HRPL, McDonald Corp’s Indian franchise partner for the West and South regions, plans to add 100 outlets to its tally by FY15, in addition to experimenting with newer outlet formats

DIVYA .M. CHANDRAMOULI

Here’s an interesting fact; it took Hardcastle Restaurants Pvt. Ltd. (McDonalds Corp’s Indian franchise partner for the West and South regions) six years and Rs. 4.5 billion to establish its first outlet in 1996. A major portion of its time and money was spent in establishing the company’s business foundation – its supply chain. This, in essence, comprised Phase 1 for HRPL’s growth, that of glocalisation.

16 years into the business of making and selling burgers, HRPL still works with a host of its suppliers that it began with. In fact, its focus on sourcing from local suppliers has proved beneficial on three fronts; it has helped the company achieve economies of scale, deliver its products at a lower price to consumers and most importantly, has seen HRPL grow at a remarkable pace. The company established 161 outlets by FY13, of which, as many as 83 outlets were opened only in the last three years.

The funds raised through the preferential allotment will be used to invest in the growth of our business, to aggressively increase our retail footprint, fortify our presence in the existing markets and to enable us to enter newer markets.

In 2010, the company was awarded a development licensee status by McDonalds Corp., which reflects the enhanced level of trust it has built, as a local partner. Moreover, in July 2013, HRPL became a direct subsidiary of the listed company, Westlife Development Ltd. and it subsequently raised Rs. 180 crore through a preferential issue of shares to Arisaig India Fund. Commenting on this, Smita Jatia, MD, Hardcastle Restaurants Pvt. Ltd., says, “The funds raised through the preferential allotment will be used to invest in the growth of our business, to aggressively increase our retail footprint, fortify our presence in the existing markets and to enable us to enter newer markets.”

Currently, the company’s EBITDA margin stands at 12 per cent and by improving in supply chain management, enhancing technology and implementing learnings from the parent company’s overseas operations, HRPL aims to increase this margin to 15 per cent – 16 per cent, in line with McDonald’s Brazil franchise that sells to a similar demographic as India. Moreover, its top management aims to add another 75 to 100 outlets over the next two years (FY14 and FY 15).

Taking it phase-by-phase

In over a decade that HRPL has been operational, it has broken down its growth plans into three phases. Phase one focussed on glocalisation and building a strong supply chain. From receiving crops from farmers to dispatching processed food to its stores, care was taken to ensure that procurement, storage and transportation of perishable produce and products was done under controlled temperatures. This phase allowed HRPL’s offering to be on par with McDonald’s international franchises.

Its next phase was that of endearing itself to the local consumer. India is the first country in which McDonalds does not serve beef or pork. Thus, relevant products such as the McAloo Tikki and Chicken McGill burgers went on to become the company’s Indian staples. Phase three was initiated in 2004, when the company saw the introduction of the Happy Price menu. In fact, it was a game changer, which enabled the company to sell to a much wider target audience. “Our Happy Price menu with products starting at Rs. 20 opened the floodgates to the masses and McDonalds became a part of everyday life for many,” adds Jatia.

HRPL is currently in its fourth phase, and is looking to accelerate its growth by entering into newer geographies and establishing newer outlet formats. To execute its aggressive expansion plans, HRPL plans to utilise its capital in an 80:20 ratio at metropolitan, and Tier-II and Tier-III cities and towns, respectively.

Changing it up

While HRPL’s stand-alone format will continue to be its mainstay, the company is likely to mix things up in the coming years. It plans to focus on drive-through formats, even though setting it up involves a higher capital expenditure. Jatia justifies this by stating that it is likely to generate higher revenues when compared to the stand-alone formats, which drive revenues at fixed times of lunch and dinner. “Our drive-through format will continue to be one of the many ways we hope to be able to remain accessible to customers, apart from McDelivery, stand-alone restaurants, malls, highway restaurants and kiosks,” she affirms. HRPL is also studying the market to launch international format extensions such as McCafe, which is a coffee-house style food and drink chain that also sells products under its own label. “We might experiment with McCafe by introducing it as a part of select stand-alone outlets to begin with,” says Jatia.

As for changes to its menu, HRPL has kept pace with international menu additions. For example it launched its breakfast menu in 2010, and Mc Value lunch meal in 2012, with an objective to drive revenues at off-peak timings. While Jatia is not forthcoming on the company’s plans for future additions to its menu, she asserts that menu innovations will always stay relevant to the Indian consumer’s needs and likes.

Growing at a brisk pace

Over the last five years, HRPL’s revenue CAGR has been close to 37 per cent and Jatia expects it to exceed 30 per cent in the current fiscal. Moreover, the company is looking to build a strong foundation and taking its offering into the deeper reaches of West and South India.

Today, HRPL has taken the McDonalds brand to 16 cities in India and with plans to reach 250 outlets by 2015, the company is well on its way to claiming a large chunk of India’s quick-service restaurant market pie.

SMITA JATIA AT WORK 

42-year-old Smita Jatia is a businesswoman, mentor and mother of twin 20-year-old boys. Together with husband and business partner, Amit Jatia, she runs the franchise operations in West and South, for HRPL, the Indian franchise partner for McDonalds Corp one of the world’s largest quick-service chain restaurants. As the MD of the company, it is her job to understand the growth drivers for the organisation and to ensure that it stays in line with its vision for the future. Jatia relies on her team to work out the daily operations and this allows her the time to strategise. She steps in only to remove bottlenecks, as and when necessary. She likes to focus on the means as well as the end and that attitude extends to problem solving. Most women entrepreneurs struggle with establishing a balance between home and work, but Jatia credits her team at HRPL for helping her stay on top of both. 

What Next? 

• Increase outlet tally to 250 outlets by 2015
• Focus on building newer formats such as drive-through
• Experiment with the introduction of international brand extensions like McCafe
• Enhance reach in Tier-II and Tier-III cities
• Increase EBITDA margins from the current 12 per cent to 15 – 16 per cent