You Tube India : Poor cataloguing & inadequate local content

Online video will be a ‘killer app’ for the Internet (along with social media).    I said this on this blog in 2007.

Online video is certainly on the up. 45% of India’s Internet users watched online video or music in 2009, compared to only 32% in 2008. (Source : ICube 2009 , the annual report by IMRB-IAMAI on India’s Internet market).

And, says the report, this increased consumption of online video and social media spurred an overall increase in Internet usage. India’s Internet users, who all through the last decade were on the Net for an average of 5 to 10 hours per month, spent 15.7 hours online per month in 2009 (9.3 hours/month in 2008).

Increasing broadband penetration in India must be helping video consumption. Over half the Internet population is now ‘broadband’ (7.82 million subscribers out of 15.24 million subs, or 51.3% of total with > 256 kbps, as on end Dec ’09) (Source : TRAI).

In the U.S., 87% of the Internet audience watches online video. These users average half a dozen videos a day totaling a viewing time of 25 minutes. Growth in usage has been over 40% year-on-year. Even here, it’s early days.

WHY ONLINE VIDEO WILL BE BIG IN INDIA

In India, online video’s days have yet to come, we are just getting started. I believe online video in India will be big, even bigger relative to other Internet content than it is in the U.S. market. Here’s why :

Only 91 million Indians – of the billion plus who exist – claim to know English.  The majority of these are not fluent at all (by one estimate only 35 million can really use it). This means for Internet to take off in India we need local language content.

Unfortunately, Internet content in local languages such as Hindi and Tamil has not really grown. And there seems no indication that it ever will (much has been written on this elsewhere, including on this blog).

India’s Internet thus is trapped in the twilight zone of poor English comprehension and inadequate local content (text).

Yet, thanks to some upcoming initiatives, Internet access will explode in the next 2-3 years. These initiatives include rural broadband / Wimax, mass penetration of mobile phones, decreasing price of Internet access on mobile phones, etc.

It is online video that can feed the requirement of the masses for Internet content. Video doesn’t need reading skills; it will be in Hindi, Tamil, Gujarati et al. It’s for the masses: it’s an inherently lazy form of entertainment and doesn’t need cultural savvy as does ‘social networking.’

Here’ are some previous posts on local language content for the Internet :

More on the agenda to grow the Indian Internet market

An agenda to grow the Indian Internet market

WHY YOU TUBE – IN IT’S CURRENT AVATAR – CANNOT MEET THE ABOVE DEMAND

Today, online video is synonymous with You Tube. More so in India than in the U.S. As it stands, however, You Tube has some weaknesses :

(i) You Tube’s videos are not well-catalogued. One would have liked a Directory. The current ‘Browse’ section is not really a Directory, it’s not deep enough. And, I believe, ‘search’ is not good enough for a category like video, with the Indian market being as basic as it is.

(ii) Most You Tube content is amateur videos, thus not the most appealing.

(iii) Indians have not, so far, been either prolific or quality content creators on the Web. Our websites and blogs do not measure up to the standards one sees in U.S. sites.

Likewise, in the case of videos, amateur uploads are few and far between. India currently ranks at the bottom among countries in terms of video uploads, so inform my ‘sources in Google India’.

The above factors today bottleneck adoption of You Tube / online video. And by extension, hinder the growth of the Internet per se.

WHAT WILL HELP GROW ONLINE VIDEO

1. Mega-events on You Tube

Premium rather than amateur content can boost You Tube growth.

The last post was about the IPL3 cricket tournament on You Tube. This was a watershed event for You Tube, for Google in India and for the Indian Internet industry. It’s created buzz (this NY Times article is,by the way, inaccurate. Youtube.com/ipl got 50 million pageviews, not 50 million viewers).

It’s inspiring Google to think of hosting other sports events on You Tube.

This makes sense. Streaming movies online is still iffy, the movie industry – Hollywood and Bollywood – being most wary of possible piracy.  That leaves TV programs and events, notably sports events, that can go online.

2. Curated video sites

Fora TV is a site that features content from elite conferences – such as the World Economic Forum – where scientists, authors, intellectuals, captains of industry, world leaders and other such smart people gather to tell one another what they’re thinking, planning and doing.

Academic Earth is a site that aggregates video lectures of different universities.

These are video sites on compelling subjects where the content has been editorially ‘curated’. Can we have more such sites in India too ? Or is it too much to expect considering the volume and quality of professional videos  available ?

3. Sites with premium content

Hulu : Premium content from leading TV channels & a great interface

In the U.S., sites such as Vimeo and Hulu host premium content – from studios. Hulu is a joint venture of three of the 4 biggest U.S. broadcasters viz. ABC, Fox and NBC. Then there are Netflix, Apple TV (iTunes) as well as the broadcaster’s (CBS, ABC et al) websites themselves. From U.K., we have iPlayer from the BBC.

These sites cannot for the most part be accessed in India (guess there’s a concern about piracy ?). We need some such sites – with local content – here in India too.

4. The Internet can be your TV

The above choices on web  are causing some to switch. 800,000 U.S. households are believed to have terminated their C & S connections and switched to web TV. This is less than 1% of the 110 million U.S. households having Cable or Satellite.

However, many more households are now dual users of C & S and online TV.

Unlike a TV set which is usually tethered to a fixed location, one can watch TV in the kitchen off a laptop. Laptops, PCs and now the iPad make it convenient to view TV in multiple locations within a home. This is a niche market that online TV serves well.

Then there are online TV aggregator sites showing TV programs, taking on C & S. These appear to be of moderate quality but have several attractive claims. With a $45 one time payment you can watch 2100 channels for ever, they say, why pay more for the cable or satellite options. Here is another one.

Online video can complement TV in other ways. TV has been around for over 50 years, but thus far it was not possible to watch old programs. These old programs can get an extended lease of life, and online communities can form around them. Here is one.

One can also download these shows for later viewing and avail of other interactive value-adds.

5. Online video is coming to the mobile Internet too

IPL3 matches were streamed over mobile phones too. About 3.7 million video views equalling 15,000 video hours were streamed over the mobile by couple of companies. The technology was developed to enable the matches to be seen over GPRS. (Didn’t get a chance to test this myself, though).

Mobile video has been big in markets like Japan and South Korea; here too things should look up now that 3G is on the anvil.

ON THE FUTURE OF ONLINE VIDEO

The industry has slowly but surely learnt to overcome the engineering challenges of  ‘simulcasting’ over the Web. For example, Akamai says it handled U.S. college basketball playoffs on the web last year with hundreds of thousands of live simultaneous viewers. While they have done such events for several years now, this was the first time that the majority of the users were on a 1 Mbps+ connection. The quality, while not excellent, was watchable.

One may presume that one day there will be a ‘celestial jukebox’, where video, TV and music will all be in the ‘cloud’. We will be able to access this content over any device, be it PC, netbook, iPad, TV or cellphone. Companies like Apple and Disney are working towards it.

Online video may one day be ubiquitous and effective. These are early days. And, as I said above, for Internet in India to grow, content in the form of online video is key.

The IPL cricket tournament is currently so much in our face, that I cannot but write this piece about it and – my favourite topic – the Internet.

This post has an ambitious agenda !

A. It informs us about the recent growth of You Tube
B. Suggests why online video / You Tube is important for India’s Internet and for Google
C. Suggests why Google chose the IPL event to push You Tube (as You Tube IPL channel)
D. Hypothesizes on what business objectives Google probably has (for You Tube IPL channel)
E. Identifies the audience segments who will watch it (You Tube IPL)
F. Reports on the viewership achieved in the tournament’s first week (by You Tube IPL)
G. Informs what value-adds are available on the channel per se

A. Google & Yahoo are no longer the only big properties on the Internet

What we do on the Internet changes with time. From online directories, email, chat and news – in the early days – we moved on to search, instant messengers, blogs and jobs.

Social networking and online video will be the BIG Internet applications of the future. I said this two years ago – in a previous post on this blog.

