On the Margin
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McDonald's wants to sell part stake in Japan unit

This post is part of the On the Margin blog.

McDonald’s Corp. is apparently turning to outsiders to turn around its troubled Japanese market.

According to Nikkei Asian Review out of Japan, the Oak Brook, Ill.-based burger giant is looking to sell part of its stake in McDonald’s Holding Co., the joint venture that operates the chain’s restaurants there.

McDonald’s owns about half of McDonald’s Holdings Japan and is talking with potential buyers to unload 15 percent to 33 percent of the Japan company’s shares for as much as $817 million, according to the report.

The company clearly wants to rebuild its image in Japan after a brutal year in which the chain’s sales have nose-dived amid some high-profile safety concerns in Asia. And it apparently believes that an outside investor with knowledge of the country and of rehabilitation can help.

In the first quarter of this year, for instance, same-store sales in Japan alone fell by more than 30 percent, following a food safety scare in China and other issues specific to Japan.

In the first three quarters of the year, same-store sales there have fallen by more than 20 percent. McDonald’s Japan expects to record a loss for the full year.

McDonald’s has about 3,000 locations in Japan and closed 131 locations there earlier this year. It also said it cut costs and announced plans to remodel 2,000 locations over the next four years. By the third quarter, same-store sales had improved to a decline of 4 percent.

That McDonald’s would bring in outside help to reconfigure its image in Japan is a clear shift in strategy at the quick-serve chain, which appears less interested in ownership these days as it seeks to recover its sales mojo.

The company has traditionally held onto a certain percentage of its restaurants and held fast to existing strategy that worked well for it over the last half century.

McDonald's has now said that it wants to own fewer restaurants. It plans to refranchise 4,000 restaurants by 2018, and wants to be 95-percent franchised over the long term. That’s a big change from its long-held strategy of keeping a certain percent of restaurants company-owned to give it more credibility with franchisees.

Weak sales tend to force companies to think differently, of course. And nowhere in the McDonald’s system have those sales been as weak as in Japan.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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