McDonald’s Ditches the Fruit Fly Fiesta As Tomato Tempest Gains Momentum in India’s Kitchens!

McDonald’s Tomato Predicament 

Each monsoon, onions, potatoes, and tomatoes gleefully conspire to raise prices or play hard to get!

Even as the monsoon is playing havoc in many regions of the country, so is Onions that have brought tears aplenty before, and now, tomatoes take centre stage.

As of July 19, 2023, tomatoes command a princely INR140 to INR150 per kilogram, depending on the state and the store’s fancy.

McDonald’s is celebrating its 27 years in India and operating
through the franchise model; Connaught Plaza Restaurants and Westlife Development manage the north, east, south, and west outlets, respectively, for now, caught in the Tomato trap. However, both franchise partners clarified that the tomato retreat was not a matter of penny-pinching but a quality concern.

Tomatoes And The Pesky Fruit Flies
As the absence of Tomatoes in burgers is being noticed, the
Westlife Development, in a statement, quips, “No serious tomato-related troubles at McDonald’s (W&S)!

During the monsoon, pesky fruit flies like to crash the tomato party. Fear not; fresh tomatoes arrive daily, but any flawed batch faces eviction. Only 10%-15% of our stores paused tomato service temporarily, but the good batches still get their burger spotlight. Seasonal problems, you see!”

Amidst the tomato turmoil, McDonald’s remained tight-lipped, leaving the world puzzled. But how do these wily vegetable price fluctuations impact commercial kitchens, even ones as seasoned as McDonald’s? Let’s unravel the delectable details –

The Tomato Tango – Quality vs Price in the QSR Realm
India’s QSR (Quick Service Restaurant) segment continues to thrive with international giants like McDonald’s, Burger King, Dominos, KFC, and Pizza Hut.

Even during the pandemic, QSRs flourished thanks to automation and predictive kitchen management. However, as culinary catastrophe hits McDonald’s, it all boils down to the modest tomato. Delicate and prone to quick spoilage, tomatoes become a thorny issue, especially during the rainy season.

However, Kabir Jeet Singh, founder of Burger Singh, unravels the secret to QSR food’s resilience against food inflation. “Most QSR ingredients are processed, ensuring price stability over the years,” he says. The chicken patty, a staple of burgers, arrives from a consistent vendor, factory-made, frozen, and blessed with a 10-month shelf life. The real challenge lies in the freshness of the tomato and lettuce—the sole non-processed components of the burger.

Singh reveals, “Tomato-based sauces, like marinara, come in a processed format that lasts for months. This shields pizza and pasta joints like Domino’s from tomato price fluctuations. But restaurants serving salads or burgers with fresh tomatoes, like Subway, face the brunt.”

Knowing the recurring tomato turmoil, Burger Singh intentionally keeps tomatoes out of its menu, opting for a unique burger recipe.

Similarly, fine dining chef Manu Chandra accentuates the impact of price increases on consumers versus large conglomerates. For QSR giants with streamlined supply chains, direct sourcing from the mandi to one supplier shields them from major price fluctuations.
In contrast, the retail market’s multiple intermediaries—farmers, middlemen, traders, distributors, and retailers—lead to higher consumer prices due to each player taking a cut.

As of July 2023, most commercial kitchens in various categories, including QSRs, casual and fine dining, bars, pubs, and cafés, pay INR75-INR80 per kilogram of tomatoes. While this may seem lower than the retail prices of INR150-INR160 per kilogram, it comes with its own contractual complexities.

The Art of Price Management in the Restaurant World
When it comes to the bustling world of restaurants, price management and vendor contracts play a crucial role in determining profit margins.

While Quick Service Restaurants (QSRs) often secure large vegetable contracts, casual and fine dining establishments delve into a broader range of condiments. With each restaurant type having its unique menu mix, the strategy for price control varies.

Kabir Jeet Singh, the ingenious mind behind Burger Singh, sheds light on QSRs’ food expenses, which typically amount to a mere 10%-12% of total costs. Contrastingly, fine dining establishments allocate around 25%-30% for food expenses, while five-star hotels aim for a range between 18% and 22%, adhering to the industry benchmark. These figures become vital as restaurants set annual contracts with vendors, fixing the ingredients’ price, quantity, and quality.

Chirag Chhajer, co-founder of Burma Burma, a premium casual dining restaurant, emphasizes the impact of scale. Larger restaurants with higher volumes of business have a more centralized and unified sourcing system.

The volume advantage allows them to negotiate favorable pricing brackets in their yearly contracts, unlike smaller players with monthly or quarterly arrangements. Moreover, restaurants employ menu and category innovations to maintain reasonable prices, providing a variety of options to consumers.

Contracts in the restaurant industry aim to safeguard businesses from price fluctuations. A large restaurant chain may sign a contract with a vendor, agreeing to pay a fixed price for a particular vegetable, regardless of its retail market price. This indemnification strategy helps restaurants withstand sudden price hikes and build stability in uncertain scenarios. Over time, contracts have evolved from being annual to more flexible terms, ranging from three to six months.

For example, McDonald’s North and East regions have specific suppliers for each ingredient. Such long-term contracts work well for short-term price absorption by vendors, allowing restaurants to maintain stability. However, if a key ingredient like potatoes faces a sustained 100% price rise, QSRs might eventually pass on the burden to consumers.

Vegetables, though vital for the culinary experience, represent only a small percentage of product costs. Singh highlights that in Burger Singh’s case, veggies account for a mere 2%-4% of food expenses, with most burgers predominantly composed of bread, sauces, and potato/meat. Consequently, even if the burger’s INR100 cost faces an inflation-induced INR2-INR3 hike in veggie costs, it has a negligible impact on overall profit margins.

Tomato Troubles in India’s Kitchens
In 2018, Prime Minister Narendra Modi declared tomatoes, onions, and potatoes as top priority vegetables, holding a key position in every Indian commercial or home-based kitchen. Thus, any increase in their prices reverberates throughout the value chain, affecting all players involved.

Amidst the rising tomato prices, some retailers have made headlines, reportedly selling tomatoes worth INR2.8 crore. However, these soaring numbers primarily impact retail sales and individual consumers, sparing institutional buyers.

Climate change is the real culprit behind this vegetable volatility, casting its fiery spell on tomato-producing states. The scorching summers and excessive rains and floods have diminished the volume of quality tomato crops.

The Department of Consumer Affairs and the Ministry of Education united forces to combat this dilemma and launched the Tomato Grant Challenge Hackathon, inviting students, researchers, startups, and MSMEs; the challenge seeks ingenious solutions across various stages of the tomato production value chain.

In response to the price surge, consumers have sought refuge in puree and packaged processed tomato alternatives. Meanwhile, restaurants heavily reliant on fresh tomatoes face a predicament in securing the right quality produce.

Surprisingly, the true sufferers of the price increase are not the giant QSR chains, but rather, the entire industry grapples with a lack of quality produce. The impact is felt equally across the board, echoing a collective struggle.

The Last Bit, As tomatoes take center stage in India’s culinary drama, the challenges extend beyond mere price hikes. Climate change casts a long shadow on tomato production, necessitating innovative solutions to secure a stable supply chain. Amidst the trials, consumers and restaurants adapt, seeking alternatives to mitigate the impact.

In this tomato tempest, McDonald’s found itself in a pickle, but not for lack of funds. The tomato tango was a quality concern, not a cash crunch. As the common man chuckled at the fast-food giant’s predicament, the QSR chain remained steadfast, serving tomato-less burgers while battling the monsoon’s fruit fly fiesta.