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December 24, 2013

Third-Ranked KFC is Winning the Fast Food Battle in India – For Now

ElizabethFriendAnalyst Insight by Elizabeth Friend - Senior Foodservice Analyst

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”. Within the past year, Yum! Brands, McDonald’s and most recently, Burger King, have all pledged to make India a central focus of their future expansion strategy, a testament to the level of opportunity present in the sizable market.

But while brands from all over the world have already rushed to carve out a presence in India, the market is still years away from seeing anywhere close to the kind of chained foodservice penetration already achieved in China. And as excitement about future potential in India has grown, so too has the competition, taking with it any chance of finding any sort of first-mover advantage. This has resulted in a market that’s relatively underdeveloped in terms of outlets per-capita, and yet one that is already crowded with competitors all vying for customers in the same concentrated areas.

Within these conditions, many chains are having trouble finding ways to stand out, and the window for establishing oneself as a leader in the lucrative market may soon be closing. With the hopes of discovering what’s actually working in India so far—and what isn’t—Euromonitor took a look at three current winners and dove a little deeper into the localization strategy, pricing structure, and youth appeal that are helping to drive their success. We’ll start with the third-ranked brand in the market, Yum! Brands’ KFC.

A Slow Start, with Building Momentum

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-ranked brand in India, a fact that is particularly notable considering they were a relatively late entrant in terms of widespread expansion. In 2003, KFC had just 3 local outlets, putting them well behind Baskin-Robbins, Domino’s, Pizza Hut, and McDonald’s, all of which had over 50 outlets already in operation, and were growing quickly.

KFC’s success has come as a combination of clever localization, savvy pricing strategies, successful consumer education, and a menu that appeals well to the changing preferences of sophisticated, urban Indian consumers. KFC’s entry into the market was slow, and despite opening three initial outlets as early as 1995, the chain had reached just five units nearly a decade later. At that time, the market posed significant logistical issues, and sourcing enough poultry, beef and other products continues to be a challenge even in 2012. Back in the ‘90s, local leader McDonald’s famously spent years building its own India supply chain from scratch, training local farmers and designing a cold chain that would be robust enough to handle its needs, while Yum! Brands’ focus was firmly on building its now-dominant presence in China. The chain’s investment in the latter market has paid off handsomely, but it also left the brand with some catching up to do.

Meanwhile, Indian consumer preferences were changing. Chicken consumption in India may be more common than beef, but meals are typically carbohydrate-heavy, and many local consumers prefer a vegetarian diet. Further, the chicken that is eaten is traditionally taken in the form of tandoori, a fiery-red, spicy grilled dish that’s eaten alongside rice and vegetables. When the time was finally right for expansion, and Indian consumers were broadening their foodservice horizons through travel, the internet, and generally greater exposure to global cuisine, KFC began expanding aggressively and adapting their menus to bridge the gap between familiar and innovative. By 2012, the chain had reached 220 outlets and added spicier versions of their chicken, including a Fiery Grill flavor that mimics the red hue and hot spice of traditional tandoori, and Curry Chicken, modeled after popular local curries.

In addition to promoting its chicken items, KFC also added plenty of vegetarian options. The chain now serves fried vegetable strips and burger patties made of either potato or vegetables, and many new menu launches have been accompanied by a similar vegetarian item, such as the Zing Kong beef burger meal combo and Veg Zing Kong combo, both launched in mid-2012.

Finally, KFC has also achieved success through the use of its pricing strategy, which was designed to help turn what appeared to many as a special-occasion novelty restaurant into an everyday option. In recent years, KFC has taken steps to drastically reduce its prices, launching a Streetwise branded menu targeted to students who have very little income but tend to be willing to spend on foodservice at the right price. The menu starts with items as low as Rs25 (US$0.40), and was marketed with a youthful campaign that promoted the range as a better alternative to the university dining hall at similar prices. In 2013, KFC followed up with a “Wow@25” marketing campaign and augmented reality smartphone app. Cash-strapped students can scan any small bill with their phones, and the app suggests low-priced items off of a new KFC Wow menu that fits within their budget.

The Road Ahead

This budding success in India couldn’t come at a better time for Yum! Brands, which has been facing dire results from China, usually its strongest market. The company has been battling concerns about its poultry quality, avian flu scares, and various food safety scandals that have caused comparable-store sales to plummet as much as 11% in the most recent quarter. In India, third-quarter results were better, with outlet sales surging 24% despite flat comparable-store sales.

Some of this relative slowdown in India is due to rising competition, especially in fried chicken fast food. Now that local consumers are more willing to see fried chicken as a meal, countless imitators have entered the market, many of which are backed by deep-pocketed operators and, in some cases, possibly even better suited to Indian palates. Thai street stall concept Five Star Fried Chicken, for example, launched in India in 2013, targeting young professionals and college students by opening in malls and business parks. The chain’s very spicy Thai-style fried chicken appeals well to Indian preferences, and parent company Charoen Pokphand’s holdings in the local chicken processing industry enables the chain to sell items at prices that start even lower than KFC’s Streetwise menu.

To battle this competition, KFC is ramping up expansion even further, aiming to double its local outlet presence by 2015. The chain will also be moving into smaller cities and second-tier areas, gaining access to new customer groups in areas less saturated with chained foodservice options. In an even more interesting move, KFC’s parent company is betting on Taco Bell for future growth in India, a concept that has so far remained mostly confined to the US. Despite this, the concept’s menu is easily translatable into vegetarian fare and has high potential appeal for young people, the same group Yum! Brands has worked so hard to target with KFC.

Key Takeaways from KFC

Moving forward, there are a few key lessons other brands can take from KFC’s success. First, the importance of menu localization cannot be overstated, especially in a market with a well-developed dining culture of its own. Indian consumers like very spicy food, and they are as diverse in their dietary preferences—much of which stems from local religious and cultural traditions—as they are in terms of income stratification. Successful brands will need to take significant steps to bridge the gap between offering a new, exciting dining experience and one that will be familiar enough, and attainable enough, to entice consumers to dine outside of the home.

Second, operational challenges in India are just as important as customer acquisition, and operators who aren’t proactive about building their supply chain will likely find success impossible. Finally, in a country with over a billion people, targeting a concept’s appeal to the right customer base is still important. KFC has had success using pricing, product mix, and branding to target young people, a customer base that can expand with the chain in the future as the demographic grows both in size and in purchasing power. By 2030, India is expected to surpass both the US and China to become the home of the largest consuming population in the world, and while the “right” consumer base will continue to grow larger, the importance of carefully targeting those consumers and fostering their future brand loyalty will be no less paramount.


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