McDonald's Japan earnings slide continues

by Erica Shaffer
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McDonald's Japan restaurant
McDonald's Japan has fallen on some tough times due to food safety issues.

TOKYO – McDonald’s business in Japan lost a record ¥34.7 billion ($301.6 million) in fiscal 2015 due to a string of food safety scandals that continue to weigh on the company’s financial performance.

For the full-year of 2015, system-wide sales dropped 15.6 percent to $376.6 million. Consolidated operating income fell ¥25.2 billion compared to a loss of ¥6.7 billion a year ago. Same-store sales turned positive to 1.8 percent in percent in the fourth quarter marking the segment’s best quarterly performance in nearly four years, the company reported.

Oak Brook, Illinois-based McDonald’s Corp. has a share and interest of less than 50 percent in McDonald’s Holdings Japan. Kevin Ozan, executive vice president and CFO of McDonald’s Corp., said the company is exploring a sale of its share of the Japan business.

“As part of our evaluation of ownership strategies around the world, we have been reviewing our ownership levels in all markets,” Ozan said during an earnings call with analysts. “In conjunction with this effort, we’re exploring the sale of a portion of our ownership in McDonald’s Japan, if we identify a strategic investor who could help advance Japan’s turnaround efforts and unlock our growth potential with a view of enhancing value for all stakeholders. We’re in the early stages of the process and taking a thoughtful approach.”

Ozan added that McDonald’s Corp. continues to have confidence in McDonald’s Japan for the long term, and that McDonald’s Corp. and McDonald’s Japan “will continue to have a franchisor/franchisee relationship intended to promote McDonald’s brand and business in Japan.”

Initiatives taken by the unit to turn the business around include closing 131 stores along with plans to remodel 90 percent of all McDonald’s Japan restaurants by 2018. Looking ahead, the company’s focus will be on initiatives aimed at restoring relevance and trust among Japanese customers.

Customer-focused initiatives include a stronger focus on the menu and value. McDonald’s Japan will continue to offer products available only at McDonald’s Japan restaurants such as “Name It Burger”, a limited-time seasonal menu and products using local specialties.

The Otegoro Mac line of “affordably priced burgers,” introduced in October 2015, is available at any time, every day except breakfast hours; and McDonald’s Japan said the menu item offers great value to its customers, and customer response has been very positive. In January, the company added the Chiki-Chee, a chicken cheese burger, to the menu as another value option for diners.

“In 2016, we will continue to drive and enhance the Business Revitalization Plan underpinned by four pillars of: Customer focused initiatives; accelerated restaurant investment; localized business structure; and improve cost and resource efficiency, the company said in its earnings release. “Through these, we will ensure the quality and safety of our food, provide uniquely McDonald’s hospitality, and offer even better restaurant experience to grow our business even further.”

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