The wires are ablaze with talk today about the long-awaited entry by Burger King to the Indian fast food market – as much for the chain’s late arrival in the country as for the business model it is said it will adopt.
According to Economic Times, the Florida-based chain, which counts Brazilian private equity firm 3G Capital as its majority shareholder, will soon move into India through a franchising partnership with a company that will be headed by the present chief executive of its UK operations and majority-owned by Everstone, a private equity firm.
The India venture will be spearheaded by Rajeev Varman, who the paper says has travelled from London to spend time in recent weeks in discussions with Everstone executives.
“Varman spent time with Everstone's founder Sameer Sain and partner Jaspal Sabharwal in India, studying the local market and meeting potential vendors,” the paper reported.
Quoting two sources with direct knowledge of the tie-up, Economic Times went on to say: “Everstone [and its partners] plans to invest US$100m to set up 500 outlets in the country over the next seven to 10 years.”
The fast-food chain, which claims to be the world’s second biggest after McDonald’s, has neither confirmed or denied the move, telling India’s IANS news service: "We're still exploring the India market, however, there are no openings scheduled at this point. As always, we're more than happy to share news with you when we have it.”
If it is true, a move into India would be a very interesting development, especially given its timing and the current trend of indifference between global corporations and their local partners across a number of retail segments.
For a start, holding a minority stake in its Indian franchisee will be seen as a change in tack from Burger King’s usual global practice. Usually, the franchisee will invest in the joint-venture, but in this case it seems the Indian operation will be run as a partnership.
Both Burger King and Everstone will no doubt have been watching developments at rival McDonald’s whose Indian operation has been locked in a fierce legal battle with one of its franchise partners.
In August, McDonald’s refused to appoint Vikram Bakshi as managing director of Connaught Plaza Restaurants, his joint-venture with the US fast-food chain.
The rivals are currently battling it out at the Company Law Board where Bakshi is contesting his removal on the grounds that McDonald’s is denying a board position to an equal-partner shareholder.
The American chain, for its part, is alleging that its Indian partner had not been devoting enough attention to the business, among other charges.
Burger King and Everstone will also have noted the vicious row between Di Bella Coffee and its Indian promoter, Sachin Sabharwal. The Australian coffee chain’s chairman is now moving to dissolve the joint-venture with a view to running outright the business in the country.
“India is an excellent market to do business and we want to start our operations all over again in this country,” Phillip Di Bella told Business Line.
“This time I will control all the shares and the erstwhile Indian partner will have to agree to sell his shares back to me. Di Bella will be controlled by me and no one else.”
Badly burnt by their partners, McDonald’s and Di Bella are looking to control operations now they are well established in the country. But given the well-known complexity of the Indian market, it would be foolhardy for an international business to enter India without a local partner with strong local knowledge and thorough awareness of India’s notoriously difficult supply chain.
But, as we are seeing now, the level of control the newcomers have given to their JV partners can come back and bite them over time.
It is for this reason that Burger King’s pragmatic approach looks like a smart move – all we need to know now is if it will happen the way the speculation is suggesting it will.