Restructuring / Turnaround Strategies Case Study

McDonald's in Japan: From loss to Recovery

Abstract:

McDonald's hamburgers had been part of the Japanese food cycle for 35 years. They accounted for about 65% of the domestic hamburger market and boasted the highest sales in the entire restaurant industry. McDonald’s, after experiencing a bad phase in 2005, witnessed a robust growth in Japan during the second quarter of 2006. Annual sales had grown by 8.5% to US$ 2.8 billion, the same-store sales by 10.2 % and per-customer spending by 8 %.

In 2002, McDonald’s experienced its first loss in 29 years, mainly due to strategic mistakes on the part of the management. Fear of the outbreak of mad cow disease in Asia and deflation in Japan were some of the reasons for the poor performance of the company. McDonald’s had to close down stores which were not making profits. In 2005 it introduced the strategy of the low-priced menu in order to attract customers and increase sales. Even though this strategy yielded an increased customer base, it did not result in more profits. Net profits were down by 98%. It remained to be seen whether McDonald’s under Eikoh Harada, President and Chief Executive Officer, would increase sales and sustain adequate growth.

The case allows discussion on how a company made a turnaround successfully from loss to recovery. It also analyses the strategies adopted by McDonald’s in Japan to increase revenue turnover.

Pedagogical Objectives:

• To introduce to the students McDonald’s operations in Japan
• To throw light on the strategies followed by McDonald’s to introduce western fast food culture in Japan
• To give an idea about the fast food industry in Japan
• To list the various challenges faced by McDonald’s in Japan
• To detail the strategy used by McDonald’s to face the challenges.

Keywords : McDonald’s; Retailing in Japan; Retail Chain; Fast food stores; Franchise; Restructuring / Turnaround Strategies Case Study; Branding; Makeover; Brand attributes Low price Strategy; Store Revamping; Brand Equity Target customer; Retailing