Competitive strategies of international fast food companies in India on the example of Domino’s and Pizza Hut

Market development.

According to Ansoff (1957, p. 114), when companies reach maturity in existing markets, they find new markets to enter with an existing range of products. Usually, a company implements this strategy through reaching new segments, targeting non-buyers on demographical or geographical principle, entering new regions in the domestic market and expand market share abroad that allows opening excess to external resources like finance, capital and labor force as well as new client base. However, the author indicates that the strategy is of high risk, as reaching for a new market or customer segment could fail to bring expected results. Thus, market development requires substantial spending on R&D and market research. The example is McDonald`s, that is known for its worldwide expansion by entering regions all over the world. Market development strategy could be conducted through franchising, establishing of company-owned enterprises, strategic alliances or joint ventures.

Diversification

The final alternative that “calls for a simultaneous departure from the present product line and the present market structure” (Ansoff, 1957. p.114). In other words, diversification requires a company entering diverse markets with diverse products. Thus, diversification brings high risks and demands both market and product development and requires intensive R&D operations. “Diversification generally requires new skills, new techniques, and new facilities. As a result, it almost invariably leads to physical and organizational changes in the structure of the business which represent a distinct break with past business experience” (Ansoff, 1957, p. 114).

It is important to stress out that “each of the above strategies describes a distinct path which a business can take toward future growth. As a matter of fact, a simultaneous pursuit of market penetration, market development, and product development is usually a sign of a progressive, well-run business and may be essential to survival in the face of economic competition” (Ansoff, 1957, p. 114).

Above, the leading theories on competitive and growth strategies were described and examined. The first task - to form the theoretical base on growth and competitive strategies is complete. Further, these theories will be considered in relation to the fast food companies.

1.2 Existing research on competitive and growth strategies in fast food segment

Competitive and growth strategies could be applied almost in every existing industry. However, each industry has unique features such as geographic scale, boundaries of the industry, prices diapason for products and services and other factors. To find out how the described strategies are applied in concrete industry or segment inside an industry, such as fast food, it is crucial to define fast food and determine its core characteristics.

There are many definitions of fast food and some of them are the following:

· According to Goyal and Singh (2007), fast food is “the world`s fastest growing food type and it is quick, reasonably priced and readily available alternatives to home cooked food”;

· In the Data Monitor's survey (2005) the fast food market is defined as “the sale of food and drinks for immediate consumption either on the premises or in designated eating areas shared with other foodservice operators, or for consumption elsewhere”;

· According to Bender & Bender (1995), fast food represents “general term used for a limited menu of foods that lend themselves to production-line techniques”;

· The food “that comprises four basic elements: low relative monetary price, the end product is served quickly (2-15 min), the product is suitable for eating with fingers and has disposable packaging, finished product durability of minutes and hours (as opposed to longer periods for snack foods)” (Price S., 1991).

It is vital to stress out that “fast food is prepared and served quickly at a fast food restaurant or a shop. It is served usually in a carton or bags to minimize cost. Fast food outlets often provide take away or take out foods, besides, to sit down services” (Warsi & Syeedun, 2005). Thus, the core principles of the fast food are affordability, quick service, minimal table service and opportunity of taking dishes away. Another researcher indicates that “fast food has features such as quick selling, easy to eat, quality standardization and low prices” ( Jin, 2002). These typical characteristics push modern international fast food companies to implement measures that imply cost reduction, product development and other operations to meet the modern concept of fast food. Below, it is showed how world famous fast food companies apply competitive and growth strategies that were previously examined.

Rapid growth of fast food market worldwide is explained by changes in modern consumers' lifestyle, which is becoming more fast-paced and demands longer working hours (Hokey Min & Hyesung Min, 2013, p.212). Increased demand for fast food leads to emergence of new companies in that specific market, bringing up different concepts and increasing the level of competition in fast food industry worldwide. Indeed, “fast-food restaurants have experienced intense competition in the recent years due in part to the saturation of a fast-food restaurant market” (Hokey Min, Hyesung Min, 2013, p.213). The theoretical background indicates a number of researches on competitive and growth strategies applied in fast food.

Competitive strategies in fast food

“To stay competitive, a fast-food restaurant must establish proper service standards in relation to its customers' needs and expectations” (Hokey Min, Hyesung Min, 2013, p.220). Many researches provide evidence, that Porter's concept of generic competitive strategies is widely used to analyze food industry practices (M. McHugh et al., 1993; Ottesen, 2006) According to Thomadsen (2007), intense price competition in quick-service restaurant sector pushes fast food companies to implement product differentiation. The differentiation could be carried out by developing the attributes mostly valued by customers depending on their preferences. It could be wider menus, fast drive-in services, healthy food options and others (Hokey Min, Hyesung Min, 2013, p.228).