Indeed, usage is growing fast – for both Facebook and YouTube. This could be happening at the expense of the traditional portals (Yahoo, MSN). Facebook is now the number 1 site in terms of global minutes of use. And You Tube is number 2. Take a look :

Facebook + YouTube usage ( in global minutes, 06/06 - 09/09 ) ( Deep blue = Facebook, Red = You Tube, Green = Google, Yellow = MSN, Light blue = Yahoo )

Social networking is much talked about e.g. you read of Facebook everyday.

What of video?

Not as much is heard of online video here in India. The world’s 4^th largest Internet market (60 million users) has been traditionally considered bandwidth-starved and is ‘not known as an online video market’. Even though, 19 million of these users are on You Tube (Source : Google India). Perhaps, the usage of video is low.

(By the way, in this discussion, we are going to take You Tube as a proxy for online video. There are many other sites that stream video but You Tube is way ahead. Comscore reported that in the U.S., You Tube had a 39.5% share of the videos watched in Jan 2010 and the next nearest competitor Hulu had a 2.8% share. One suspects that in a less evolved video market such as India, You Tube’s share of videos watched is still higher).

Now, in terms of unique visitors, You Tube probably has a half billion unique visitors globally (It had 466 million of 1100 global Internet users in Oct ’09 – and grew 21 million users in two months: Comscore).

B. Why is online video important for Internet in India ?

Now, I would argue that online video / You Tube is more important to India than it is to the world. Here’s why.

In previous posts on this blog, we saw how the Indian Internet market suffers from the lack of development of local languages. Internet content is overwhelmingly in English, and the keyboard-OS ecosystem hasn’t evolved either. My experience at Rediff.com, where I interacted with Internet users all over, showed me that many Indians who claim to know English, actually have a poor command over the language, and lack grammatical and comprehension skills.

In other words, video could be a killer app for the Indian Internet market.

Separately, there is optimism ( ‘The Mobile Internet Report, 2009‘ by Mary Meeker of Morgan Stanley) that video will grow fast on the mobile as well.

C. Why did Google choose IPL to push You Tube (youtube.com/ipl) ?

The challenge in promoting You Tube, of course, is that we get enough of video already: television is booming in India, with hundreds of channels.

So if video is going to be the next killer app on the Internet, it better have a great launch pad.

And what better than a cricket tournament? A tournament that lasts 60 days, over 43 matches and is, to boot, an annual event ?

The latest TAM (Television Audience Monitor, the guys who track the TV audience) readings, which were out yesterday, show that during the first three matches of IPL3 (on March 12^th / 13^th) an average of 37.1 million people watched on television. This was up from last season’s (IPL2) 29.4 million. Projected over the entire tournament, this translates to about an audience of 2 billion (=37 x 60).

Now, let’s say that no sports or entertainment event in India can provide as high a viewership (audience in millions) as the IPL tournament.

So, if Google (the company which runs You Tube) wants to grow the online video market in India, it had better try grab a share of the above TV eyeballs.

Cricket matches have been streamed online before, for several years now. We have had CricInfo and WillowTV, among others. Here the model all along was to charge subscription fees.

What’s also different about You Tube / Google is that this videocasting is free. And, therefore, ad-supported.

Now, no one will argue that Google alone can execute this. The technical challenges of streaming to large numbers of concurrent users are not easy to meet.

D. What are Google’s possible business objectives in streaming  IPL on You Tube?

Google India’s possible objectives are three or four :

1. Build higher saliency for You Tube as a brand in India

This IPL season is being well marketed. It’s also the most authentic multiple-platform, live event one has yet seen in India: there’s live coverage on TV, Internet, theatres (673 numbers) and the mobile (m.iplt20.com). Internet (You Tube) is accordingly getting it’s due share of publicity / coverage.

2. Test / learn the technical ability to stream such a large event.

As per the company, this is the largest ever live streaming event worldwide on YouTube.

I mean, if they get it right, who knows, it could next be the London Olympics on You Tube.

3. Develop a new advertising market.

Google’s running a one-legged revenue race (search) right now. And You Tube is known to be a big financial drain for the company. With an estimated 500 million unique visitors and growth rates in minutes of 70% Y/Y (Comscore data), this burden can only increase.

It’s thus time to make a big push for big-ticket advertisers – in India and elsewhere.

Earlier press reports talked of You Tube gunning for 10 sponsors for this channel. Rs. 40 million was the price for the presenting sponsor and Rs. 15 million for associate sponsors, and a revenue of Rs. 200 million was anticipated. It’s structured as a revenue share between IPL and Google.

4. Gather data/analytics on user behavior for possible later use.

An interesting dynamic : viewing time. Currently, an individual You Tube video is, on an average, just under 3 minutes (Comscore data). Will people sit in front of a PC and watch a three hour match? How many breaks will they take, etc.?

E. Reality check: Is anyone at all going to watch IPL on You Tube!

When it comes to cricket, there are a few niches that online video can better serve than TV.

1. People at work, in offices, possibly working the second shift, say in call centres.

2. Indians living overseas.

In the U.S., home to about 2 million Indians, for example, the IPL is being telecast by satellite TV company DirecTV. It’s charging $99 to watch the tournament (+ one needs to buy the DirecTV receiver, typically $200+).

Now, IPL coverage on You Tube is available in the U.S. as a delayed feed, that starts 15 minutes after the game is over. This delay is presumably not to conflict with the paid DirecTV. Since the matches are being played at a time when it’s working hours in the U.S., however, many youngsters won’t watch TV; the delayed IPL videocast should do fine.
3. Cricket lovers from other countries such as Bangladesh or a West Indies. Not all countries have live telecast (see this list on Wikipedia).

4. A handful of cricket lovers who want to avail of the value-adds features available on YouTube.

In other words, this IPL project is a big pilot for You Tube.

F. How’s the viewership trend for youtube.com/ipl for the first week?

The IPL channel on You Tube was already, within two days (March 14^th) of the start of the tournament (March 12^th), the most subscribed channel of You Tube India. It overtook the NPTELHRD channel, that carries videos of lectures by IIT Professors.

Within 2 days of the start of the tournament, IPL has become the #1 channel on You Tube India

Channels are branded (sponsored) properties on You Tube. You Tube India has just 100 of them. As you can see, cricket / IPL viewership is ahead of entertainment (Rajshri, Eros, Zoom, Yash Raj Films, Zee and NDTV), religion (Rajshri, Swami Nityananda’s Life Bliss) and education (NPTELHRD, glad2teach).

And in terms of channel views, youtube.com/ipl is averaging 1-2 million channel views daily. Maybe we’ll get 60 million views for the tournament total. My own guess is they have a maximum of some 300,000-400,000 users (assuming 4 channel views per user per day) . Or, less than 1% of the TV audience that is being got. Truly a niche audience.

Likewise, the IPL Fan Page on Facebook is rocking; it has 275,000 odd fans as of now. To put this in perspective, let’s remember that Zoozoos is probably India’s largest Facebook Fan Page with 400,000 odd fans. This puts the IPL Facebook  page in the top league.

G. I watch IPL on TV. What value-adds can I get from the You Tube coverage?

The IPL 3 matches are being streamed with a 5 minute delay. In addition, there are many extras: ‘official’ videos of match highlights, presentation ceremony and ‘great shots’; a photo gallery and two alternate camera feeds to choose from. There is also a smart integration with Twitter and  Orkut.

Then there is the IPL website itself which has extras like ‘Hawk eye’, Pulse, Predictor, a live scorecard and merchandise available for sale online. Then there is, supposedly, mobile video also at m.iplt20.com.One can also buy tickets online to the live matches.

And, oh yes, there have been ‘technical difficulties’ galore, many viewers of youtube.com/ipl have failed many a time to get a good coverage of the match.

This project is best seen as a You Tube strategy that Google will want to get right over time. Let’s see how things pans out.

PART I  OF THIS POST : A RECAP

The previous post described how Konsuke Matsushita (KM), the founder of the company with brands like National and Panasonic, achieved stupendous success – in business and in other fields – over a seven decade career. A success earned in the face of formidable odds. This earned him the title ‘20^th century’s most remarkable entrepreneur’, in a book Harvard prof. John Kotter wrote in 1997. Kotter says Matsushita’s achievements rank ahead of other entrepreneurs – Honda, Sam Walton and Henry Ford.

