McDonald’s Japan will go public this July to help finance an expansion plan. Despite the uncertainties of an unstable Japanese stock market, McDonald’s Japan, Japan’s largest fast-food chain, is eyeing a listing on either Nasdaq Japan or Tokyo’s over-the-counter market Jasdaq. Many people will be eager to buy into the unit’s recent success, and the ongoing Japanese recession will make McDonald’s price cutting strategy all the more effective.
The presence of the business unit, which is McDonald’s second largest and fastest growing worldwide, on the Japanese stock exchange could have tremendous influence on the market as a whole. It would dwarf the 45 companies now traded on Nasdaq Japan, which have a combined market worth of $10.8 billion.
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Earnings announcements for 2000 revealed McDonald’s Japan had a pre-tax profit of $252.3 million, down 6.72% from the previous year, marking its first profit decline in seven years. The slide came despite a growth rate of 9.3% and record sales of $3.6 billion for the year. The unit said that reallocation of McDonald’s outlets in Japan, spending for fresh equipment and outlet renovations ate into profits.
McDonald’s Japan operated 3,598 outlets at the end of December. It has pursued aggressive weekday pricing promotions for its hamburgers and cheeseburgers since February of last year, leading to a 4.8 fold jump in annual sales for these products. The company may cut prices further depending on foreign exchange rates. If the yen jumps to a rate of 90 yen to the dollar, hamburger prices would fall to 38 cents from a current weekday price of 55 cents.
Through its pricing strategy and with funds obtained from the IPO, McDonald’s Japan is targeting the introduction of at least 300 new outlets a year to achieve its goal of 10,000 stores by 2010. The Japanese unit has already hurt earnings at other hamburger chain operators in Japan including Mos Food Services, which operates more than 1,500 Mos Burger stores.
McDonald’s Japan’s planned stock market debut – the first among global units of the world’s biggest fast-food chain – is viewed as one of this year’s hottest initial public offerings, along with that of Dentsu, the world’s largest advertising agency. And the current pricing strategy will make McDonald’s one of the few companies well placed to benefit from Japan’s extended recession.
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