In other words, regardless how a fast food company succeeds in cost leadership strategy, setting low price for a product in intense competition is an insufficient competitive advantage, which makes a differentiation strategy vital. Taking into account low profit margins and increasing competition, the success of fast food company in significant extent depends on ability to attract customers and make them loyal through enhancing customer value or improve service (Hokey Min & Hyesung Min, 2013; Reichheld & Sasser, 1990; Lovelock & Wright, 2002). “More importantly, it should be reminded that good branding has a lasting impact on the customer's loyalty to a particular fast-food restaurant. Fast food restaurant should develop a long-term branding strategy to prevent service failures and foster its images” (Hokey Min, Hyesung Min, 2013, p.229). For example, the evidence of cost leadership strategy used by McDonald's is that “a comparative survey of prices was carried out in Hong Kong in June 1994 and demonstrated that McDonald's in price is equal to or cheaper than its competitors in the fast food sector” (C. Vignaly, 2001). Concerning the differentiation, in most markets “McDonald's is differentiating itself by creating more relevant experiences such as allowing the customers to access the Internet with the wireless technology platform. This innovative way not only attracts the teenagers, but also perfectly fitting the modern professionals' requirements” (Jing Han, 2008, p.74).

Thus, the previous researches provide reliable evidence that taking into consideration intense rivalry in fast food market worldwide, price competition is natural and cost leadership strategy is essential for implementation in QSR segment, however, significant number of resembling companies brings up the necessity of branding or creation of special customer value through differentiation. In severe competition that goes beyond mere rivalry in price reduction, in different markets such companies like McDonald`s, Burger King, Wendy`s and Subway seek to outperform each other implementing differentiation in various ways providing fresher, hotter, of higher quality food at lower price and quick service (Jing Han, 2008, p.73).

Although, the Porter`s generic strategies are widely used by international fast food companies, “The Discipline of market leaders” approach also deals with competitive strategies. “If the customers love consistency and speed in delivering a value-for-the-money burger, a company should be highly performed at the core process” (M. Treacy, F. Wiersema, 1995). Thus, taking into account the main principles of fast food, operational excellence is the central discipline on which a fast food company should concentrate the efforts. Following operational excellence discipline, through labor division, standardization process and simple instructions, McDonald`s provide a market with low-cost, standardized products all over the world. Streamlined production process and cost cutting procedures allows McDonald`s outperforming competitors. Thus, for example, through concentration on operational excellence discipline “in the US fast food market McDonalds is the leader in terms of service response time, amenity, operating hours, and competitive price”(Hokey Min, Hyesung Min, 2013, p.223).

Growth strategies in fast food

Inorganic and hybrid growth in fast food industry worldwide represent popular dimensions for companies to expand their presence.

Concerning the hybrid growth strategies in fast food, there are enough evidence showing the importance of strategic alliances for the growth of the world famous fast food companies. Indeed, “the rising standard of living and the expansion of the tourism industry are associated with international alliances in the fast-food industry as well” (Preble et al., 2000). According to Geert
Duysters et al. (1999) the famous three-way cooperative alliance between Coca Cola, McDonald`s and the Disney corporation represents mutually reinforcing relationships. Coca Cola is the main supplier of beverages to McDonald's, while Disney advertising their partners in movies increases their popularity. In turn, McDonald's and Coca Cola use Disney characters in their advertising campaigns. Thus, higher sales at McDonald's increase the exposure of Coca Cola and Disney products.

Expansion through franchising is another hybrid growth strategy used by international fast food companies. Franchising is the core growth dimension for such world famous fast food operators as McDonald's, Domino's Pizza, Gino's Dial-A-Pizza, Pizza Hut and others (S. Price, 1991). A significant number of the leading fast food companies grow through franchising, especially in emerging markets where the increase in the consumption of affordable and large-portioned fast food is evidenced (Terblanche & Boshoff 2010; Van Zyl, Steyn & Marais 2010). Being a relevant growth strategy for fast food industry due to fast expansion, growth through franchising is used by such iconic fast food brands as KFC and McDonald's (Combs, J.G., Ketchen, D.J., 1999).

Concerning the joint ventures used by fast food companies, the evidences from the existing research indicate that such form of strategic alliance is usually used as entry mode. “It has turned out to be universal that leading fast food companies are escalating their products in many countries and becoming huge both in size and economically. Entranced by market size of sustenance division and development capability of rising economies, number of multinational fast food ventures have entered or entering these business sectors either through outside direct speculation or joint ventures”. (Diksha & Sidheswar, 2017). According to Sheraj S. (2017), KFC entered Chinese market of fast food through forming the joint venture with the Beijing Corporation of Animal Production that assisted the company in several business aspects including the selection of the poultry supplier.

