How Did McDonald’s Japan Turn Around Its Business?

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MCD: McDonald's logo
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McDonald’s Japan, after seeing its sales and traffic decline for consecutive months in 2014 and 2015, saw a turnaround in 2016. The news of Chinese supplier Shanghai Husi Food Co. intentionally selling expired meat to restaurants, including McDonald’s Japan, is what plunged it into losses in the middle of last year. However, even before that the popularity of the burger chain had begun waning due to foreign objects in the food, food with excess calories, the declining value of money, and dingy and untidy outlets. By the end of 2015, revenues nationwide were down to about 70% of their prior peak. Incidents like a human tooth being found inside a pack of french fries sold in Osaka, a child getting injured by a piece of hard plastic found in a chocolate sundae in Fukushima, a piece of blue vinyl found in chicken nuggets in Tokyo, didn’t help the company.

In such a scenario, ensuring food safety became a priority for the company. The company employed  a four-point business revitalization plan to return to profitability. The plan consisted of:

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  • Customer Focused Initiatives
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McDonald’s Japan, under this initiative, started adding menu items featuring more locally produced ingredients. It launched three new affordable menu items, Egg Cheese Burger, BBQ Pork Burger, and Ham Lettuce Burger, to provide its customers with meals which are value for their money. Further, it simplified its menu and pricing, while promoting cleanliness at its outlets through a new scheme to stamp out food contamination, including examinations by a third-party organization of how its food is prepared and re-educating its staff.

  • Accelerate Restaurant Revitalization

The company decided to remodel its existing restaurants to enhance the dining experience. Some of the funding for this came through the decision to close 131 restaurants, of which 101 were shut down in 2015, with little long-term growth potential. It hopes to achieve a target of having 90% of its restaurants modernized by the end of 2018.

  • Localize The Business Structure

McDonald’s Japan was reorganized into three regions, East Japan, Central Japan, and West Japan to realize closer ties with local communities as a “modern burger restaurant that connects with customers.”  After a collaboration with Pokemon Go in July, McDonald’s turned its outlets into “PokeStops” and “PokeGyms” to lure players of the mobile game. This led to an increase in sales of over 25% y-o-y, with demand by families for children’s meals that include Pokemon toys and the Pokemon Go collaboration driving traffic.

  • Improve Cost and Resource Efficiency

By maintaining fiscal discipline, the company has streamlined its operating expenses. Further, it curtailed its selling, general, and administrative expenses, while undertaking appropriate resource allocation and the optimization of its cost structure.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for McDonald’s

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