Expansions are on hold & value for money products are the in thing
And the same is echoed in expansion plans of other players, as the industry claims that 50% of promised projects for fiscal year 2008-09 haven’t been delivered yet. “Real estate is emerging as a big challenge...” affirms Vikram Bakshi, MD, McDonald’s India (North & West). However, Big Mac is more comfortable w.r.t. funds for expansion, as it has expanded cautiously, with just 155 stores in 27 cities while Yum! Brands (owner of Pizza Hut & KFC) has 200 outlets across 54 cities. But Yum! is now paying the price as paucity of funds & constant surge in commodity prices makes it worse.
The outcome is price hikes, which are also being adopted by domestic players like Nirula’s. During the last six months of 2008, there has been at least a 40% jump in prices of various products and consequent decline in footfalls by around 20% in the first two months of 2009 (a Technopak estimate). As pundits point out, only ‘value for money’ products are recession proof; no wonder that McDonald’s has been able to grow at 20%, irrespective of slowdown. Even Yum! Brands is planning to introduce its ‘easy on the pocket’ brand Taco-Bel in India. Domino’s has launched a Rs.35 pizza, which, as per Kaul, is doing phenomenally well for the company. Indeed, when input costs are going out of hand, companies have to use the concept of price discrimination to the fullest, wherein they maintain their portfolio of products for the premium audience, but take out more such special products to attract the value buyers. Therefore, this trend is expected to continue till market prospects improve.
The outcome is price hikes, which are also being adopted by domestic players like Nirula’s. During the last six months of 2008, there has been at least a 40% jump in prices of various products and consequent decline in footfalls by around 20% in the first two months of 2009 (a Technopak estimate). As pundits point out, only ‘value for money’ products are recession proof; no wonder that McDonald’s has been able to grow at 20%, irrespective of slowdown. Even Yum! Brands is planning to introduce its ‘easy on the pocket’ brand Taco-Bel in India. Domino’s has launched a Rs.35 pizza, which, as per Kaul, is doing phenomenally well for the company. Indeed, when input costs are going out of hand, companies have to use the concept of price discrimination to the fullest, wherein they maintain their portfolio of products for the premium audience, but take out more such special products to attract the value buyers. Therefore, this trend is expected to continue till market prospects improve.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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