Inorganic growth strategies as mergers and acquisitions also take place in fast food industry worldwide that allow companies reaching synergy effects, increasing market share and eliminating rivals. The example could be $11 billion deal between Burger King and Canadian coffee and doughnut chain Tim Horton`s that implied tax inversion for Burger King and other benefits for both companies. (C. Capurso, 2016, p.587).

In terms of organic growth strategies used by international fast food companies to expand their operations worldwide there is strong evidence revealing that international fast food companies implement intensive growth strategies from Ansoff matrix. The research by S. Hussain et al. (2013), showed that the expansion of fast food companies in fast food market of Pakistan is primary conducted through market penetration, product development and market development. Fast food companies “should adopt product development, market development and market penetration technique to extend their fast food business in Pakistan. It will definitely help them to increase their market growth. But they should avoid diversifying their business as it may reduce their market growth” (Hussain S. et al. 2013, p. 201). R. Perrigot et al. (2011) describes Subway as a fast food chain that in its world expansion adheres to the market development growth strategy through entering new regions all around the world establishing its presence in most countries. According to C. Vignali (2001), McDonald's used to open from 300 to 400 outlets per year in the USA market regardless the circumstances. Such a rapid growth created a gap between them and competitors. John Sinclair and Rowan Wilken (2009) claim that McDonald's implements market development strategy entering new markets using the principle “think global-act local” through localization of products in every region where McDonald's establishes its presence. The most important strategic approach of McDonald`s is the combination of market penetration that allows keeping its major markets and market development that allows expanding business into the other regions and markets (Jing Han, 2008).

The research devoted to fast food industry by Warsi and Syeedun (2005) reveals that such international fast food companies as Nirullas, Pizza Hut and others intensively use product development strategy, quality practices and standardized operating procedures as a main strengths developed through the years of experience all around the world.

The previous researches allow determining the concrete competitive and growth strategies applied by international fast food companies all over the globe. In terms of Porter`s generic strategies, the most suitable for fast food segment is the hybrid or integrated strategy, combining the elements of the cost leadership and differentiation strategies. The reason is that the concept of fast food implies affordability that pushes fast food companies to reduce costs achieving an essential competitive advantage. Standardization, supply chain optimization and economies of scale are the main dimensions to reach cost leadership that helps companies to stay afloat in intense competition. Differentiation strategy is aimed to achieve uniqueness that represents the selling point and differentiate a concrete company from resembling rivals, making customers loyal.

According to researches, in terms of “The Discipline of market leaders” concept, for the quick-service restaurant segment, the most suitable discipline is operational excellence as it as well corresponds to the main principles of fast food, implying cost reduction and quick production of standardized items. In some extent, operational excellence accomplishes the cost leadership function.

The growth strategies in the fast food sector could be linked to inorganic growth when mergers and acquisitions occur, hybrid strategies implying cooperative alliances, joined ventures, franchising programs and organic growth. The implementation of organic growth strategies by international fast food companies worldwide goes down to the three strategies from the Ansoff matrix, namely market penetration, product development and market development, leaving behind diversification strategy as less effective for fast food industry.

The practical analysis of competitive and growth strategies of a fast food company is represented in the Appendix A. The competitive and growth strategies used by international fast food companies worldwide are represented in the Appendix C.

The second task is complete - the competitive and growth strategies used by fast food companies worldwide are identified. After analyzing the growth and competitive strategies used by international fast food companies worldwide, it is essential to shift the attention to the regional implementation of these strategies.

1.3 Existing research on specifics of competitive and growth strategies of international fast food companies in India

Indian fast food segment represents one of the most rapidly developing segments of the Indian foodservice industry (PWC industry report, 2018) that has been experiencing incredible growth for the recent decade due to the main concept of quick-service restaurants that faces the needs of Indian citizens (Warsi & Syeedun, 2005) and based on affordable and competitive prices, convenience and fast service. It is important to stress out the core factors that make Indian foodservice market attractive for international fast food companies:

· Openness of the Indian economy for foreign direct investments due to economic liberalization policy;

· Eating habits of Indian people that reflects a desire to taste foreign cuisine;

· High proportion of the young population, with a high share of fast food lovers;

· High volumes of food consumption

· Relatively low incomes that make fast food convenient and affordable option for most people in India.

The factors listed above make Indian fast food sector profitable. Thus, significant number of international fast food companies are eager to enter Indian fast food segment and cement their market share to get profit. It is vital to consider how international QSR companies withstand rivalry after entering India, competing against each other and growing within the fast food segment of the Indian foodservice industry.