Kotter's 1997 bestseller

While extremely hardworking, Konsuke Matsushita was not particularly talented. Nor did he have connections, formal education (he studied only till the 4th grade) or a striking personality. He never grew taller than five feet five inches nor weighed more than 135 pounds. He didn’t excel at public speaking, and in later years his voice grew increasingly frail. He rarely displayed speed-of-light intellectual skills or warmed an audience with hilarious anecdotes. He suffered ill-health for the greater part of his working life. He was prone to flashes of anger.

This post (Part II) is about :

What really made him succeed ? What lessons can each of us – as individuals – take away from his success story?

What lessons does his life offer for today’s companies and executives ?

I. LESSONS FROM MATSUSHITA’S SUCCESS – FOR US AS INDIVIDUALS

Keep growing as a person : Lifelong learning is it

The biggest theme that runs throughout his life is that of growth, as a person, as a business person and as a leader. He never stopped learning or reinventing himself. Plunging into poverty at age four, starting work at nine, losing his entire family before he was thirty, the death of his son, the Great Depression, and World War II cumulatively had a great impact on him. Hardships encouraged him to re-evaluate things and learn.

He himself would have liked to say: don’t assume that we cannot continue to develop, and develop greatly, as we age. In a changing environment, lifelong learning is what matters, not IQ, family background / status, charisma or formal education.

What enables lifelong learning :  I - Big, humanistic goals

Success often causes arrogance and complacency. Failure often undermines one’s risk-taking capability. But we have to rise above both.

With ideals that are big and humanistic, we can be inspired to achieve and rise above our failures. Big and idealistic goals also help us stay grounded even if we achieve great success – since the biggest goals  are yet to be achieved.

Big and idealistic goals were first formulated for Matsushita Corporation in the 1930s, when KM said the company’s would make products that were ‘as plentiful and cheap as water, no matter how long it may take’.

Hardships are also great learning opportunities. They can spawn these big idealistic goals, as well as continuous growth and great accomplishments.

What enables lifelong learning : II – Humility

Lifelong learning i.e. learning at any age is possible if one is humble, open- minded, willing to take risks and to honestly self-reflect.

KM was known to be exceedingly humble and invariably courteous, irrespective of the other person’s rank.

Konsuke Matsushita

The story goes that once he couldn’t finish a meal at a restaurant. He asked the restaurant owner to call the cook. The cook came, afraid that his cooking had not been found satisfactory by such a distinguished guest. However, KM said to him :

“Your cooking is good. But you know, I am an old man, so I could not eat very much. And I don’t want you to think that I didn’t like your meal. Please accept my apologies if this will upset you…”

I am reminded of the story told of Henry Ford. While early on in his career Ford was grounded and could create the very successful Model T, this very fame and attention later caused him to lose his sense of bearing. This pride eventually played a role in the Ford Motor Company getting eclipsed by GM and other companies.

Having faith in people is important too

He believed in people. What would later be called the Theory X of Management. Right from the early days, employees of Matsushita Electric Industries (MEI) were consulted and involved in decision-making.

One should have a positive view of human nature, not a cynical one, if one wants to progress.

II. LESSONS FOR PRESENT-DAY CORPORATIONS AND EXECUTIVES

Lessons for today’s companies

Matsushita Electric Industries (MEI) as a company was ahead of it’s time. It pioneered several management practices, as detailed in Part I of this post. It was a company that would have done well in today’s age.

KM’s life seems to say: forget about the typical mid-20^th century corporation with it’s centralized structure, many levels, bureaucratic approach, internal focus, slow response time, etc. In the competitive world of today, winning companies will look increasingly like MEI was from the 1920s to 1960s, with the customer as king, productivity constantly improving, empowered employees, speed of execution and high performance standards.

Lessons for today’s executives

Forget also about the typical mid- 20^th century executive. He was a cautious manager who often had little impact and who sometimes excelled only at pleasing his boss. In a competitive, fast-changing environment such as today’s, the successful executive will have to be more entrepreneurial, more of a leader, and more of an institution builder. Like KM, he will need to become customer and cost focused, embrace optimistic and ethical goals, communicate his vision widely and help others perform to highest standards.
Forget also about progress being linear, since the 21^st century environment will be volatile.
Most of all, forget the mid-20^th century paradigms of learning, careers and growth. Success stories will now not be about people who complete an education by 25 and who then apply that schooling till they retire 40 years later. Winners will be those who are both willing and able to grow throughout their lifetimes.

SOME THOUGHTS FOR TODAY

Meanwhile..fast forward to another time.

Matsushita is today.. Panasonic Corporation

In Oct 2008, the company’ name was changed from Matsushita Electrical Industries to Panasonic Corporation.  The brand names National and Technic have been phased out too. All growth will be around the Panasonic and Sanyo brands.

The company had 292,000 employees and a turnover of 7765 billion yen (approx. $80 billion) in 2009.

The company has not stopped dreaming big. Here’s their vision for the 100 th year of their founding viz. for 1918 : To be the No. 1 Green Innovation company in the electronics industry.

A whole series of eco-friendly and energy-efficient products are being contemplated. Here’s a presentation that details their new strategy.

Panasonic India

Panasonic India is now a sponsor of IPL's Delhi Daredevils

Here in India, Panasonic India has decided to adopt Bollywood and cricket; it has roped in Katrina Kaif as brand ambassador for it’s ‘Ideas for Life’ campaign. It is also the sponsor of IPL cricket team Delhi Daredevils. Delhi Daredevils in case you didn’t know is the bookies favourite to win IPL 3.

And Katrina Kaif has been appointed Panasonic India's brand ambassador

Ah, you knew that I was always going to give you a fairy tale ending to this long, two part post. Thanks for reading Marketer’s Kaleidoscope !

Epilogue

It was Kotter’s book which in ’97 first brought Konsuke Matsushita, by then dead and gone, to the close attention of management pundits. The ensuing publicity led to KM getting recognized as a great global leader.

Here is what Kotter has to say today :

“Konosuke Matsushita was an uncommon leader in a time of great change in Japan.  His innovative management and marketing practices were key to the post-WWII economic miracle in Japan.  He rose from abject poverty to great riches, but that is only one element of this great man’s story.  His was a shining example of the truly adaptive leader.  He was constantly growing and learning from his experiences to create a better future for the organizations he led.  He truly lived the motto that, “the more things change, the more we need to grow.”

He made billions of dollars in his lifetime.  He poured much of it back into the country that he love in an effort to transform the nation and its leaders. As an inspirational leader in the world, he is truly peerless.”.

On a personal note

This book / Konsuke Matsushita’s story has influenced me in the following manner.

When I now recruit people, I look for learnability as the major ingredient. It doesn’t matter whether the person has a degree from an IIT, an IIM or any other brand name institute.

What matters is how far he/she has traveled in his/her career/life down the path of learning. That is, how varied and rich has the candidate’s learning been for each year he / she has been out of college. And under what personal circumstances has this learning been – favourable or unfavourable ?

Hope this two part post has helped you too, dear reader, to find something of value.

Am back on Marketer’s Kaleidoscope – after 67 days. No blogger worth his salt (keyboard ?) likes to miss posting regularly. No excuses to offer really. To make up, dear reader, here’s a long but inspiring piece, in two parts :

I recently read a couple of biographies of business people that I found stimulating. The first is ‘McDonalds Beneath the Arches’, a 1994 account of McDonalds. 16 years after it was first written, it still ranks on Amazon.com as the best-selling business history of McDonalds, ahead of about half dozen other histories. More on this in subsequent posts.

The other book I have just read, not strictly a biography though, is Matsushita Leadership by John Kotter, a long-time HBS Professor on Leadership, and probably better known for his work on change management. The book’s full title ‘Matsushita Leadership : Lessons from the 20^th century’s most Remarkable Entrepreneur’, says it all.

