India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

There are a number <strong>of</strong> reasons why quick-service restaurant companies prefer local over
imported food ingredients. One is that they try to <strong>of</strong>fer fresh food wherever possible,
leading to a preference for local supplies. Fresh produce such as lettuce <strong>and</strong> tomatoes is
also easier to purchase locally, reducing transport <strong>and</strong> other logistics costs. Moreover,
these restaurants tailor many <strong>of</strong> their products to local tastes, so it is logical for them to
use local products. For instance, KFC <strong>of</strong>fers a chicken product in <strong>India</strong> that is much
spicier than their U.S. chicken choices. Other food products must conform to <strong>India</strong>n
government regulations, such as a ban on the use <strong>of</strong> artificial colors. 58 Also important is
the fact that global food companies want to be seen as good local citizens <strong>and</strong> part <strong>of</strong> the
local community, supporting local farmers <strong>and</strong> food producers.
Today, Yum! Br<strong>and</strong>s <strong>and</strong> McDonald’s establishments in <strong>India</strong> import few ingredients
from the United States. For example, potatoes for McDonald’s french fries are grown to
exacting st<strong>and</strong>ards; globally, they are provided by McCain Foods. For the first eight years
that McDonald’s was established in <strong>India</strong>, the company imported its MacFry supplies
from the United States, while McCain Foods attempted to grow potatoes to McDonald’s
specifications in <strong>India</strong>. McDonald’s began using some locally sourced potatoes in 2007
<strong>and</strong> expects to be able to source all <strong>of</strong> its potato needs, estimated to be 12,000 mt, from
Gujarat by 2010. In fact, McDonald’s hopes to export surplus potatoes from <strong>India</strong> to
China in the near future. These <strong>India</strong>n exports would replace MacFry exports from the
United States to China. 59
Some restaurant companies prefer to import certain ingredients, though it is not always
possible for them to do so. Certain widely available bulk commodities that are easy to
ship, including wheat <strong>and</strong> vegetable oil, would seem to be likely c<strong>and</strong>idates for imports.
For example, low-protein <strong>India</strong>n wheat is not well suited to high-rising dough products,
such as Western-style bread rolls <strong>and</strong> pizza dough, <strong>and</strong> restaurants that use <strong>India</strong>n wheat
to make such products must include a costly extra step <strong>of</strong> adding wheat gluten to their
bread dough. However, existing <strong>India</strong>n barriers to foreign wheat imports make imports <strong>of</strong>
high-protein foreign wheat more expensive; as reported elsewhere in this report, U.S.
wheat, though desirable, is almost impossible to import into <strong>India</strong>. Thus most companies
continue to rely on less-suitable <strong>India</strong>n wheat. 60
Global br<strong>and</strong> reputation is tremendously important to quick-service restaurants, <strong>and</strong> they
have been successful in building br<strong>and</strong> loyalty with <strong>India</strong>n consumers. For example, the
Economic Times annual br<strong>and</strong> survey has named Pizza Hut the “Most Trusted Service
Br<strong>and</strong>” in <strong>India</strong> for the last five years. 61 Yet it does not appear that br<strong>and</strong> loyalty is built,
for the most part, on providing specifically U.S. ingredients in these restaurants’ <strong>of</strong>ferings.
Rather, U.S. br<strong>and</strong> owners report that success in the quick-service industry in <strong>India</strong> is in
direct proportion to their ability to adapt product <strong>of</strong>ferings to local palates while
continuing to emphasize those parts <strong>of</strong> the global br<strong>and</strong> that <strong>India</strong>n customers value most,
such as high quality, convenience, cleanliness, <strong>and</strong> good service. 62
58 Industry representatives, interviews by Commission staff, Mumbai <strong>and</strong> New Delhi, <strong>India</strong>,
May 8–12, 2009.
59 Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, May 12, 2009; Hindu Business
Line, “MacFry Now Made in <strong>India</strong>,” March 7, 2008.
60 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 8, 2009.
61 StreetInsider.com, “Pizza Hut Named Most Trusted Food Service Br<strong>and</strong> in <strong>India</strong> by the Economic
Times for Fifth Year,” June 25, 2009.
62 Bahn <strong>and</strong> Nemer, “Br<strong>and</strong> Magic in <strong>India</strong>,” May 8, 2006; industry representative, interview by
Commission staff, Mumbai, <strong>India</strong>, May 12, 2009; <strong>and</strong> industry representative, interview by Commission staff,
New Delhi, <strong>India</strong>, May 8, 2009.
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