Byravee Iyer
Apr 24, 2013

McDonald's aims for turnaround of fortunes in Japan

TOKYO - Despite steadily falling sales in Japan, McDonald's has announced plans to raise its prices for the first time in five years, casting doubt on its strategy in its largest market after the US.

McDonald's continues to struggle in Japan, its second largest market
McDonald's continues to struggle in Japan, its second largest market

The fast food chain is to increase the prices of certain products by up to 25 per cent from next month as sales fell for the 12th consecutive month. The move is designed to increase profits after McDonald's reported a 12 per cent drop in operating profit last year, according to reports in the Japanese press.

Industry analysts say part of the problem stems from the aftermath of the earthquake in 2011 when home dining peaked. Consumers were no longer attracted to the cheap prices offered by fast food operators—although convenience stores started to see an uptick in sales. While many pundits expected sales at McDonald’s to rebound in 2012, they have not.

Indeed, between 2010 and 2011, McDonald’s saw its market share slip 0.6 per cent to 14 per cent in Japan. During the same period, Seven & I Holdings, the parent company of 7-Eleven Japan, gained 0.8 per cent of the market. 7-Eleven, meanwhile, continues to lead fast food sales. Sales improved 7 per cent as it ramped up its menu ranges to cater to the growing demands of home dining.

“Amid the growing home-dining trend, combined with consumers’ migration to convenience stores’ fast food, McDonald’s has been struggling,” says Mariko Takemura, research analyst, Euromonitor.  

McDonald’s Japan is working hard to stage a turnaround in the US$50.6 billion fast food market. Last week, it raised the prices of its hamburger from 100 yen to 120 yen or US$1.22. It has also increased the price of its cheese burger to 150 yen from 120 yen.

“It is important to note that Japan faces many economic challenges as a market and operating in Japan requires us to make thoughtful and strategic decisions with business,” said a spokesperson for McDonald’s. “In this case, with the recent price adjustments this month, the primary move is about delivering everyday affordability and value for money to customers and then balancing that with a long-term view to sustainable growth.”

The brand's other tough stand for 2013 includes closing 110 restaurants in the country. To offset that, it plans to quadruple the number of stores that offer home delivery.  

Recent marketing initiatives indicate that McDonald’s is leaving no stone unturned. It has made growing its breakfast business in Japan a major priority. With the objective to draw breakfast traffic away from convenience stores, the company launched a campaign to promote its new breakfast menu, including a Sausage and Egg McMuffin bundled together with a drink for 300 yen or US$3.30. What’s more, it also started a promotion called ‘Free Monday’, when patrons coming to McDonald’s between 6 and 9 am received a free goody. The measurable results of this initiative are still unclear, but breakfast remains a long-term growth area for the chain. 

McDonald’s Japan also launched ‘Dancing McCrew,’ a host of viral videos that show its staff dancing through their work day. One such video has about 580,000 views since its launch at the end of March.

Still, competition continues to heat up. Rival Mos Food Services (Which operates Mos Burger) recently announced plans to launch breakfast in Japan. By the end of the year, it plans to open all of its 1,400 outlets at 7 am. It has already started trial runs in almost 50 outlets in Japan.

"[McDonald's] has done several things with little success," Takemura said, referring to the price increases. "This is just another expermiment."

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