Konsuke Matsushita (KM) created a corporation (Matsushita Electric Industries or MEI) that we best know for it’s brands National, Panasonic and Matsushita; in some ways it was Japan’s GE. When I was growing up, our family’s first-ever VCR, DVD player, heating iron, camera and music system were more often than not a National or a Panasonic; these were more affordable than a Sony.

When Kotter wrote this book, in 1997, MEI was a $ 65 billion corporation. Today, it’s known as Panasonic Corporation.

In his own country, KM is rated more highly than all other Japan entrepreneurs, as this survey by Time magazine in Japan in 2006 seems to indicate.

Konsuke Matsushita in his later years

Succeeding against all odds

Matsushita was born in 1895 in a village near Osaka. His family was at first well-to-do but his father became bankrupt when KM was four. Penury i.e. extreme poverty caused a halt to KM’s studies: he eventually never studied beyond the 4^th Grade. His parents sent him to a neighbouring town to work on a bicycle shop when he was just nine, here, here he put in 16 hours a day.

Disease claimed much of his family. By the time he was 25, he had lost all seven of his siblings , he lost his parents too at an early age. Later, he lost his only son, while only a toddler. KM himself had a sickly constitution for many years – with high BP, insomnia and other ailments.

Electricity was being rolled out in Japan, as it was in many parts of the world, in the early part of the 20th century. Drawn in by this new technology, at age 15, KM went to work as a wiring technician for a company that was doing the electrification of Osaka city.

And by 22, he had wired thousands of homes and businesses and was an electrification expert! Hard work and performance duly led to his promotion to inspector. This role, unlike his technician job, however, did not require him to work hard. He also designed an improved bulb socket but his boss was not impressed. These matters frustrated him, so much so that he fell ill and quit.

“The same pattern was to repeat itself for three decades. With too much success, he seemed to fall ill. When a difficult challenge or problem emerged, however, he would recover”.

Matsushita at 22, in the year (1918) he went into business

Along with his wife, his 14 year old brother-in-law and two ex-colleagues, he now set up a workshop in his home to make a better bulb socket. None of these five people had even completed high school, they were ordinary folk with no ‘contacts’ and none knew how to make the socket! The starting capital was just 100 yen. They worked round the clock. After initial market rejection, the product got some  acceptance. Within a year, the business grew to eight people and four products.

Incidentally, this same brother-in-law, Toshio Iue, after WW II branched out to found Sanyo Corporation. Sanyo became a subsidiary of MEI.

KM’s first mass success was with a bullet shaped bicycle lamp that had thirty to fifty hours battery life as against the usual two or three hours.

Entrepreneurship & unconventional strategies

In 1929, Japan got hit by the global economic depression, the same one which rose in the U.S. MEI had to consider whether it should lay off workers. Instead, KM called a meeting, said no one will be laid off, but “will you please help us sell the unsold stock”? Hundreds of factory workers set off on cycle for different locations to sell. Within a few weeks, the finished goods were cleared.

The bullet-shaped bicycle lamp, 1923 : 10 x battery life

Clever entrepreneurship is what led to his success in the early part of his career. MEI pioneered mass production and mass marketing, decades ahead of other Japanese companies. Advertising and savvy sales promotions were used as early as the 1920s, to create the National brand. At a time when distribution was exclusively in the hands of wholesalers, the company set up it’s own distribution; this was unusual among Japanese companies at that time.

MEI was one of the first corporations worldwide to deploy divisional management; doing so enabled it develop a leadership pipeline (General Motors was the first company to ever do so – in 1921 but MEI this so independently in 1933). Customer focus, speedy product development of low priced products and good employee practices were hallmarks of these early years.

First company logo, self-designed in 1920 by KM. Symbolized reaching a target.

An idealistic mission statement

By 1932, a full 15 years and 1000 employees later, MEI was now at a stage where clever entrepreneurship was no longer enough. New approaches were required for it to scale. That year, some soul-searching later, KM formulated a mission statement. That statement, many years later, still inspires some incredulity.  Coming from him, it was believed, as KM always stood by what he said.

He said: “The mission of a manufacturer (like us) should be to overcome poverty, to relieve society as a whole from misery, and to bring it wealth”. (There was a more detailed value statement too.) This he said meant making products that are valued, plentiful and yet cheap, like, he said, tap water. And this was a goal that could take a very, very long time. He said, let’s give it 250 years !

In other words, MEI would make profits only by making products which people could afford. This far-reaching humanitarian goal, says author Kotter, helped anchor MEI and prevented MEI from becoming arrogant; too many companies grow arrogant as they become successful. It made work a calling. Mission statements still have a pride of place in this organization; there is a long one in 3 chapters in place now. Here’s my favourite extract.

Cooperation and team spirit

We will pool our abilities to accomplish our shared goals. No matter how talented we are as individuals, without cooperation and team spirit we will be a company in name only.

Don’t remember seeing such mission statements for American or Indian companies.   

There were other actions by which KM expressed his character and individuality. In doing so, he went against Japanese culture.

Rising from the ashes of Second World War

In World War II, MEI manufactured ships and many other products for the Japanese military. When Japan surrendered, MEI had 26,000 employees across 67 plants. The Allied Forces did not take kindly to MEI’s role:  it now paid a price, as did other big firms that were involved. They were subjected to strict production quotas, many plants were seized. Eventually, in 1947, KM and his Directors were themselves purged from the company. MEI as well as KM personally went into deep debt. The company was now down to about 8,000 people.

Paternalism

The Allied Forces who ran Japan w.e.f. 1945 also encouraged labour to form unions, a first for the country. Most company presidents kept their distance from these entities because they tended to be anti-company. Matsushita was the only one, it is said, who acted otherwise. He gatecrashed the inaugural union meeting of 4,000 workers and asked to speak. He spoke for three minutes and said he thought management and union could actually work together, and apparently made the right impression .

For later – in 1947 – when he was purged (see above) from his own company by the Allied Forces, this labor union gathered fifteen thousand signatures and asked the authorities that he be reinstated. Once again, the unusual thing here was that other company unions were asking for their business leaders be purged. This was the only case where the workers wanted the leader back.

The company lost full five years post the war before things went back to normal.

Opening up to the world

The war taught Japanese businessmen that the U.S. & Europe were technologically more advanced. KM himself emerged from the war a stronger person. In 1951, at the age of 56, he traveled abroad for the first time (to New York). This started his worldwide expansion of MEI.

As it grew overseas, the company faced bigger, stronger competitors. While many factors helped MEI compete, the biggest were a couple of attitudes viz. the openness and willingness of the company’s management to absorb new technology, keenness to learn from others and humility before the customer. There was never a trace of hubris or the ‘NIH syndrome’ (hubris = overbearing pride; NIH = not invented here ).

What emerged instead was a very adaptive corporate culture.

Raising the bar : global practices & benchmarks

In 1956, KM set the goal of quadrupling sales in five years. He said there is nothing called impossible, let us use ‘collective wisdom’ from within and outside the corporation. He also tied such big goals to compelling ideals, in this case .

In 1960, he asked for the company to become the first in Japan to shift to a 5-day week and do so while keeping wages at the same level (in effect increasing costs by 20%). In workaholic Japan, this was met with incredulity.

It took them five years, but by 1965, they increased productivity sufficiently to make the 5 day week happen. MEI employees become the envy of all in Japan.

In 1967, he felt time had come for Japanese companies to shed their low wage advantage. He initiated steep wage rises; by 1972, MEI’s wages equaled the average U.S. wage. Like the 5-day week, this also led to MEI successfully finding significant productivity methods to maintain profitability.

In 1977, again going against existing traditions of corporate Japan, he appointed someone who was 25^th in seniority and the second least senior of 26 director-level executives, as the next President.

Presiding over his company's BOD (courtesy : Life)

The golden years

In his sixties, seventies and eighties, he took on totally new careers. His goals became increasingly social and humanistic over time.