According to Goyal and Singh (2007), a significant number of international fast food providers entered India either jointly with local partners or independently after the liberalization policy came in force in the early 1990s. The research of Goyal and Singh (2007, p. 184) showed that “McDonald's, Domino`s, Pizza Hut and Nirulla`s are the most popular and frequently visited fast food outlets”. The research by P. Diksha and P. Sidheswar (2017) concludes that McDonald's in India differentiates itself from competitors by complete separation of vegetarian and non-vegetarian menus displayed under green and purple colors correspondingly (p.72). Another unique differentiation is extended hours services. Cost leadership strategy is expressed in affordability of products McDonald's serves for Indian customers. For example, McDonald`s introduced “economeal” for Rs 25, vegetarian meal for Rs 76 and non-vegetarian meal for Rs 88. Such low prices are in significant extent attributed to the development of local supply chain or cold chain aimed to save the quality of ingredients. (Diksha & Sidheswar, 2017, p.73). “McDonald's learned that despite the cost savings inherent in standardization, success is often a function of being able to adapt to an environment. Product lines were constantly evolving, reflecting taste preferences, and potential profitability” (Leo Paul Dana, 1999).

It is worth emphasizing that “in the Indian context, there is high concern towards health in the twenty-first century. There are health-related articles in daily newspapers, and health shows on television. There are special health-related magazines that are now very popular. Health-related articles do mention to consume more fruits, vegetables, water and to consume less junk food including fast food” (A. Goyal & N.P. Singh, 2007). Based on this factor, A.Goyal and N.P. Singh (2007) conclude that fast food companies operating in India need to concentrate their efforts not only on price reducing strategies but also on the strategies that enhance the quality of products. Indeed, “consumers demand more and more information related to hygiene issues and nutritional values of the products of fast food outlets. Based on the analysis and results, competition among fast food outlets with respect to the quality of food and customer service will be more prominent.” (A. Goyal and N.P. Singh, 2007, p.193). Thus, along with cost reduction strategies, quality related competition strategies are relevant for Indian fast food segment. The results of the research by A.Goyal and N.P. Singh (2007) indicate that competitive approach of international fast food companies operating in India such as McDonald`s, KFC, Domino`s, and others build their competitive strategies around the core dimensions, namely affordability, service and delivery and quality of products. Based on these results, it could be concluded that in terms of “The Discipline of market leaders” competitive approach, such priority makes product leadership relevant for Indian fast food segment along with operational excellence. While operational excellence discipline provides affordability of products, product leadership enhance the quality and service. “There is continuous improvement in the technology as far as the fast food market in India is considered. The reason is that food is a perishable item and in order to ensure that it remains fresh for a longer period of time, there is a need for continuous improvement of technology” (Warsi & Syeedun, 2005).

The growth strategies of international fast food companies in India is another aspect that should be observed. The researches show that for international fast food companies operating in India, that are mostly western originated, inorganic growth strategies, namely mergers and acquisitions are less popular than organic and hybrid strategies, largely due to high risk and significant discrepancies in Indian high context corporate culture and western low context corporate culture. There are few reliable researches on mergers and acquisitions in India, however, several of them have investigated that mergers and acquisitions in India are relevant for financial services sector (G. Manokaran, R. Radharukkumani, 2014). According to the research by Roger Y.W. Tang and Ali M. Metwalli (2013), mergers and acquisitions in India primarily occurred in such sectors as energy, financial service, banking and pharmaceutics.

Moreover, concerning hybrid strategies namely strategic alliances in the form of joint ventures, cooperatives and others implement the collaboration of culturally distant organizations in joining efforts to achieve sustainable competitive advantage in the idiosyncratic market of an emerging economy. Due to cultural discrepancies, it is difficult for the foreign company to transfer its knowledge resources to the international joint venture in the emerging Indian economy (Griffith et al., 2005; Kogut & Zander 1995; A. Madhok, 1997). However, when fast food companies began to emerge in India after liberalization policy had come in force, several companies as McDonald's and KFC established their presence using a joint venture, collaborating with local firms. Further expansion was carried out through franchising (Anita Goyal, N.P. Singh, 2007).

Indeed, such type of strategic alliance as franchising is much more prevalent in Indian fast food segment. “The important players who entered India through this concept are KFC, Dominos, Mc Donald's, Papa Jones and others” (S. Chacko and Dr. S.Verma, 2019). The research by S. Chacko and Dr. S. Verma (2019) revealed that in India there is a growth potential for fast food companies through franchising agreements. Such fast food chains as Domino`s and Subway are growing with an aggressive pace, increasing market share in Indian fast food segment (S. Chacko and Dr. S.Verma, 2019). Leading global fast food providers such as Baskin Robbins, KFC and McDonald's are growing in India through franchising programs. Master franchising has shown its effectiveness as an entry mode and the growth instrument for the further expansion used by significant number of international fast food companies in India. (Report on franchising industry in India, 2013). Many researchers have emphasized the importance of the increase in number of outlets through franchising. Thus, according to A. Goyal and Singh (2007), KFC has faced a number of problems in terms of growth, as it had a limited number of outlets since entry in India (p.184).

