While it appears that Yum! Brands Inc has invited KFC Holdings (Malaysia) Bhd (KFCH) to venture into India’s promising food and beverage market, questions remain on how wide India’s door is open to Malaysia’s ambitious KFC franchisee. KFCH chairman Tan Sri Muhammad Ali Hashim said recently that KFCH’s unit, KFC India Holdings Sdn Bhd, is talking to Yum! Brands to acquire five of the latter’s KFC stores in Mumbai and Pune, two large cities in Maharashtra state. The five will complement KFCH’s existing outlets and help the Malaysian fast food operator achieve its target of having 17 outlets in India by the end of next year. Yum! Brands’ unit, Yum! Restaurants (India) Pte Ltd (Yum! India), owns and operates four KFC outlets in Mumbai and two in Pune — part of the chain of outlets it owns in India. Yum! Brands is the global owner of the KFC, Pizza Hut, Taco Bell and A&W fast food brands. It owns about two-thirds of the 86 KFC restaurants in India while the others are held by individual franchisees. Muhammad Ali said Yum! Brands had “invited” KFCH to India due to KFCH’s track record in Malaysia and had agreed to give KFCH the “rights to develop” in Maharashtra. Mumbai, the capital of Maharashtra, is India’s financial hub and has a population of over 21 million while Pune, an educational hub, has a population of over 5.7 million. “The understanding is that we [KFCH] will finally take over Yum!’s outlets and move on from there in Mumbai. That’s the fastest way to create critical mass,” Muhammad Ali told reporters in Mumbai last week. Reports say US-based Yum! Brands was planning to take its KFC store count in India to 200 by the end of 2011. Given Yum! Brands’ ambitious plans for India, it’s a puzzle why it would relinquish its position in Mumbai, one of India’s most economically advanced cities. Mumbai and Pune are also among the busiest cities in Maharashtra, and have large middle-class populations. India has been touted as a huge market for the food and beverage industry with its estimated 500 million-strong youth population and growing middle class of over 200 million. So, why is Yum! Brands not taking advantage of its first-mover advantage? Why is it allowing a franchisee such as KFCH take over some of its outlets?Yum! Brand’s spokeswoman said she was “unable to go into specifics” and comment on why Yum! India was looking to dispose of five of its KFC outlets in Maharashtra to KFCH. “Our strategy is to have company-owned restaurants and franchise partners,” she said. Yum! Brands also declined to say if it would later open more KFC outlets on its own in Maharashtra or if it would be comfortable allowing KFCH to be the sole franchisee in the state. Apart from the ongoing talks with Yum! Brands to acquire its five outlets, KFCH is also looking to acquire other KFC outlets in Maharashtra currently held by small local franchisees. This is seen as the green light for KFCH to consolidate the outlets Yum! Brands does not control. The Indian subcontinent is KFCH’s first venture outside Southeast Asia. It has the sole franchise rights to KFC in Malaysia, Singapore and Brunei. KFCH had gone into India in April last year, positioning itself as a “premier” quick service restaurant operator in India targeting the middle to high income earners. By the end of 2011, KFCH wants 17 KFC restaurants in India, which it intends to achieve by acquiring existing outlets owned by other KFC franchisees as well as establishing its own stores. Asked if KFCH would be looking to expand to other states in India, Muhammad Ali said KFCH would focus on Maharashtra, which has a population of over 100 million people. “It does not make business sense to go all over India. We will still look at opportunities but the priority is Maharashtra,” he said. To recap, KFC India currently owns three restaurants in India’s Maharastra state — two in Mumbai and one in Pune — and is in the midst of setting up four more outlets this year. This year, it will also acquire two outlets in Pune from local franchisee Kernel Foods Pte Ltd for US$860,000 (RM2.75 million) bringing the total number of store openings this year to nine. Muhammad Ali said KFCH had already invested US$9 million in establishing its outlets in India and would set aside US$10 million for additional outlets next year. He said the return on investment of its India outlets is in the region of 15% per annum but declined to reveal specific numbers. KFC India officers say the KFC outlet in Pune generates between RM400,000 and RM450,000 in sales a month, with over 1,000 transactions on a good day due to its high traffic location. Muhammad Ali said the initial contribution of KFC India’s operations to KFCH’s bottom line would be “very small” but the group had to “seize” opportunities presented by the huge India market as it already operates over 500 KFC restaurants in Malaysia. KFCH has seized the opportunity to penetrate the large Indian market. But its path ahead will be full of obstacles, something the Malaysian fast food operator is well aware of. This article appeared in Corporate page, The Edge Malaysia, Issue 830, Nov 1-7, 2010