He wrote books (he authored forty six in all from ’53 to ‘90) on nation-building, on human nature and on management. He worked actively on a non-profit institute called PHP (Peace Happiness & Prosperity for all). He set up a School of Governance to try to reform Japan’s governance and politics. He spent hugely on philanthropy projects, especially for children. He donated a large part of his wealth. He founded the Japan Prize, possibly the world’s second most prestigious honour for technological achievement (after the Nobel).

He was up and about till 1989, till he was 94.

What made him so successful ?

While extremely hardworking, Konsuke Matsushita was not particularly talented, says Kotter (quoting KM’s own brother-in-law Iue, the guy who founded Sanyo). Nor did he have connections, formal education (4th grade, remember!) or a striking personality. He never grew taller than five feet five inches nor weighed more than 135 pounds. He didn’t excel at public speaking, and in later years his voice grew increasingly frail. He rarely displayed speed-of-light intellectual skills or warmed an audience with hilarious anecdotes. He suffered ill-health for the greater part of his working life. He was prone to flashes of anger. (And while on his frailties, yes, like many Jap businessmen of his time, he did keep a mistress).

How then did such a person of such an ‘average’ background generate such vast accomplishments over his lifetime, as a businessman and a leader, and later on as an author, educator, philanthropist and management innovator ? In author Kotter’s opinion, these accomplishments in totality outshine those of other leading 20th century entrepreneurs like Honda, J.C. Penny, Sam Walton and Henry Ford, thereby qualifying Konsuke Matsushita for the title of  “the 20^th century’s greatest entrepreneur”.

Answers to the above question and more in the next post..

P.S. : I found the book out of stock in Mumbai bookstores, I got my copy courtesy Amazon.com and a sister visiting from the U.S.

Rethinking Marketing. That’s the title of an article in the Jan- Feb 2010 issue of Harvard Business Review by Rust, Moorman & Bhalla (subscription required).

The plea ? Reinvent marketing as customer management. Not much new here, but the case is presented well. Highlights :

The old marketing : product centric

What reinvention is this ?

Marketing departments are usually designed for the mass market era (‘60s in the U.S. ) with mass market segments, mass media and customer transactions that are impersonal.

However, technology is now making one on one interactions possible. Plus, customers too are beginning to expect a one on one interaction with brands.

What does this mean for marketers ?

Change  (From / To)

Pushing products & brands                       Cultivate (i.e. serve) customers &                                                                                         customer segments

Transactions                                                   Customer Lifetime Value
Mass marketing                                              One-to-one marketing

What is the organization set-up required to achieve this?

Have customer managers. This is similar to having account managers in B2B companies. The point being that now even B2C companies need such managers. Customer managers can then target individual customers or target narrow segments.

The new marketing : customers first

Have a Chief Customer Officer position (a tricky role); incumbent’s key challenges will be to promote a customer-centric culture, get key people to regularly meet with customers and ensure availability of customer data.

Customer-facing functions like CRM, market research, R & D and customer service must now report to this CCO.

Some tips here :
- make sure CRM is under customer department, not under IT
- get R & D to interact directly with customers
- for better quality, handle customer service in-house

What metrics are needed?

Change from / to :

Product profitability Customer profitability
Sales                                 Customer Lifetime Value  (CLV)
Brand equity                 Customer equity
Market share                 Customer Equity share

where

CLV = future profits from customer, at a proper discount rate
Customer Equity = sum of CLV of individual customers
Customer Equity share = customer equity divided by equity of all customers in the market. This is an indicator of the organization’s long-term competitiveness.

To get above customer metrics, companies now need customer data at the individual and customer segment level (i.e. they need customer databases). This data is over and above the usual aggregate level data such as sales and surveys.

In future, customer metrics are expected to become a routine part of financial reporting, just as sales and profit numbers are today. This is another reason why any investment in getting the above customer data will be worth it.

It’s the Chief Customer Officer’s job to improve performance on these metrics.The HBR article featured here says 300 global organizations now have CCOs, up from 30 in 2003. Here is a news item giving a flavour of how new, yet topical this position is.

The Customer Organization

Customer managers’ should have a broad perspective and training in social sciences. They need to approach people as behavioural scientists would do, as they need to understand what customers need.

Business schools will have to adapt their (marketing) curriculum to create people with this training.

Customer marketing in India

In India, we are not out of the mass market era yet, in view of rural markets and low Internet penetration. Mass market marketing will coexist with one-to-one, customer marketing.

It would appear the maximum progress in customer marketing has been by banking, followed to a lesser extent by the telecom and retail industries.

Some questions:

How far down this path have these industries actually proceeded?

How many organizations have user-friendly websites, programs to register users or members, Facebook Pages, loyalty clubs, lead management systems, opt-in programs for email and sms marketing, feedback and customer satisfaction audit processes and customer segment managers ?

How many, if at all, have a Chief Customer Officer position ?

How many have launched new products on the basis of mining customer data ?

And what of industries outside of banking, finance, retail and telecom ?

Which Indian organizations are leading with best practices ?

What do you think !?

So what’s the future of the Quick Service Restaurants or fast food services market in India?

Here are 10 take-aways from the operations of the 7 biggest players in this market viz. McDonald’s, Pizza Hut, KFC, Subway, Domino’s Pizza (these 5 are American), Café Coffee Day & Barista Lavazza. Let’s call these seven “chains”. The chains account for about two-third (~1900 out of 3000) the number of outlets in the organized QSR sector in India today.

1. What’s the right menu for India ?

The chains have learnt the menu game i.e. they know what works in India : have a menu that is 60-70% Indian (Exception: KFC has a near all-American menu. Will they adapt yet, considering the Yum Brands company wants to be more aggressive in expansion here than even Pizza Hut? ).

2. How important are low prices ?

The chains each have a few low-priced products (in INR 50-75 range) (e.g. Sub of the Day, McAloo Tiki , McSserves, Veg Single Pizza , Lava Cake & Capuccino) to enable bring in the footfalls.

3. Will the chains bring in menu innovations ?

Since the economy has been in poor shape, the American players are facing stagnation at home and in other developed markets. A common response to this crisis has been menu innovation.

Menu innovation is sometimes leading the players to enter adjoining categories e.g. McDonald’s has entered coffee with McCafes (taking on Starbucks) and Domino’s has entered into sandwiches and pastas (to take on Subway and McDonald’s). Menu innovation is also helping grow the business in non-traditional day parts e.g. coffee is enabling McDonald’s to get into breakfast and pastas is enabling Domino’s Hut and Pizza Hut expand their sales at lunch (pizzas are eaten most at dinner, I understand).

Sooner or later, the above menu innovations will find their way to the India market too.

4. Have fast have the roll-outs within India been ?

The city roll-outs have not happened at the speed the market demands.

While the chains have been in India for 10-15 years, only two of them viz. Café Coffee Day and Domino’s are in more than 50+ cities. (currently CCD is in 128 towns and Domino’s is in 62). The other five brands are currently only in 25-35 cities.

Interestingly, even Yum Brands, the company that owns KFC, Pizza Hut & Taco Bell, and which intends growing fivefold to 1000 outlets by 2015, says they will be only in 62 towns.

Clearly, most companies are currently looking at what the marketing community refers to as Tier I, II & III towns, there are just 8, 26 and 33 of them respectively, a total of 67.

Tier 4 towns number a whopping 5,094 and hold 47% of urban India’s population. These each have less than 500,000 people. The TV advertising of the players, not to mention their print and other media has already spilled into these towns too and created a demand for pizzas, burgers, café lattes et al. Real estate / lease rental costs are lower here too. Yet the chains (other than CCD) are not opening locations here yet. Maybe supply-side bottlenecks, I imagine.

In contrast, in the U.S., as long ago as 1995, ‘slightly more than half the population lived within a 3 minute drive from a McDonalds’ (From the book McDonald’s Behind the Arches by John F. Love, Bantam Books, 1995).

CCD in Rourkela

Just last week, CCD set up it’s first outlet in the Tier 4 town of Rourkela in Orissa State.  This is a cosmopolitan town with convent schools and clubs (know this town since I have family there). Yet it got it’s first-ever fast food restaurant- the above CCD outlet – only now. My sis-in-law’s verdict after visiting this outlet: “Amazing”.

