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The delivery model that works in, say, Chicago, can't be duplicated in India due to the unique conditions in the country and the stage of evolution of the market, Amit Jatia tells Sayantani Kar
McDonald's believes in a 100 per cent outsourced supply chain. How did you go about putting in place a supply chain that met your global quality standard?
We opened in 1996, but the work started as early as in 1990. That saw McDonald's global supply chain people coming to India to understand what crops are available, the food processing industry. We needed the supply chain to be in place by the time we would open the first store. So, between 1993 and 1996, tremendous amount of work was done.
The first objective was to put together a quality product. We took every component of the burger and started tracing it back to the farmer. Take the lettuce that goes inside the burger, for instance. It wasn't available in India in those days. We started identifying progressive farmers in the right regions. You can't just tell your consumers that I can serve lettuce only when the weather is good. During the summers, Pune could not grow it; so we had to shift our base to Ooty. Lettuce is 95 per cent water, so when you bite it, there has to be a crunch. The consumer should bite into it within seven days from it leaving the field. So we had to air-freight it.
We identified the farmers, armed them with seed technology. We got our agricultural experts from abroad, hired our own experts and together, over the next three years, these people started growing lettuce.
Agriculture was just the start. Food processing was next. We asked our global suppliers who were keen on India to tie up with local business people. These ventures were started to set up world-class centres to process the farm produce we were getting.
The third element was cold storage. We set up the whole cold chain from scratch-at that time, there was not a single cold storage in the country that could meet our quality standards. We could not afford a temperature fluctuation in transit, for example. But in the first few weeks we learnt that even if we were ready to pay for the upgraded cold chain, our cartons were still wet on delivery, telling us that there had been temperature fluctuations and hence, the moisture bled out. So unaccustomed were the drivers for such exacting delivery demands, that they thought it was more important to save petrol by switching off the cooling system on the way.
So, we started putting in tracking devices to keep tabs on the temperature, which we could read when the trucks reached the distribution centre. We absorbed the entire cost while tying up with the Modis for paper cups, the kinds of which were not available back then.
How did you go about the job of liaisoning?
In the case of the lettuce, it was done by the Amritas, in case of potatoes, it was done by a supplier (McCain came in much later). Our agriculturists were helping out in all areas. Pickles were brought from Hyderabad, onions and tomatoes we grew on our own.
Wheat was a big challenge because what was available was good for home-cooking but not for commercial bread-making. So there too we tied up with farmers with our specifications and we were ready to buy their entire lot since it would not have been be used widely. Our suppliers dealt with and still deal with the farmers directly.
Indian farmers were not used to contract farming at that time. What were the challenges here and how did you deal with them?
We had chosen progressive farmers to begin with. The big task was to convince them to grow the crops we wanted. That required investment on their part. Our experts offered them help when they needed, offered them biological pesticides, raised-bed technology. At that time, lettuce was sourced from Pune and Ooty; today, 20 years on, it is grown in 20 different centres.
McDonald's abides by the three-legged stool concept of treating its partners on par with the company and the franchisees. Was the concept easy to implement here?
The McDonald's supply chain starts with a handshake rather than a written agreement right away. There is just a headline structure, three/four pages long, talking about the spirit. Because, at the end of the day, it should be win-win for both of us. We tweak it along the way. The suppliers also work with other people. Take lettuce, for example, which finds its way into regular restaurants and quick service ones.
How did you resolve the chicken-and-egg challenge of capacity versus volumes so far as your suppliers were concerned?
Justifying the capacities of our suppliers before we got the volumes (since we were opening stores one at a time), was a challenge. To justify the volume of manufacturing, we helped them export things like cheese, for instance. In Baramati, we were told, the surplus milk was being thrown away. The cheese factory absorbed it, and also set up sheds to demonstrate to the farmers that taking better care of the cows led to an increased yield. Our supplier Vista exported aloo tikki patties made in India to West Asia.
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Meet Amit Jatia * In 1995, Amit Jatia started out as one of McDonald's youngest joint-venture partners with his Hardcastle Restaurants Pvt Ltd (HRPL), which had the right to the west and south India territories. He opened the first McDonald's restaurant in Mumbai, in October 1996 |
* In 2011, McDonald's sold its stake in HardCastle and made it a development licensee for south and west India, a progression from being a JV partner, thanks to its performance
* Jatia also spearheads supply chain and product development for McDonald's in India
* The chain has been growing at a CAGR of 22.34 per cent over the last three years. In 2011-12, HRPL, grew the number of restaurants to 130, up from 107
* In 2012, HRPL was consolidated under Jatia-promoted Westlife Development, which is listed on BSE. HRPL's net profit of Rs 42.51 crore on total income of Rs 544.46 crore for the fiscal year ended March 31, 2012, led to WDL's consolidated net profits
When did life start becoming easy?
Filling capacities would have led to us becoming more affordable. But the other challenge was to acquire scale as we were going to different parts of the country. When the issue was about filling capacities, we started encoura-ging suppliers to work with the upcoming supermarkets. Even some of the big airlines tapped into our suppliers. We nudged them to build capacity and reduce costs; meanwhile our new stores asked for more volumes.
How much did you invest to get the juggernaut going?
Even before we had opened our doors, our investment was Rs 50 crore. For me, that is Rs 500 crore of today. A lot of players had come in around that time, but the amount of work we put in was unparalleled. When our consumers complained that our french fries did not taste the same as in other countries, we wrote off that entire investment because the quality of the potatoes was problematic. We worked with the government to bring in french fries, and got on with research on the potatoes. Ten years later, we started making them, McCain came in and then we found that the best place for our fries was Gujarat. We put in another 25 million dollars to double capacity.
How often do you revisit your supply chain to improve on it?
In supply chain you can't be thinking today what you would want tomorrow. We think in five-year terms. Already I am having to figure out that five years from now, we may need this much potatoes, so that we produce the required amount without a glitch. Two years ago, our proprietary software told us where the plants should be. This, of course, happens because of our own hands-on research.
How much of the international supply chain model were you able to replicate and where did you have to tweak it?
The base model is completely international - the three-legged stool, about how we bring global knowledge and sourcing. Innovation in frugality has helped. In India what works is the hub and spoke model rather than one big structure as it works globally. India would not see me put up a million tonne plant at one go. I have to go modular, which was also different. Take transport. Indian roads will not be able to take the 40-footer trucks that we use to deliver in all of Chicago. I will have to use a 9-tonne truck. So my cost structure changes dramatically.
We used a multi-temperature truck for use here. It could not be only for frozen foods or dry foods or chilled foods. When we did not have the scale, we created movable partitions in the trucks to deliver according to the day's demands.
