McDonalds in Japan Team 1

Woo Young, Seung Hyun, Hye Seon, Ganesh, Lijun Chen

Background:
1967: Den Fujita, a bag and shoe importer in Japan, had his
first McDonalds and was impressed with their operations
and efficiency.
1971: McDonalds opened its first restaurant in Ginza, Tokyo
under McDonalds Holdings Co. A 50-50 joint venture
between McD Corporation and Fujita & Co. (a trading
company owned by Fujita) [1]
2000: Over 3500 McD restaurants in Japan were operational,
making it the second largest base for McD after US of A.
2003: Den Fujita retired from McD and American executive
Pat Donohue was parachuted in from McDonalds Canada.
2004: Under the advice of Fujita, who insisted that only a
Japanese can efficiently run McD Japan, Eikoh Harada was
appointed the president.
2005: Harada put a stop to the remnants of the ambitious
expansion goals set by Fujita (10000 restaurants by 2010)
and instead focused on operational efficiency and cost
cutting by sourcing ingredients from China. [2]
2013: Sarah Casanova, from Canada, took over as president
from Harada.

McD Japans overall situation:

McD Japan has had a very bad couple of years in
terms of profit, market share and brand image,
stemming from external factors such as an aging
population, intense competition, depreciation of yen
and internal factors such as poor supply chain
management, bad managerial decisions and poor
quality control.
In 2014 it reported a net loss of 21.9 billion. In 2015
it reported a loss of 34.7 billion. [3]
After enjoying over 4 decades of prosperity, the
company is now looking at, what many industry
experts call, the end of BigMac.
McD Corporation, which owns 50% of the McD
Japan, is now currently looking to sell 33% of its
stake to a strategic investor, whom they hope will
help turn the tide for McD Japan [4]. What should
the new strategic investor do?

Market Analysis
Company

Strength

Recession Resistant
Ubiquitous (viewed as the go-to fast food restaurant)
Solid, low-cost business model based on global exp.
Massive buying power and Sales Channels
High Operation efficiency
Opportunity

Weakness

Food offerings often viewed as unhealthy (burgers and fries)

Large size of business makes growth more difficult to achieve
Commodity and labour costs can quickly erode profit margins
Mostly company owned restaurants exposes the company to
foreign exchange risk
Threats

Aging population leading to lower demand of hamburger and

increase in labour cost.
New healthier food items may make food more desirable
Remodelling of older restaurants
Weakening of brand image synonymous with cost cuts
Developing new products
Poor monitoring of suppliers can lead to bad publicity
Entry into new popular product categories (coffee)
Depreciation of Yen

Consumers
Place a lot of importance on food and the
ingredients of the food.
Only 12 percent of two-or-more-person households
made up of people over 70 eat out [5]
Are fickle and like to try out new chains such as
Taco Bell etc. that are popping up.
Once trust is corrupted, difficult to get them back
Have a wide range of taste in food and like to try
new products such as chocolate flavoured fries.

Competitors
Efficiency oriented
McDonalds
Lotteria,
Follower
First Kitchen,
A&W
Leader

Others

KFC

Quality oriented
MOS Burger
Freshness Burger,
Burger King,
Kua Aina
Subway,
Taco Bell,
Convenience stores

4P Analysis
Price:
Though McD Japan as a leader, had the opportunity
to avoid price war, it actively became the forerunner
in price competition to attract customers and
increase sales.
Burgers were priced lower and the supplements
(drinks and fries) were priced higher.
Product:
Localized menu to fit Japanese tastes such as tofuMcnugget, Cheese Katsu Burger, Teriyaki burger etc.

Place/Distribution:
McD in US of A primarily thrives in suburbs. This is in
stark contrast with Japan, where McDs in the center of
cities perform better. To this day, the worlds busiest
McD is its restaurant in Ginza (shopping district in the
center of Tokyo).
Company owned and wholly franchisee held McDs in
various markets:

Promotion:
McD Japan runs promotions with high customer
involvement. Examples of which are the recent
Name the burger and get a free burger everyday for
the next 10 years or the Children make your own
burger in McD kitchen etc.

Strategy Analysis
Strategies
2,500 regular vs 167,000
part-time employees
Rapid expansion of
restaurants. 3800 at one
point
Cost cutting by sourcing
ingredients from Chinese
Supplier

Backfire
Poorly trained employees and high turnover rate and
low morale
2014 - overcharged customers on purchases of the
nuggets and McWings
2015 - plastic shards found inside a drink
2015 - tooth found in French fries [6]
Most restaurants under performing.
Shutting down 100+ restaurants every year.Loss of
investment

Result

Solution

Loss of customer trust

and confidence

Hire more regular

employees or contract
employees and invest in
training

Proper market research

Negative impression of
before starting a new
McD not doing well
restaurant

2014 - Exposed usage of expired meat

Loss of brand image

and trust

Over stress on efficiency

2014 - Removed menu from over the counter for faster

orders

Customer
inconvenienced

Top-down management

Employees not keen to accept Management decisions

Poor service

Canadian CEO

Didn't understand Japanese culture. Insincere public

apology.

Customers enraged

Monitor suppliers
Improve employee
productivity to move queue
faster
Get group consensus
Transcultural leadership,
like Nissan CEO Carlos
Ghosn

Recommendations for the Strategic Investor

External

Develop new products that are softer, this will help

gain acceptance with aging population

Explore home delivery/monthly subscription to

increase convenience and loyalty

Explore local sourcing, such as cheese from northern

Hokkaido or sweet potatoes from southwestern Japan.

Internal

Implement strict quality control measures for

suppliers.

Invest in Employee training programs

Automate systems to deal with labor shortages

Move away from price war and towards quality.

Transcultural leadership

References:
[1] http://www.nytimes.com/1992/03/22/business/den-fujita-japan-s-mr-joint-venture.html?pagewanted=all
[2] http://www.forbes.com/global/2009/0608/japan-mcdonalds-den-fujita-mcshakeup.html
[3] http://www.japantimes.co.jp/news/2016/02/09/business/corporate-business/mcdonalds-japan-logged-%C2%A534-70-billion-loss2015/#.VvGLPvl96hc
[4] http://www.reuters.com/article/us-mcdonalds-japan-divestiture-idUSKBN0U428F20151221
[5] http://www.japantimes.co.jp/news/2015/05/09/business/economy-business/stores-struggle-to-adjust-in-a-shrinking-japan/
[6] http://www.channelnewsasia.com/news/asiapacific/mcdonald-s-japan-hit-by/2101184.html