Here’s another report of McDonald’s entry in a Tier 3 city, Amritsar.

5. Is there a skew towards the metros ?

To further understand the metro skew of the chains, consider :

- The top 8 metros a.k.a. Tier 1 cities, which have 29% of the urban population and 39% of the disposable income, account for three-fourth of all outlets of the players.

- Delhi/NCR, Mumbai and Bangalore together account for over half the outlets.

- And if you love Barista Lavazza, you MUST choose Gurgaon for a residence; this town has 25 Barista cafes! Anyone know why ?

6. Why are some chains seemingly more aggressive in their roll-outs ?

CCD & Domino’s seem to have been more aggressive (in 100 + and 50+ towns respectively).

Why is this so ? What’s common to CCD and Domino’s ? Is it that both are in the hands of ‘reasonably resourced’ Indian entrepreneurs (V.G. Siddharth and Bhartias respectively)? Or is it that both companies, being funded entities, now need to show rapid growth per se ? Domino’s Pizza India has announced an IPO (their India master franchise has).

McDonald’s India plans have not been particularly aggressive.

Perhaps the parent McDonald’s company is allocating capital across markets and India can’t or won’t justify a higher investment.Each India outlet entails an investment of INR 30 million.

However, Yum Brands seems to be about to embark on a saturation strategy visavis the top tier cities (1000 outlets in 62 towns by 2015). So one can expect competitors like McDonald’s to go into higher gear too.

Subway is privately held and entrepreneurial, it could well emerge as the dark horse in terms of expansion if it puts together a decent India organization, it’s the newest entrant among these players and has been in a learning mode.

7. How important is India to the global operation ?

Interestingly, for all the five U.S. chains, India occupies a similar position in terms of number of outlets.  The India operation in each case is around the 15^th percentile position i.e. only in 15% countries, are there more outlets than in India.

The best country ranking is from Domino’s Pizza, whose India operation is the 6^th largest within their network.

And for Italy’s Lavazza, which bought out Barista, this is the only country where they have a coffee retailing operation, elsewhere they are  into coffee wholesaling.

Can CCD really ever put up 5,000 outlets in India, the once-stated potential? What constraints does it face in making this happen?

Can it really put up 200 outlets overseas? What would be it’s value proposition vis-à-vis a Starbucks and other chains? One has to wait and watch.

8. What low-hanging opportunities are the chains missing ?

Given the high real estate costs in metros, there is an opportunity to increase home delivery to existing users while keeping outlets increase to a minimum.

Given the early stage of the market, there’s also the opportunity to increase usage per customer through breakthrough CRM.

One can switch consumers from other brands, the market is large. 2 of 3 urban Indians order food from outside and do so 5 times a month. 80% eat out at least once a month. Those who do, do so on an average 6 times /month, up from 2.7 times in 2003.

On the above opportunities, these brands are just started getting there. Many of the players websites are out of date (Web 1.0) and loyalty club type initiatives are at infancy.

9. What of the smaller chains ?

There are many other smaller players in the fast food space; this site itself lists over 160 of them, all say they are looking for franchisees.

There’s an opportunity for cuisine-wise, State-wise chains. E.g. we have Jumbo King Vada Pao and Goli Vada Pao operating in a few cities in Maharashtra, with about 40-50 outlets each. Such chains can succeed by growing along and around the bus stands and railway stations of all leading towns.

However, operating i.e. scaling and controlling a successful franchising business is challenging. CCD, the country’s largest chain,has only company-owned outlets (it only leases the location).

10. Nutrition and environment are twin challenges

Historically, QSR brands (most famously McDonald’s) have had to face concerns over the nutrition and environment.I believe these issues will continue, and only increase, be it India or elsewhere.

On nutrition, the industry can be expected to give ever-healthier menus and have nutrition labels on each item.

As regards the environment, QSR brands will I believe move towards abandoning the use of plastics. They will also lead from the front in going green. This industry is a major consumer of poultry and meat, which are a major cause of global emissions.

The savvier QSR brands will take the lead in promoting healthier menus and eco-friendliness.

This sixth post in the series on India’s Quick Service Restaurant (QSR) brands is on Domino’s Pizza. With this post, the series has so far covered seven leading QSR brands.

The concluding post in the series tomorrow will be an overview on the QSR industry.

Domino’s Worldwide 

Domino’s, the leader in pizza delivery (32% share of U.S. market), is celebrating it’s golden jubilee next year. It’s 8,900 stores in 60 countries, of which 5,000 are in the U.S.,  generated $5.5 Billion in revenue in ‘08.

A Dominos Pizza outlet

In the U.S., it relies chiefly on small franchisees, there are about 1,200, each owns 3-4 outlets. They also have close to 500 company outlets : these provide the testing ground for new products and technology, among other things. In international markets, however, they rely exclusively on master franchisees.

In 1998, PE firm Bain Capital and others bought Dominos from the founder.

Innovations

Domino’s is facing a challenging time in the home market due to the economic downturn. To this end, they have been looking at ‘day parts’ beyond dinner. They have also made innovations in the menu. In the last one year, they have launched Oven Baked Sandwiches, Bread Bowl Pasta, Lava Cake desserts and American Legends specialty pizzas. Of these, the Lava Cake, priced at INR 40, and pastas are in India already.

And as regards Oven Baked Sandwiches, they say that they are already – in a few months – the largest sandwich delivery company in the world. With sandwiches, the brand they are taking on – most obviously – is Subway.

Heatwave hotbag : Keeps pizza and box from being soggy

One important past innovation: the Heat Wave hot bag, introduced in 1998.

Operational efficiency

This is a company that prides itself on operational efficiency; they have a focused menu (pizzas mainly), small store sizes that are optimized for home delivery and carry out (not for dining-in) and a much touted 30 minute delivery promise.

They use IT for business advantage. They have a proprietary point-of-sale system called PULSE. And they use GIS (geographic information system software) to identify optimal  locations for new outlets.

Being in the pizza delivery (well food delivery actually, now that they have sandwiches, cakes et al) minimizes the dining-in space and associated real estate costs.

They work on the brand too; say they have spent $1.4 billion in the last 5 years. They ranked #1 in customer satisfaction in the American Consumer Satisfaction Index for 2009 for the limited service restaurants category, ahead of Starbucks, Pizza Hut, McDonalds and others!

Domino’s India 

Hungry Kya? The good news is that if you order a Domino’s in India, you need to wait for (an average of) only 22.5 minutes. What should actually make you feel good is that this waiting time is less than what Domino’s customers in other top 10 international markets encounter

Domino’s Pizza has been in India since 1996 via a master franchise, Jubilant Foodworks. Jubilant, promoted by the Bhartias and in which JP Morgan too holds equity, recently filed for an IPO. It’s looking to raise INR 3 billion and Morgan’s looking to exit.

Thanks to this IPO filing, there’s information available aplenty on average delivery time and other nitty gritty of the India operations.

City Coverage

India ranks 6^th among Domino’s 59 international markets by number of outlets. As of end Aug ’09, there were 274 stores in 55 cities and another 5 in Sri Lanka.

It’s city-wise tally read 54 in the National Capital Region (including 33 in Delhi city), Mumbai 49, Bangalore 34, Hyderabad 16, Chennai 18, Pune 14, Kolkata 12 and Pune 14.  The company sees this number going up to 400.
The country is served by four regional commissaries or production kitchens-cum-warehouses at Delhi, Mumbai, Bangalore and Kolkata, where pizza dough is prepared using a proprietory recipe.

21.74 million pizzas, including add-ons, were sold in the last fiscal year giving a revenue of INR 2806 million and a profit after tax of INR 67 million. Volumes grew about 40% over the previous year. 

Not so good, this means they make just 3 Rupees per pizza (: Wonder why this is so low. Even customer spend on tips to the pizza delivery boys would be higher !

Ad spend, interestingly, is a generous INR 200 million. The company claims to have a 65% share in the organized pizza home delivery market.

