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Two decades later, things have changed. India's fast-food industry is expected to double in size between 2013 and 2016, to $1.12 billion, according to the Economist Intelligence Unit. And demographic trends mean it could become the next mega-market for international fast food players.
The country's fast-food market today is only one tenth the size of China's, said Ajay Kaul, CEO of Jubilant FoodWorks, a company that grants franchises in India for Domino's Pizza and Dunkin Donuts. But unlike China, which saw a decline in fast-food sales last year, India's market is expected to grow, thanks to changing consumer preferences and the largest youth population on earth.
"I would think it's a revolution waiting to happen," Kaul said.
India's population stands at 1.2 billion, but it has only a little over 2,700 chain fast food outlets, leaving most people unreached, according to Euromonitor International. Fast food has yet to broadly expand beyond the largest cities. India also has a new prime minister, Narendra Modi, who has been a vocal advocate of increased foreign direct investment.
"The [quick-service restaurant] market is still very nascent, and there is ample space for more and more brands to come in and coexist, " said Amit Jatia, vice chairman of Westlife Development, a firm that operates McDonald's restaurants in western and southern India.
Jatia plans to establish 175 to 250 McDonald's restaurants in the next five years across west and south India.
McDonald's tweaked about 70 percent of its menu for the Indian market, according to Euromonitor. That meant staying away from beef in a country where cows have religious significance, and appealing to a population that tends to enjoy spicy food with options like McSpicy Paneer and Chicken Maharaja Mac. They've also opened some 100 percent vegetarian restaurants. (That said, contrary to perceptions, nearly 70 percent of India's population is non-vegetarian.)
"We have localized our menu and due to this, we are not just seen as an international brand, but one which the people of India feel comfortable with," said Jatia.
KFC, owned by Yum! Brands, had a slight edge over McDonald's because of its chicken-centered menu, which has worked well in India, said Arvind Singhal, chairman of Technopak, a management consulting firm in India.
While the U.S. chains have "Indianized" their menus, Singhal said that only partly explains the rising appeal of fast food in India.
The country has 356 million people between the ages of 10 and 24, giving it the world's largest youth population, according to a United Nations report. With more young people entering the workforce daily, growth in the economy, a rising female work force, and increased mobility among consumers, the traditionally difficult Indian market has become hungry for a more diverse menu, Singhal said.
A challenge for America's fast-food joints in India has been to maintain the cohesion of the global brand while still appealing to the local market, said Kaul of Jubilant.
"There is an extent for localization," Kaul said. "You can't tamper with the global brand, it has to be same as anywhere else in the world."
Kaul emphasized that a market like India, long dominated by homegrown businesses, can be targeted through strategies other than just customization. Domino's introduced its 30-minutes-or-free delivery in India, for example, despite the country's famously difficult traffic jams. Today, Domino's has more restaurants in India than any Western competitor does, with more than 850 locations. McDonald's runs only 369 locations.
Domino's now generates more than 17.2 billion rupees ($277 million) in revenue, compared with $222 million for McDonald's. Domino's, which is valued at $1.6 billion in India, has tried expanding its business by getting Indian consumers to view pizza as a meal replacement, and not just a snack, Kaul said.
When it comes to the fast-serve coffee industry, most Indians still refrain from the American habit of daily, morning drinking before and during work. To get around the cultural challenge, Dunkin Donuts entered the food market, offering fast-food sandwiches—the only country where the chain does so.
"What's important for an American brand to understand is that the Indian terrain is atypical—consumers are clearly most demanding, and there is too much focus on food," Kaul said.