Concerning the organic growths strategies used by international fast food companies for expansion in India, market penetration and product development strategies implemented by various international fast food providers in India are aimed at providing a wider reach of customers and their acceptance that is critically important for future growth (A. Goyal and N.P. Singh, 2007). Less popular market development in Indian fast food segment is used through targeting children that helps to increase sales volume and increase presence, as targeting children, the companies automatically targeting their parents (Warsi & Syeedun, 2005). A significant number of international fast food operators implements product development as it allows introducing a wide variety of products to cater the needs of each customer segment (Warsi & Syeedun, 2005). Panwar et al. (2017) indicate that through persistent product development McDonald's provides customers with the wide range of localized products including McAloo Tikki, Filet-O-Fish, Spicy Range, Chicken McGrill, McVeggie and others. Such strategy enhances growth through more noteworthy customer reach. McDonald's implements market penetration strategy by increasing sales volume through enhancing of promotional efforts expressed in active advertising and price reductions expressed in discounts and introduction of attractive schemes during festive seasons (Diksha & Sidheswar, 2017).

Thus, specifics of strategy implementation in a particular market go down to local factors that vary from country to country. The research by Hokey Min and Hyesung Min (2013) includes cross-cultural competitive benchmarking studying the core attributes of fast food consumers in different countries. The research revealed that, for example, US customers of international fast food companies are insensitive to such factors as the healthiness of food and quality of ingredients, but sensitive to the price and variety of products. While Korean customers are insensitive to price, however, they are significantly health concerned and sensitive to service. The authors show that different cultures bring up different customer approaches to the main attributes of fast food. Thus, international fast food companies in India are building up the strategies with regard to the local specifics expressed in health concern, price sensitivity and demand for convenient delivery service.

Based on the previous research revealing the most essential attributes for Indian consumers, the core competitive strategies of international fast food companies operating in the Indian QSR segment show the relevance of Porter`s integrated generic strategy.

If competitive strategies are considered in terms of “The Discipline of market leaders” theory, the previous research showed that fast food companies operating in India concentrate their efforts on operational excellence discipline or product leadership discipline and do not use customer intimacy discipline.

Finally, according to the researches studied, the growth of fast food chains in India is conducted through organic methods of growth, namely market penetration and product development strategies. Market development organic growth strategy is used more rarely being less prevalent among international fast food companies operating in India and showing very few evidence of its implementation. The key hybrid growth strategy for international fast food companies operating in India is growth through franchising. It is essential that the growth of US-based global franchise brands is supported by the stronger brand perception in India (Dant et al. 2016).

M. Sidhpuria in his book “Retail franchising” explains why franchising is effective in India by the following arguments:

· Lower capital requirements. Franchising offers a low-cost option for creating a strong distribution network over distributing through ownership stores. This is a lucrative option for foreign franchisors as well as Indian franchisees as it reduces risk exposure and financial commitment. The business environment in India is characterized by a massive number of enthusiastic entrepreneurs who can help foreign companies to set their franchise system in India.

· Circumventing entry barriers. Taking into account the level of competition in the QSR segment of India, international companies have an option to collaborate with Indian entrepreneurs and take a smooth entry into the Indian market through franchising route.

· Substantial market. The size and geography of India are suited for the franchising model concerning the entry and further expansion, particularly in the services` sector of the economy. There is a significant potential for franchising in the foodservice industry.

The case study, demonstrating how Burger King in India implements competitive and growth strategies with regard to local specifics is represented in Appendix B.

The third task is complete - after analyzing of existing research, competitive and growth strategies relevant for Indian fast food segment are defined. Further, it is essential to consider the Indian economy and fast food segment deeper.

2. Competitive and growth strategies of fast food companies in India on the example of Domino`s and Pizza hut

2.1 Overview of Indian economy and fast food segment

According to “Global Sherpa website," India is the world`s largest democracy country with 1.3 billion people and the second largest country after China by population. In recent years with intensifying of globalization and economic growth, India has become more integrated to the world economy becoming a market-open country that in turn led to the increase of living standards.

The India country profile at the “World bank” website informs that as for the year 2017 GDP of India was 2,597.49 trillion current dollars when GDP per capita was $1940 with inflation rate 4%. Exports of goods and services consisted 19% of GDP against imports of 21.8% of GDP (The Global Economy, 2017).

