India Plays: 2 Yes, 1 No, 2 Wait and See
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Serious business plans normally include a plan for international growth. More and more American businesses are finding ways to grow profits overseas. At some point in international growth plans, two countries are going to have to be addressed: China and India. In this article I would like to focus on the latter. The reason a business plan must eventually reckon with India is simple. Approximately 1 out of every 7 people lives there.
This article is only going to focus on the prospects of growth in India. With all these companies there is plenty of other relevant investing information, but we just want to focus in on India. The question is: does _____ have a good opportunity for growth in India?
Looking to take advantage of the growing coffee culture in India, Starbucks (NASDAQ: SBUX) has formed an alliance with Tata Global Beverages to get into the country. Coffee sales are expected to grow 30% a year in India, and Starbucks wants in. This partnership that they have formed is pretty interesting; it is a true 50/50 partnership. By forming this partnership, it has allowed Starbucks to march right in, while avoiding the relatively difficult process of a foreign business getting set up in the country. They hope to have 50 locations set up by year's end. In short: Starbucks has a good opportunity for growth in India.
Domino's Pizza (NYSE: DPZ) is making the right choices in India. Indians like a spicy variety of flavors in their food, so a Domino's pizza in India caters to that palette. It seems that people in that country have appreciated the Indian-ness of the pizza, since Domino's has grown by 50% a year for 5 years in the country. This growth has made India, Domino's fastest growing market. At the end of last year they had 500 stores in India. This year they plan on opening 100 more. It doesn't take much to see that India is a good opportunity for growth for Domino's.
India isn't just some magical opportunity for growth where all companies thrive. I think there are a lot of reasons to believe that LinkedIn (NYSE: LNKD) won't have the success that restaurants have. Let me just focus on one reason: literacy. Around 1 out of every 4 people in India is illiterate. To me, that means you can eliminate a quarter of India's population from being a potential LinkedIn user, since you have to read to use the website. Then you must ask, of the people who remain, how many have internet access? Of those who remain, how many would use LinkedIn anyway? The Indian government is working hard to educate the children through programs like Sarva Siksha Abhiyan with some success. But it will be a little while before these children grow into the adult working force.
New data shows that 16 million Indians use LinkedIn. Some would point out the incredible room for growth since India has a population of 1.2 billion. I just don't see LinkedIn reaching the general populace as they have in countries like the United States. I believe that sooner than one might think, LinkedIn will struggle to grow in India.
Two Wait and See
I'm sure you heard the news of how McDonald's (NYSE: MCD) is opening its first vegetarian location in India. Before we have a new age party, there are religious reasons motivating this. McDonald's has done their best over the years to keep the country's large Hindu population happy, sometimes with varying degrees of success. They have never offered beef products in India, because of the fact that cows are sacred to Hindus. But even though they don't offer beef in India, the Hindus still know that McDonalds offers hamburgers everywhere else. They have been protested before, and they are being protested again. The vegetarian store is opening near a religious site, and they plan to open another vegetarian location in another religious site. To be clear, Hindus can eat meat, but McDonald's is modeling their menu after the vegetarian model of the temple itself.
I like what McDonald's is trying to do to adapt in India, but don't get too excited thinking that this vegetarian store is the answer to all of McDonald's problems. I would like to wait and see how this store is accepted. If successful it could grow, not only in India, but also around the world. But, this is a first for McDonald's. Let's wait and see what happens.
I love the prospect of donut growth overseas. Krispy Kreme Doughnuts (NYSE: KKD) is just getting its feet wet in international expansion, and one of the countries on their list is India. The company has rolled out plans for over 100 stores in the next 5 years. They hope to open a store in Bangalore this year, but in the words of Krispy Kreme representatives themselves, this is going to be a "test". By using the word test, it signals to me that management is cautiously optimistic over the possibilities to grow in India. I think it has great potential, but I'm going to join management in cautious enthusiasm. Maybe at some point next year we'll have a better idea of how they are growing in India.
We have just zoomed on these companies possibilities in India. You need to zoom back out to get a more complete look at each of these companies before thinking of investing. India is definitely an exciting market, and I look forward to watching how things progress for businesses in this country.
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of LinkedIn, McDonald's, and Starbucks and is short Starbucks. Motley Fool newsletter services recommend LinkedIn, McDonald's, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.