McDonald’s Japan will rapidly expand the number of outlets following its equity listing in Tokyo. The best-known brand in global fast food is set to take a larger bite of consumer spend on fast food in Japan, following a further announcement detailing the plans for the equity capital recently raised. While it will be an expensive move in the short term, it should leave McDonald’s in a good position as the economy begins to improve.
Den Fujita, president of the Japanese unit of McDonald’s fast food chain, announced on Thursday that he plans to bring yearly sales to one trillion yen ($8 billion). The time period for this expansion was not disclosed, but sales for the last financial year were just over 430 billion yen. The majority of this growth will be delivered by increasing the number of stores from the current 3,600 to around 10,000. Doing the math shows declining sales per store as the company prices aggressively to gain market share.
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There is little doubt that Japan offers an immense potential market for convenience foods, especially as consumers’ tastes become more international. Breakfasts are shifting from the traditional fish, rice and miso soup to cereals, toast and scrambled eggs. Lunches and dinners have also shifted; the younger generation offers the greatest potential to capture a multitude of consumption occasions throughout the day for the fast food conglomerate.
McDonald’s strategy has been based heavily on taking trade away from other popular fast food outlets, such as Moss Burger, mainly through aggressive price promotions. 65 yen and 80 yen burgers are particularly popular as consumers are conscious of the implications of the economic recession. For McDonald’s, this strategy is likely to hit profitability. Nevertheless, by expanding when consumers are more price-sensitive, McDonald’s will be in a better position to capture any improvements in spending patterns following economic buoyancy.
Indeed, a government survey released on Wednesday showed that major companies are expecting business conditions to improve considerably in Q3. The survey showed business sentiment for Q3 up sharply from Q2, while sales and earnings exhibit a similar trend.
In the long-term, McDonald’s should benefit from this expansion, capturing an increasing share of consumer expenditure and building on its current position. However, the stock market will have a considerable influence on how long the chain can discount is burgers. McDonald’s Japan must reassure the market of its long-term potential and delivery profits soon.
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