McDonald's Finds Unique Way to Beef up its Presence in India

By Mike Caggeso
Staff Writer

McDonald's Corp. (NYSE:MCD) announced plans to invest $76.44 million (3 billion rupees) over the course of the next three to five years in efforts to triple its India operations.

The first phase of its plan is to ramp up its presence in cities and major airports in Delhi, Mumbai, Kolkata and Chennai. All totaled, McDonald's has 123 restaurants in India.

The elephant in the room here is obviously the cow, the animal that McDonald's built its empire on, but not a popular source of meat in India. To fight this, McDonald's fuses its India menu with local flavors - McCurry Pan, Pizza McPuff (basically a Hot Pocket), and India's Big Mac, the Chicken Maharaja Mac - a strategy shared by its other international restaurants. [Want to check out the 'full menu' of McDonald's India? Just click here.]

And this represents a major difference between expanding restaurant operations in India, versus China. One can say this is McDonald's way of striking first in India because, judging by the menus, the upper hand would go to Yum! Brands Inc. (YUM), owner of KFC, Pizza Hut and Taco Bell. In fact, it has been going toe-to-toe with Domino's in India for nearly a decade.

It might seem easier for Yum! to carry its success over to India because it doesn't have to substitute its core products out of the menu. And its success in China could give the company some much-needed momentum. Yum's better-than-expected third quarter earnings were attributed to international growth. The same factors favor PepsiCo. Inc. (PEP), which reported a 17% gain in third-quarter net income.

It's also worth mentioning that McDonald's India operation is a 50-50 joint venture partnership between McDonald's and two Indian businessmen. Amit Jatia's Hardcastle Restaurants Pvt. Ltd. owns and operates McDonald's restaurants in Western India. Vikram Bakshi's Connaught Plaza Restaurants Pvt. Ltd owns and operates the Northern operations.

McDonald's might have an earlier start in the race to feed India's growth, but its successes (or failures) won't make as large as a mark on its overall earnings as a company fully vested in overseas growth.

That said, McDonald's is doing great earnings-wise. The company is expected to post big third-quarter earnings on Friday morning. Last week, as the company posted its September sales, it said that total sales were up 12% and predicted earnings-per-share of 89 cents, up from EPS of 68 cents in 2006.

The company also announced last month that it plans to increase its already beefy dividend by 50%, and more may be on the way. Overall, the company's stock is up more than 34% in the past year.

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