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McDonald’s Japan makes big comeback

Blog: Market has recovered from its Chipotle-esque sales problems

This post is part of the On the Margin blog.

A huge restaurant chain in a big market is recovering from a series of food safety issues a couple of years ago.

We are talking, of course, about McDonald’s Holdings Japan Co., McDonald’s Corp.’s Japan market. The operator is on a roll following years of declines marked by ugly sales performance in 2015. 

At the end of 2013, McDonald’s Japan market was struggling, with falling sales and guest counts. But the market had major plans to recover the next year, including remodels and increased delivery and a focus on more families, which it felt would generate positive sales.

But then in July 2014, a tainted meat scandal in Asia sent its sales plunging. Other problems only made things worse, such as when pieces of vinyl were found in the chain’s Chicken McNuggets.

The result was a sales problem every bit as bad as those experienced at Chipotle Mexican Grill Inc. Some months in early 2015, the company’s same-store sales were falling nearly 40 percent. Same-store sales fell 32.3 percent in the first quarter of that year.

McDonald’s Japan responded by closing more than 150 unprofitable locations and by remodeling hundreds of others. The company also focused on product innovation with publicity-generating items like chocolate drizzled French Fries. (Note to McDonald’s USA: We here like dipping our fries in chocolate, too.)

McDonald’s Japan’s sales recovered nicely in 2015, with same-store sales up 5.4 percent by that December. Same-store sales increased 20 percent in 2016. And they increased 14.3 percent in the first six months of 2017.

And now, according to Bloomberg, McDonald’s Japan is eyeing something it hasn’t done in at least five years: Add locations.

McDonald’s Holdings Co. Japan CEO Sarah Casanova told Bloomberg this week that the company plans to open more stores than it will close in the second half of the year. 

That would be the first net increase over a six-month period for the operator since 2012. McDonald’s Japan will finish the year with about 2,900 locations — down about 400 locations from its 2012 peak and down about 10 locations from the start of the year. Still, it’s a big market, with about 8 percent of McDonald’s 37,000 global units. 

To be sure, store closures can influence same-store sales results by removing the worst units from the calculations, while driving existing customers to the remaining locations. And the recovery of McDonald’s Japan is hardly complete.

But it demonstrates that companies with the right strategies can recover from even the worst problems. 

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company. 

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

TAGS: Finance
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