Organization

The company employs 7,300 odd people, most of them at it’s stores. Hewitt Associates ranked it as the 9^th best employer in Asia in 2009; it’s won other good employer accolades too. Here’s a company job posting with this list.

The company went through a difficult patch in earlier years.

Brand

Unlike it’s competitor Pizza Hut, Domino’s is a value-for-money brand.

I recently learnt that they have pizzas (regular 8″ size, fills one moderately hungry stomach ) for as low as INR 39 (+10.2% tax).

CRM 

On an average, an Indian who today eats pizza does so just once a year, says India CEO Ajay Kaul. Such low usage is typical of many consumer categories in an early market. In my experience it’s the outcome of having a large proportion of occasional users in the market ( a long tail effect).  

Like Pizza Hut, which has its Very Into Pizza (VIP) Club (covered in post III of this series), Domino’s too has it’s WOW club. This is a CRM initiative to grow consumption.

Domino’s has both a national hotline and store-wise numbers where one can call for delivery.

Online ordering

A few months ago, in Aug ’09, the company said they were testing online ordering in Bangalore. It’s not yet live nationally, guess this could happen soon.

Online ordering accounts for 19% of the business in the U.S., is as high as 45% in some stores, and has higher ticket size than offline.

Online is indeed a convenient way for fast food customers to view and choose from a selection (menu). It is superior to calling in, since phone lines and service agents tend to be busy during the peak lunch / dinner hours.

I believe online ordering apps for iPhone and other mobile devices can be very successful. In addition to convenience, these apps would offer calorie counters and loyalty discounts.

And to round this off, here’s an unusual but most appropriate CSR / marketing initiative from Domino’s Pizza India.

Do you prefer Pizza Hut or Domino’s ?

In a blind product test of Domino’s vis-a-vis Pizza Hut, I guess many of us would find Pizza Hut tastier. On a pizza  to pizza basis though, Domino’s is lower priced and (perception) somewhat faster with their home delivery, so some of us would probably choose Domino’s.

Pizza Hut would also be prefered when one wants to dine out / celebrate.

What is your preference !

Ever nibbled at a sub at Subway? This submarine-shaped sandwich grows on you. Their INR 75 price for ‘Sub of the Day’ will tempt you to try one.

Subway's founder

Subway’s headquartered in Connecticut, U.S.A. Fred DeLuca co-founded it with a friend in 1965 when he was 17. The company itself has an unlikely choice of name viz. Doctor’s Associates, Subway itself is the brand.

DeLuca is among the 250 wealthiest people in the States.

Bigger than McDonalds in the U.S.

With over 32,000 locations in 90 countries (here’s a live count), it is the world #2 among the QSR (quick service restaurant) chains by number of outlets. It’s the market leader in the U.S., it has 23,000 outlets here. It overtook McDonalds, which currently has about 15,000 numbers in the U.S., in 2002.

The company seems to have been on an aggressive growth path, here is some recent and not-so-recent news.

The India footprint

In India, Subway has 153 restaurants, giving Subway India a ranking of 12^th among 90 countries. And among the seven QSR chains being covered in this series, Subways has the newest India footprint : the first outlet – in Saket, Delhi – opened in Dec ‘01.

In 2003 (like for the other fast food brands that entered before), the menu was Indianised and the prices dropped, this had the effect of pushing up sales 20%.

There are 37 outlets in the National Capital Region, 26 in Mumbai, 19 in Hyderabad, 16 in Bangalore, 11 in Chennai, 8 each in Pune and Kolkata.

The company plans to add 100 outlets in the next one year. That will still take it’s coverage up to only 29 cities, from the current 25, well behind the city coverage of the other brands in this series.

The healthiest fast food?

Subway’s the un-McDonalds.

It’s positioned itself on the health (‘less than 6 grams of fat‘) plank, an interesting strategy, given its arch-rival’s perceived vulnerability on this score. The 2009 Zagat Fast-Food Survey has rated Subway as the “#1 overall provider of Healthy Options”.

Jared, the guy who lost 245 lb by eating Subway (and exercising)

A few years ago, a university student Jared Fogle said he lost 245 pounds by eating Subway for a year, the publicity Subway got then and ever since has been immeasurable.

Here’s Jared’s blog.

Advertising

In India, the brand’s mainly used print advertising promoting it’s Sub of the Day. It only appointed a creative agency this year and has had modest spends to date.

Franchising strategy

After 44 years and over $8 billion in sales, the company is still privately held and still led by it’s founder (who still looks full of energy and says he can eat upto six subs a day . Despite it’s size and aggressive growth, it boasts a small staff of just 600.

All outlets are franchised. The company signs up multiple small franchisees, unlike McDonalds and most chains, who prefer master franchisees. In India, too, it’s franchisees own just 1-2 outlets each .

The company appears to usually take an aggressive stance towards it’s franchisees e.g. make them do most of the investments and keep training and support to a minimum, a strategy which has led to some dissatisfaction among them, here’s one report.

And here are some employee comments !

The idea of using small mom-and-pop franchisees may not work well in  India : it’s leading to subs of ‘varying quality’. I – and others I know – have had ‘suspected hygiene’ issues. A sub’s ingredients are mainly raw and  uncooked, and are supplied daily to the outlets from central locations. Ensuring that these are of the right quality, while the franchisees themselves are small and underinvested, will be a challenge in tropical India.

I have also had service issues with the outlets in Mumbai. Each outlet is small, about 500  sq.ft and is unable service the lunch hour rush it gets. Each outlet also has exactly one cash counter. This results in uneven service levels.

Now there could be exceptions, one of the Mumbai franchisees got awarded from among thousands .. wonder which Mumbai outlet this is !

It appears that the company has of late had a rethink; they now have a master franchise for the east.

Here’s a timeline history of the parent company.

In this series on the fast food services market, it’s time to take a coffee break. This post is on Café Coffee Day & Barista Lavazza.

CCD's new 'Dialogue' logo

Café Coffee Day (CCD) has achieved cult status. A destination brand for the young (15-29 year old) and the young at heart, it’s been featured (discreetly) in umpteen Bollywood movies and been the subject of several case studies. Chetan Bhagat is supposed to pen his novels here (in a South Mumbai outlet, I reckon).

What’s different about CCD

1.  With 833 cafes in 118 cities, it has the widest distribution among the seven food service brands being featured in this series (the others being McDonalds, Pizza Hut, KFC, Taco Bell, Barista Lavazza, Subway & Domino’s Pizza). Widest distribution both by number of outlets and by number of cities.

Indeed, it seems to be the largest national food chain by number of outlets among all brands.

2. And CCD’s outlets are all company-owned, it’s not a franchised chain, this too marks it out from the other six brands above.

3. Is it indeed one of India’s largest retail chains? As far as I can determine, in terms of number of outlets, only shoe company Bata India – with 1250 stores – is possibly ahead.

4. Their food stuff is outsourced, they only do the coffee.

5. Unlike the pizza and burger brands, CCD doesn’t do home delivery. Nor do Barista and Subway. Looked at another way, this is a revenue opportunity they are foregoing.

6. CCD is the only Indian brand among these seven prominent food services brands. That’s saying something.

And as Indian consumer service brands go, in my humble opinion, CCD ranks up there with India’s best, with the likes of Jet Airways, Shoppers Stop & HDFC Bank.

Novelist Chetan Bhagat (R) at launch of a new CCD outlet in B'lore

Going for ubiquity

There’s been talk that India has a potential for 5000 cafes and that about 1000 exist across the major brands (lion’s share being CCD’s).

In the key metros of Mumbai, Delhi & Bangalore, CCDs are everywhere, making them the place to meet up.

There are 158 outlets in the National Capital Region (NCR) (114 in Delhi city, 14 NOIDA, 26 Gurgaon, 4 Faridabad), 138 in CCD’s home town Bangalore and 117 in Mumbai.

There are another 44 in Chennai, 48 in Pune and 37 in Hyderabad.

CCD says it has plans to invest INR 1.5 billion to reach 1000 outlets, from current 800+.

