and to appeal to an India palate,” she says. “Seventy percent of the menu is ‘Indianized.’ ”
Among some of the specially formatted products not seen in the United States are mayonnaise with no egg ingredients, an eggless sandwich called the McCurry Pan, and a spicy vegetarian patty burger called the Tikki burger. Even the milk shakes, or McShakes, are made without eggs, Handy notes.
“McDonald’s India takes great efforts to ensure that vegetarian products are kept separate from nonvegetarian products from supplier to customer,” she says. “In fact, they ensure that the cooking area as well as cooking equipment for vegetarian products is visibly segregated from the [nonvegetarian] sections. In addition, crew members cooking vegetarian food items wear green aprons to distinguish themselves from crew members cooking [nonvegetarian] food items.”
As has long been a common practice for McDonald’s as it grows internationally, the company strives to form local partnerships with farmers and food producers, especially in nations with cultural or religious dietary restrictions.
Six years prior to the opening of its first restaurant in Delhi, McDonald’s and its international supplier partners worked together with local Indian companies to develop products that met McDonald’s quality standards. These standards also had to strictly adhere to Indian government regulations on food, health and hygiene, Handy says.