McDonalds India

Optimizing the French Fries Supply Chain

Ana
Anthony
Sebastian
Tessa

1 McDonalds French Fries Supply Chain

 Contents

Summary

Competitors

Results

2 McDonalds French Fries Supply Chain

 Building a Supply Chain From Scratch

3 McDonalds French Fries Supply Chain

 Building a Supply Chain From Scratch
Not All Potatoes Are Created Equal

India is

3rd <1%
Largest producer
of potatoes in BUT Process
the world grade

To qualify for French fry production a potato must have:

High solids
Low sugars
Large, oblong shape
Disease resistance
Long dormancy

4 McDonalds French Fries Supply Chain

 Ideally a French Fry Potato Needs

Growing 120-150 days

Growing 90-100 days
Long daylight (14-16h)
Outdated farming and
In India irrigation
Cool nights
High sugars, low solids
potatoes
Sandy-loan soil
No cold storage
Controlled irrigation

5 McDonalds French Fries Supply Chain

 McDonalds India Demand and Supply in the 90s
Why They Expanded

Second-largest Financial reforms Fast-growing

overall population which helped middle class
in the world open Indian
economy to trade

Built a menu that was 60% vegetarian

6 McDonalds French Fries Supply Chain

 Challenges in India in 1990s

Outdated
agricultural No facilities at Most raw materials
practices that farm level to store did not meet Very poor roads
wasted water and post-harvest McDonalds target and a barely
electricity. produce specifications existing cold chain

01 02 03 04

7 McDonalds French Fries Supply Chain

 Local Approach
Understanding Indian Operating Conditions and Indian Consumers

Local Supply Chain Joint Venture

Drive agricultural growth

Jatia and Bakshi provided
Generate employment
intimate knowledge of the Indian
Show the Indian government Company Mix market. Jatia for west and south,
the companys commitment
and Bakshi for the north and east.
to development
International suppliers, local
supplies and joint ventures

Domestically Sourced Imported

Fish patties Oil

Dairy Mixes Happy Meal toys
Buns MacFries

8 McDonalds French Fries Supply Chain

 McDonalds Focus
Changing Over Time

First stores in Delhi

& Mumbai

Building food, safety and

Quality
quality standards
Service
Cleanliness 1996 Meeting service standards
Clearing bottlenecks in
Value
the supply chain

9 McDonalds French Fries Supply Chain

 Potato and Farmer Matters

10 McDonalds French Fries Supply Chain

 Early 1990s
Joint Venture

International
Invested 10M
french-fry
India-based in: land,
supplier
Tarai Foods plant and
Lamb
machinery
Weston

11 McDonalds French Fries Supply Chain

 1998
Joint Venture with McCain

Goal GROWING THE RIGHT POTATO

McCain built a 25M

(Canadian) facility for
french fries
Focus 1 Focus 2 Focus 3 processing
Cultivating Suitable location McCains
appropriate for farmers to production
variety of grow full size capabilities in
potatoes (seeds) potatoes India

12 McDonalds French Fries Supply Chain

 Partnership With Farmers
A Win-Win

McCain set-up a one-acre

demonstration
Show farmers the seeds
to use
Regional trials for ideal How to improve yields
growing area through better sowing,
drip irrigation and better
harvesting techniques
Management trials
for best growing Government subsidized
practices farmers drip irrigation system
purchases
Experimentation
with 13 types of
potatoes Storage trials

13 McDonalds French Fries Supply Chain

 Imported vs. Local Fries

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
2006 2007 2008 2009 2010

Imported Local

14 McDonalds French Fries Supply Chain

 Major Benefits For McDonald From Using Local Supply Chain

Lowering 30 Saving an Reducing Close

percent of cost additional 19 inventory levels relationships with
structure and no percent in import from 15 days farmers helped
exposure to the costs (imported fries) to ensure a secure
fluctuating 6 days (local fries) supply
exchange rate

15 McDonalds French Fries Supply Chain

 Similar Supply Chain

16 McDonalds French Fries Supply Chain

 Indias Traditional Potato Supply Chain

Farmer 01

Consolidator 02

Wholesaler 03

Semi-Wholesaler 04

Retailer 05

(Food and Agriculture Organization of the United Nations, 2015)

17 McDonalds French Fries Supply Chain

 McCain-McDonalds Potato Supply Chain

Farmer 01

Wholesaler 02

Retailer 03
Benefit of cutting the
consolidator/middlemen for farmers:
Guaranteed sales
30-40% increase of output
Increase of income
Establishing trust to wholesaler
Reduction in operating cost
Reduction of water using

18 McDonalds French Fries Supply Chain

 India PepsiCos Frito Lay McCain-McDonalds
Potato Supply Chain Potato Supply Chain

Consumer Consumer

PepsiCo McDonalds

Vendor Agronomist

McCain

Contract Farmer Farmer

19 McDonalds French Fries Supply Chain

 Relationship With The Farmer

PepsiCos Frito Lay McCain-McDonalds

Relationship Farmer is a contract worker Farmer is a limited partner

The company ensures the

availability of inputs to farmers
Key Support working in the area under Demonstrating key agricultural
From contract breakthroughs to grow potatoes
Company Providing crop and weather Machinery tools for harvesting
insurance
Monitored by Company

20 McDonalds French Fries Supply Chain

 Direct Competitor

21 McDonalds French Fries Supply Chain

Burger King

World 2nd Largest fast-food chain

Relatively High Price with High Quality

Join India Market 2014

2 Decades later than Mc

22 McDonalds French Fries Supply Chain

 Indian Local ventures to penetrate market

23 McDonalds French Fries Supply Chain

 PE(private Equity) Company

Expert on Total management

Various experience with food

& beverage partnership

Capital Foods, Sula Wines,

Blue Foods and F&B Asia Pte
Ltd.

24 McDonalds French Fries Supply Chain

 Build total local supply chain.

Reduce imported ingredients.

Joint Venture
Partner Develop Added Value menu.

Decision makings of all the Franchises location

and operation
Master Managing the sub-operator and other ventures
Franchise in
India Focus on consumption rather than on supply

25 McDonalds French Fries Supply Chain

 Local Supply Consumption Expansion
Currently Most of ingredients are Focus on customer with value Currently 16 stores, 40 until next
imported as price range is high. added product year, 150 until 2020
But will localize supply chain

26 McDonalds French Fries Supply Chain

 Results

27 McDonalds French Fries Supply Chain

 Impact of the Decisions Made by McDonalds

Beneficial
Goodwill of the
circumstances for Agricultural growth government
Indian farmers

Updated farming McDonalds local Employment

and irrigation supply chain,
practices advantages:
Cost reduction
Secure supply due to
close contact with
farmers
Lower shipping time

28 McDonalds French Fries Supply Chain

 Fast Emerging market

Changing in customers taste

Adoption of frozen snacks
2013: $69M

29 McDonalds French Fries Supply Chain

 80% of the 85-90% of the
market market

Continued growth:
2013 2014 2015
15-20% a year

43,000 tons 75,000 tons Expected 150,000

tons

30 McDonalds French Fries Supply Chain