McDonalds India to hike prices amid rising inflation

Fast food chain McDonalds Corp plans to increase prices in India for the second time this year, responding to rising inflation which, along with an economic slowdown, it expects to temper demand growth for at least the next 7 months.

The company said on Tuesday it would raise prices by 5-6 per cent. That follows a 5 per cent hike after the government increased the service tax rate in February.

"There is pressure and it's a tough environment, no doubt. But inflation is at 8-10 per cent so we have to hike our prices," said Amit Jatia, vice-chairman of Hardcastle Restaurants, which owns the McDonalds franchise for west and south India.

Consumer spending in India has taken a hit in the past three quarters as rising food prices, meagre salary increases and the slowest Indian economic growth in a decade hurt buying appetites for clothes, cars and eating out.

With its 1.2 billion people and growing middle class, India is a large market for global chains, though for now most Indians cannot afford to eat regularly in western-style restaurants.

The burger chain said its same-store sales remained under pressure and although they would grow, the increase would not be at the 22 percent achieved in the fiscal year ended March 2012.

McDonalds entered India in 1996 without its signature hamburger, respecting local religious beliefs which mean many people avoid eating beef and pork. It has become India's largest fast food chain operator selling chicken and fish burgers along with vegetarian items like McAloo Tikki, which has a potato patty, and the McSpicy Paneer, filled with cottage cheese.

The burger chain plans capital spending of 5 billion-10 billion rupees ($92 million-$184 million) in India over the next 3-5 years, mostly for store expansion, Jatia said, adding India's long-term consumption growth story remained intact.

McDonalds has 309 stores in the country.

The company plans to add 80-90 restaurants in western and southern India in the next two years.

Hardcastle is also contemplating an equity fund raising to fuel McDonalds' expansion in the country in the coming years.

"We are in talks with merchant bankers every day and are open to it. But we are considering all our options and that includes debt also. We will be clear with our decision on what instrument we choose in a month," Jatia said.

In December, Hardcastle Restaurants merged its operations with listed parent Westlife Development Ltd.

Photograph: Mario Anzuoni/Reuters