FDI debate leaves a bitter taste for McDonald’s, Pepsi, KFC

NEW DELHI: Multinational food majors McDonald’s, PepsiCo and KFC got a taste of realpolitik on Tuesday when Parliament started a debate on allowing FDI in multi-brand retail where the ruling front and opposition traded charges that left the US firms upset and dumbfounded.


McDonald’s refuted BJP leader Sushma Swaraj’s allegation that the fast-food giant does not source even basic commodities such as potatoes from within India while PepsiCo issued a clarification that it is the largest procurer of potato in the country.

KFC, which is on an expansion spree in India, did not comment, but it must have been shocked to hear communications and IT Minister Kapil Sibal say, “Many said KFC will drive the dhabas out of the market. Dhabas have driven out KFC.” Earlier in the day, Swaraj, the opposition leader in Lok Sabha, alleged that McDonald’s never bought potatoes from Indian farmers.

“Ask McDonald's about their fries. They never buy potatoes from local Indian farmers, saying the potatoes are too small here,” she said. In a rare instance of a multinational refuting a politician, McDonald's India (North and East) in a press statement said: “We confidently and proudly state that ingredients used in our products are sourced locally that includes the French fries.



We import only on rare occasions when local supplies run out.” Vikram Bakshi, MD at McDonald's India, said his company was honouring a prior investment commitment that it would source its entire raw materials from the country. Swaraj, while opposing the government decision to allow foreign supermarket chains to open stores in India, also said: “Pepsi promised to buy potatoes and tomatoes from farmers (in Punjab), but backed out later.” In its defence, PepsiCo India, the largest snacks player in the country, said it sources all its potato requirement from within the country and works with over 24,000 farmers across nine states including West Bengal, Punjab, Gujarat, UP, Maharashtra, Karnataka and Bihar.

“We are the largest procurer of potato in India and procured 240,000 MT of potato from Indian farmers in 2012, which is more than double of what we procured five years ago,” a PepsiCo spokesman said. “We have set up a state-of-the-art potato seed facility in Punjab and all the seed that we provide to farmers across the country is grown by Punjab and Haryana farmers,” he said. “PepsiCo works with farmers throughout the crop cycle — providing quality seeds, technical expertise, facilitating loans from banks, harvesting expertise etc.”

In Parliament, Sibal made a spirited case for opening up retail space to foreign investors, arguing that they would do no harm to small grocers, and that is when KFC came into the picture. “Don't underestimate Indian brands,” he said. “Many said KFC will drive the dhabas out of the market. Dhabas have driven out KFC.”

While KFC declined comment on the matter, the truth is that the chain has been expanding furiously and has already become Yum! Brands’ largest-selling fast food chain, overtaking Pizza Hut. KFC has 221 outlets in India and Yum! plans to have 500 KFC outlets by 2015. Also, Yum! expects the chain to account for 60% of the $1 billion sales that the company is expected to generate by then.

The name of Walmart too came up several times during the debate. A Trinamool Congress MP said the US retailer sources almost 82% of its merchandise out of China and its entry into India would only benefit its neighbour, while Swaraj said Walmart will gobble local small traders. Countering that, Sibal said there is room for both small traders and big retailers as Indians will not travel a distance to shop at Walmart stores.