Going International

They are also looking at 200 cafes overseas – Middle East, Eastern Europe, Eurasia, Egypt and South East Asia are being looked at. They have a handful in Austria & Pakistan.

Why go International ?

While several have tried, no Indian company has yet built an international consumer brand. Not sure why CCD is going international, there could be more than one reason. 5 possibilities (creative imagination at work
a. Such activity is sometimes part of a strategy to woo the investing public (CCD is funded by private equity, will look for an IPO one day).
b. It may be easier to build a supply chain in an international city than in small town India.
c. Real estate costs in Indian metros are high and comparable to international
d. CCD’s parent company grows and export coffee so this a natural
e. Or, just that it gets an organization (and CCD has close to 5000 people) excited.

What do you think ? Why is CCD going international ? Will it do well ?

The CCD logo (being phased out, new one's above)

Rebranding CCD

A new trendy ‘Dialogue’ logo is being rolled out, which will replace the current branding. This has been done by Landor Associates. CCD will spend over INR 1.5 billion to redesign existing cafes.

How has CCD succeeded ?

It’s been, as far as one can see, a combination of marketing savvy, many innovations in the retail space and good management in general. Some insights into their strategies can be found here.

Founder V.G. Siddharth

CCD’s founder, serial entrepreneur V.G. Siddharth is low profile, almost unknown among the public. This serial entrepreneur’s well connected background may have something to do with this. He’s said to be humble and customer-centric to boot. Here’s an interesting anecdote. In an age where many CEOs prostrate themselves before the media gods, ‘grounded’ leaders such as these deserve kudos.

CCD’s parent company has recently announced an investment plan of INR 17 Billion including diversification.

India’s Starbucks can at best be faulted for ‘not being the original’ ?

Apparently, ‘a lot can happen over coffee’.

Here’s a Case study by India Knowledge@Wharton (2009).

Barista

Barista Lavazza

This brand’s been around as long as CCD. It’s gone through multiple ownership changes and as Barista by Lavazza, is currently in Italian hands. At one point, they were seen as being in a neck to neck race with CCD, but they now say they have a different strategy – coffee processing plant, beer and wine, et al.

My perception : lower on value for money than CCD, and will be challenged by newcomers like Costa Coffee.

This post, the third in a series on India’s fast food services market, is on the three Yum Brands : Pizza Hut, KFC and Taco Bell.

Pizza Hut in India

Pizza Hut has repositioned itself as a casual dining and is thus – strictly speaking – not a fast food restaurant any more. The menu has been expanded (Mumbai menu here!) and a revamp in ambience and décor done. Diners spend more time and spend more, up to INR 600 a visit, as compared to the other brands (being covered in this series). Actor Lara Dutta (the waitress in accompanying Pizza Hut pic) is the one now plugging away for them.

In contrast, competitor Domino’s Pizza has a value for money positioning, not-so-hot actor Arshad Warsi does duty for them, more on Domino’s in a subsequent post.

Pizza Hut India's CRM website

Some of the Pizza Huts offer an Enhanced Dining In experience, I’ve dined in the one in Juhu in Mumbai opposite the JW Marriot and did find the ambience and the service ‘enhanced.’

There are 147 outlets in 39 cities. Only 103 outlets in 34 cities are for restaurant dining, the rest are ‘Carry Out’ and ‘Delivery Only’. The company has also put up outlets at Hyderabad, Mumbai and Delhi airports. These numbers are small looking at the size of the India market, on this see previous post (Part II) too.

70% sales are for vegetarian items. There is an all- veg Pizza Hut too, a world first for the company, in the Jain-influenced city, Ahmedabad.

20% growth has been witnessed in India in the last one year. 7% growth was reported in same store sales.

Pizza Hut’s been ranked as the ‘Most Trusted Food Service’ brand during each of the last few years by Economic Times, not sure what this really means, could not get information  on these awards and their modus operandi.

Pizza Hut operates through a few master franchises, each of whom has regional territories.

Loyalty & CRM

A fair bit of Pizza Hut’s strategy has focused around discount coupons. Compared to other fast food, theirs is a high priced product / meal, so this is understandable.

In a high frequency (3 times/day !) product like food, there is an opportunity to increase consumption per user. Pizza Hut India seems to have initiated some good CRM (customer relationship management) ideas all right; it has a Facebook Page with over 12,000 fans, a member registration that is done online and that they call VIP (Very Into Pizza). They also have a ‘refer a friend’ feature online. Registering for Very Into Pizza entitles one to e-Coupons.

Unfortunately these e-Coupons do not offer a real benefit i.e. the same discount is today available to a first-time visitor to any Pizza Hut restaurant. Hope they will get it right; there is a tremendous upside possible with good CRM.

Of course, parts of the website itself have not been updated since 2007 !

KFC in India

KFC was the first fast food chain to enter the country in 1995. It got mired in controversy and had to exit. They reentered in 2004.

They now say what they sell is Kentucky Grilled Chicken, not fried chicken; and that it has just 70 to 180 cal & 4-8 g fat (depending on the piece size). In 2005, they changed the brand name  worldwide from Kentucky Fried Chicken to KFC.

There are 55 stores in 12 cities. 18 stores are in Delhi alone, another 12 in Bangalore, 8 in Hyderabad, 6 in Mumbai, 3 in Chennai and 2 in Pune. It gets 1 million footfalls a month. They will touch 70 stores by 2009 end and 100 by end 2010.

The menu’s still pretty much American, such as lots of chicken pieces, coleslaw and corn on the cob, not sure what their plans are on this count.

Sri Lankan cricketer Murlitharan’s finger lickin’ good commercial was used, not sure how much this has helped, building a brand around chicken alone in somewhat vegetarian India is a risky strategy.

Average meal ticket size is only INR 70 – 100. There has been a 22% growth in same store sales.

Taco Bell

This brand is to be launched soon in Bangalore via a company-owned outlet (they will follow the franchise route eventually). Taco Bell should do well in India with it’s burritos, tacos et al. Having eaten at Taco Bell in the U.S., I would say this menu goes well with the North Indian palate, with the rajmah roti type of taste.

Taco Bell's Burrito Supreme

Despite having been set up in 1962, Taco Bell is still essentially a U.S. only chain (they have rolled out to 4-5 countries in the last two years).

Looks like the large market there (they claim 54% of the Mexican QSR market in the U.S.) has engaged all their attention.

Their tag line Think Outside the Bun is a pun on Think Outside the Box and a parody on burger giants McDonalds and Burger King, as in ‘here is an alternative’, it’s been around for many years.

Summing up Yum in India

$100 million has been invested in India by Yum so far. By 2015, 1,000 outlets are targeted in 62 cities across the three brands. Cost of setting up an outlet for KFC is INR 20-25 million and for Pizza Hut it is INR 15 – 17 million.

A large part of the increase in outlets, over 50%, is planned for KFC. That means we can expect over 450 KFC restaurants in India by 2015.

Key Question: Why is KFC the driver? Do you see yourself eating more KFC products rather than pizzas?

For some reason, in most international markets, KFC and not Pizza Hut or Taco Bell has been Yum’s growth driver. Maybe (i) KFC products are priced lower (average INR 70-100 per meal) vis-à-vis Pizza Hut (INR 600 per meal), (ii) KFC has a more broadbased menu and (iii) they would like to play in the McDonald’s / burgers market?

One hopes they have more Indian products lined up. Indian tandoori food will go well with the KFC brand. Hope someone from KFC reads this and considers this, there are but few outlets today in Mumbai or other metros where one can buy tandoori chicken or kebabs J   And the Bukharas of ITC and the like have done considerably for tandoori food, what we now need a mass brand for this segment.

As it stands, KFC India’s menu  is fairly quintessentially American.

KFC India's menu is most American

And I would put a bigger bet on Taco Bell in India than we have seen so far from Yum.

And in case you believe pizzas and KFC food is bad for you, take heart in the fact that their menu will shortly carry calorie information. This is what the Yum’s Global Chairman had to say on calories and other matters during a recent India visit.

Here are additional nuggets on Yum Foods’s India business.