According to the overview of Indian economy published on the website of Indian brand equity foundation: “India is emerging, the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF). It is expected to be one of the leading economic powers of the world over the next 10-15 years, backed by its stable democracy and partnerships”. Moreover, India has capture the position as the third largest startup base in the world. More than 1,200 startups came up in 2018, taking the total number to 7,200 startups (NASSCOM, 2018).

The industry report “The changing landscape of the retail foodservice industry” by PWC (2018) informs: “Robust GDP growth, increase in disposable income, declining unemployment and steady inflation have all contributed to the country's growth over the past few years. The Government's efforts at ramping up infrastructure and amending policies to favor business and stimulate growth have also contributed to growth in the economy and in turn improved consumer confidence”. Moreover, increasing of employment rate leads to gradual increase in disposable incomes and rapid urbanization drives the growth of the Indian retail sector (PWC, 2018). “The country's growth in the next few years will offer ample opportunities for growth of retail in the country” (PWC, 2018).

In the report “Industry food service overview: engine for economic growth and employment” conducted in 2017 it is estimated that by 2020, India will hold the position among 5 global economies and by 2050 it will be in top 3 global economies. “India's medium - to long-term growth will be determined by the interplay of the structural factors of demographics, policy reforms and globalization” (S. Dabas, H. Lunawat, 2017). “It is expected that the confluence of these three factors will help to raise potential growth. The growth is expected to continue in the future and will translate to higher spending across all consumption categories including eating out, consumer durables, luxury products and others” (S. Dabas, H. Lunawat, 2017).

The "Statistics times website" informs that agriculture, industry, and service are the main sectors constituting the Indian economy. The core components in the agriculture sector are forestry, logging, fishing and related activities. Mining, manufacturing, water supply, construction and gas form industrial sector in India. The service sector is the largest that consists of the hotel business, transport, financial, real estate and other services. The last sector accounts for about 60% of India`s output.

Indian economy is open for foreign investments. FDI inflow allows the country receiving non-debt financial support that in turn provide India with new technologies and create new workplaces managing with unemployment.

The website “Indian brand equity foundation” also informs that: “According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India during April-December 2017 stood at US$ 35.94 billion”(IBEF).

The sectors attracting highest FDI equity inflows are represented in table 1:

Table 1. Sectors attracting highest FDI equity inflows. Adapted from Indian brand equity foundation, fact sheet on FDI (2017). Retrieved October 2019 from www.ibef.org

Amount in Rs. Crores (US$ in Million)

The table above demonstrates that the services sector attracts the most significant amount of FDI. The source “The changing landscape of the retail foodservice industry” (2018) provides the factors that make the Indian foodservice industry attractive for investors:

· Rising disposable income and changes in consumption pattern. Indian economy is considered as one of the fastest growing in the world. The future growth is expected from consumption market of India.

· Attractive demographics: “India has the lowest median age (26 years old) across key developed and emerging countries of the world. These young consumers are indulgent, have higher spending power, and are open to experimentation and exploration in terms of different types of food and cuisine” (PWC, 2018).

· Expenditure on food. The report revealed that Indian consumers spend from 8% to 10% of their food expenditure in quick service restaurants, cafeterias and other types of dining out establishments. Such a trend is gaining momentum.

The information provided above describes India as an open market, rapidly developing country with a favorable investment environment. However, the “Heritage foundation website” provides the factors that slow down the growth of the Indian economy:

· High level of corruption. The bribery takes place in the public sector as well as in a business environment;

· Poor infrastructure. Indian economy is in great extent constrained by this factor due to the low expenditure of government on infrastructure development;

· Budget deficit. The main result of poor financial management that threatens the implementation of many government programs;

· Shortage of qualified workforce.

Another essential feature of the Indian economy was described by the “Live Mint” internet journal based on household survey on India's citizen environment and the consumer economy. The source informs: “India's richest 20% account for 45% of income” (P. Bhattacharya, 2016). The survey showed that the top quintile is able to save about 47% of household earnings, and the poorest quintile saves only 10% spending 90% of their income on the most necessary attributes, including food.

However, it is pinpointed that as long as incomes grow and infrastructure improves, India is likely to experience growth in different segments over time. These segments are represented in table 2:

Table 2. The key categories that are characterized by healthy growth. Adapted from Goldman Sachs Global Investment Research by Lu J., Yiu A., Soman. A (2016). Asian consumer. India consumer close-up, tapping the spending power of a young, connected urban mass. (p. 22)

In 2016 Goldman Sachs published the research “India consumer close-up” where the spending power of Indian population was studied. The paper concludes that most of the new generation of India's youth constitutes urban mass, a category of 129 million people that have an annual income over US$3,200 on average. It is emphasized that the expansion of the urban population in India in size and income, will be the key driver of consumption in India during the forthcoming 5-10 years, especially in the fast food segment (J. Lu et al., 2016). The report also stresses out that as long as incomes rise, spending on food, especially packaged food and fast food is likely to increase leading to the growth of the foodservice industry of India.

