Which International Brand Is Ready To Take Over India?


McDonald's entry into India in 1996 marked the start of the quick-service restaurant, or QSR, concept in the nation. Many global brands have established operations in India since then. This fueled the Indian QSR market to a size of $550 million, according to a study from research firm Crisil last year.

According to the same Crisil report it is expected that this strong growth trend will continue as global brands expand into smaller cities. The Indian QSR market is expected to reach a turnover of $1.1 billion by 2015-16, an average annual growth rate of about 27 percent.

This growth is of course supported by positive macroeconomics. The Economist Intelligence Unit estimates that the number of households in India with annual earnings over $5,000 will increase from 81 million last year to 172 million in 2017, while private consumption per head will almost double from $918 in last year to $1,743 in 2017.

With saturated US and European markets, India could offer a big opportunity. Domino's Pizza , which recently opened its 600th restaurant in India, calls India its fastest-growing market and its second-largest single country operation outside of the US. Of the 500-odd new restaurants that Domino's opened in 2012 in the worldwide, 23% were established in India.

Foreign brands have grabbed a 63% share of the India QSR market. Within the foreign segment, Domino's Pizza dominates with a 20% share, followed by Subway (12%), McDonald's (11%), Kentucky Fried Chicken (9%) and Pizza Hut (8%).

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According to the National Restaurant Association of India these numbers count only the organized market, while over 80% of the foodservice sector is unorganized. So basically international companies have only taken a big share of a small pie.

With so much territory left to conquer, fast-food chains are expanding fast, and much of the expected growth will come from new stores, especially in smaller cities. Over the next three years new store additions will grow by 16%-18% a year.

Yum! Brands the owner of KFC, Pizza Hut, and Taco Bell plans to increase its total restaurant count in India from 600 now to 1,000 by 2015. Yum! Restaurants India became an independently reported division for Yum! in 2012, which underscores the potential scale of India as a key emerging market.

The company's India business consists of nearly 300 KFCs and more than 180 Pizza Hut Casual Dining restaurants which have shown strong unit growth. KFC is one of the fastest growing quick-service restaurant brands in India. Pizza Hut received the ranking of the No. 1 most-trusted food-service brand in India for a sixth year in a consumer survey by The Economic Times. India also has more than 130 Pizza Hut Home Service units. Additionally, Taco Bell has entered India as part of Yum's efforts to develop Taco Bell into the company's third international brand. By 2015, Yum! is expected to have $1 billion in system sales in more than 100 cities.

India is a key emerging market for Yum! Brands. India has a great retail environment, and it is the sixth largest poultry consumer market in the world.

Fast grower

According to Euromonitor Yum! Brands' KFC was the fastest-growing major chain in India in 2012, recording 45% value growth year-over-year based on a 41% increase in outlets (a net addition of 62). This level of growth has helped KFC become the third-ranking brand in India, a fact that is particularly notable considering that KFC entered the market relatively recently in terms of widespread expansion. In 2003 KFC had just three local outlets, which put it well behind Baskin-Robbins of Dunkin' Brands, Domino's, Pizza Hut, and McDonald's, all of which had over 50 outlets already in operation.

KFC's success has come due to a combination of clever localization, savvy pricing strategies, successful consumer education, as well as a menu that appeals well to the changing preferences of sophisticated, urban Indian consumers.

Final Note

Over 65% of India's current population is younger than 35 years old (1.2 billion), and many of those people are welcoming international brands.

India has been steadily claiming a larger share of the attention of leading operators looking to expand abroad, and some have even gone as far as calling India, "China 2.0." Yum! Brands, McDonald's, and Burger King have all pledged to make India a central focus of their future expansion strategies.

In a country with over a billion people, targeting a concept's appeal to the right customer base is still important. Yum! has had success using pricing, product mix, and branding to target young people. In addition, India appears to be turning more health conscious. Chicken, fruits and vegetables are more preferred than red meat and eggs, which is a positive sign for chicken QSR operators such as KFC.

By 2030, India is expected to surpass both the US and China as largest consuming population in the world, and while the "right" consumer base will continue to grow larger, carefully targeting those consumers and fostering their future brand loyalty will be of utmost importance for international QSR operators.

The article Which International Brand Is Ready To Take Over India? originally appeared on Fool.com.

Johan Seijkens has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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