The industry report “The changing landscape of the retail foodservice industry” conducted by PricewaterhouseCoopers informs: “Indian foodservice sector has seen exceptional growth during the past decade and continues to expand at a fast pace. This can be attributed to a high percentage of the young and working population with rising disposable incomes”. Plenty of retail space, attractive macroeconomic conditions, favorable business environment, increasing disposable incomes of consumers and a changing consumer mindset have made Indian foodservice industry an attractive destination for foreign direct investments (PWC, 2018). The foodservice industry is driven by young and dynamic consumers who along with changing lifestyle enter into the trend of eating out. Increasing share of urban working woman population, double-income families as well creating more opportunities for the Indian foodservice industry to grow. (PWC,2018).

In the report “Indian foodservice industry: Engine for economic growth and employment”(2017) it is stipulated: “A decade back eating out had not been a prominent feature in an Indian's life but over the years, due to changing consumption pattern, eating out has gained momentum. This changing pattern has ensured constant growth for the Indian foodservice market”. At the beginning of the 1980s, the Indian foodservice industry counted only a few brands of organized fast food chains and consisted primarily of unorganized street stalls and “dhabas” dominating fast food segment. In 1996 after the liberalization of Indian economy had come in force, such world famous fast food restaurants as McDonald's, Pizza Hut, Domino`s, Subway and others entered Indian fast food segment making the revolution in the foodservice industry of India (S. Dabas, H. Lunawat, 2017)

As per Technopak Industry report (2018), “Foodservice market of India is classified into two segments: organized and unorganized based on the following three key parameters: accounting transparency, organized operations with quality control and sourcing norms, and outlet penetration”. The outlets and restaurants that do not conform to the above conditions are referred to unorganized segment that primarily includes street stalls, roadside eaters, kiosks and “dhabas.” The catering establishments conforming to the stated parameters are referred to the organized segment. In turn, the organized segment is classified in chained and standalone formats. Chained format includes domestic companies and international chained formats with more than three outlets established in India. Chained formats consist of Pubs, Bars, cafés and Lounges (PBLC), Fine Dining Restaurants (FDRs), Premium Casual Dining Restaurants (PSDRs), Affordable Casual Dining Restaurants (ACDRs), Frozen Desserts/Ice-Crea, (FD/IC), Cafes and particularly Quick Service Restaurants (QSRs) (Technopak Industry report, 2018, p.9)

As far as this work is aimed to analyze competitive and growth strategies of international fast food companies, the research is directed to the international chained fast food operators of the QSR segment of the Indian foodservice industry.

Since quick service restaurants segment represents one of the most rapidly growing sector of the Indian foodservice industry, this fact provides the grounds for the next stage of the research shifting the attention to the QSR sector of the foodservice industry.

“Over the last decade, though, many of these players have got their act together through a better understanding of the Indian market in the form of Indianised menus, breakfast menus, sit-and-eat formats and positioning their outlets as destinations for family outings”(M.S. Anitharaj, 2018).

There are different expectations concerning the growth rate of the Indian QSR segment. According to M.S. Anitharaj (2018), “Indian fast food market is expected to grow at CAGR of 18% by 2020 due to changing consumer behavior and demography”. Organized fast food segment of India is forecasted to grow at the rate of 27% at CAGR by 2020 and is expected to be worth $ 27.57 billion (M.S. Anitharaj, 2018). The report “Indian foodservice industry: Engine for economic growth & employment” conducted in 2017 by Technopak informs that for the period from 2017 to 2022 the QSR sector of India demonstrates the growth rate of 14% at CAGR. Euromonitor country report (2018) informs that Indian QSR segment is predicted to grow around 8% in current value terms and 4% in constant dollar terms. The latter figure is the most consistent with IMF and World Bank economic forecasts. Thus, the conclusion is that the estimates of the growth rate of the Indian QSR sector have high dispersion. Therefore, it should be noted that even the modest estimates give the growth rate of around 8% at CAGR from 2017 to 2022 that is still higher than the growth rate of the most significant markets in the world.

Trends of the Indian QSR segment

Consumption pattern

Besides, the consumption pattern of Indian citizens is another one element that should be analyzed in this research to show the priorities of people in India in terms of their expenditures. The research “The consumption pattern of Indian Consumers: choice between traditional and organized Retail” by S. Mridula (2007) provides information about consumer behavior and its reaction to the development of organized retail. It is highlighted in the research that: “Indian consumers have become more educated and demanding, learning how to manage the money more efficiently" (S. Mridula, 2007). The research also provides a conclusion that the most important attributes for Indian citizens concerning food are quality and price.

Health concern

Indeed, even though fast food in India is popular among different groups of the population, there is a trend of health concern. It is essential to stress out: “The recent studies have shown that prevalence of diabetes in India is as high as 12-18% of the adult population, especially in urban areas” (PWC, 2018). Moreover, the source informs as well that around 5.8 million people die from cancer, diabetes and heart diseases in India annually. It is worth noting that people suffer diabetes in India at a younger age compared to other countries. Such factors make customers be more health concerned and conscious about the food they eat and it is a trend. As per PWC (2018), “In the past, checking the ingredients written in fine print on packages was not a common practice. Now, more and more consumers along with looking at the taste of food have begun to give equal importance to the quality and source of ingredients used in food”. Moreover, the industry report also informs: “On account of increasing urbanization, rising incomes and deeper penetration of the media in the country, the Indian consumer is becoming increasingly conscious of eating food at high-quality outlets across socioeconomic segments” (PWC, 2018).

Online food delivery

Technologies play a vital role in the foodservice Industry of India. Online food delivery applications are gaining momentum. A significant number of restaurants, cafes and QSR outlets have started to introduce a variety of digital tools including applications for online ordering that is becoming the most popular way for online food service sales in the Indian foodservice industry (KPMG, 2016).

To have a clear picture of the fast food segment in the foodservice industry of India, it is reasonable to conduct Porter`s five forces analysis of the fast food segment.

Porter`s Five Forces industry analysis for the fast food segment.

Porter`s five forces model that analyzes Indian fast food segment is based on two research works: “Analysis and critical evaluation of strategy followed by McDonald`s India” by Kapoor S. (2018) and “Fast food industry” by Sadhwani R. (2012).

Threat of new entrants.

Despite the excellent brand power, recognition and customer loyalty of key players operating in Indian fast food market such as Domino`s, McDonald`s, Pizza Hut and others, the segment is considered easy entering for new international fast food companies. The liberalization of the Indian economy started in 1991 opening India for FDI and improvement of business climate made the food service industry full of international fast food chains and local companies. However, it is much more challenging to sustain intense competition rather than enter the market. Moreover, social media and marketing channels are quite cheap and there is no requirement for high innovation level and enormous capital outlay for entering the fast food segment of India. For that reason, such force as “Threat of new entrants” is evaluated as a medium to high.

Threat of substitutes.

Taking into account that fast food sector in India is considered highly competitive with hundreds of fast food operators acting in the market and switching costs of consumers are very low, the substitute products and services that could replace existing ones appear in the market constantly. An increasing number of new entrants makes them a substitute for fast food chains that already operates in India. Moreover, the threat of substitution is also referred not only to fast food chains competing to each other but to the producers of ready-to-eat healthy food such as “Falzani” that provides its products in great variety at competitive prices in many grocery shops. Thus, the “Threat of substitutes” force is considered as a medium to high.

Bargaining power of suppliers.

As a rule, the key players such as McDonald's has established local supply chain from scratch based on long term contracts with farmers and for many of them, such international fast food chains are their primary customers. Coca-Cola and Pepsi dominate the supply of beverages due to companies` global distribution channels. Moreover, India represents one of the principal directions for Pepsi and Coca-Cola distribution taking into account the amount of beverages consumed within Indian fast food segment. Even though there are many suppliers in the fast food segment of India. The supply chain in many companies is established contractually with selected suppliers. The competition among suppliers is high and taking into account a competitive global supply chain, it is difficult for local suppliers to leverage significant power over fast food chains. Bargaining power of suppliers in the fast food segment of India is considered as medium.

Bargaining power of customers.

As far as customers in the fast food segment of India are price sensitive and there are no switching costs between fast food providers, the buyers have significant power over fast food operators. However, key players seek to decrease the bargaining power of buyers by providing special offers, differentiated products and excellent service in order to achieve customer loyalty. Thus, the bargaining power of customers is considered as medium.

Industry rivalry.

Taking into account the number of players operating in the fragmented fast food segment of India it is easy to conclude that the competition is high. The rivalry in the segment is cost based and companies are continually investing in core processes to override rivals in service and quality or level of costs reached through innovative technologies and economies of scale. Competing through enhancing brand power, providing low price and high-quality products and increasing capacity primarily through franchising programs fast food chains crave to increase market share and pull the rivals over the market. The rivalry in the segment is considered high.