McDonald’s is making significant strategic changes in Japan where the chain sees a shift in consumer dining toward in-home dining. As a result, it plans a national rollout of home delivery service as well as expansion of McCafé in its second-largest market.
McDonald’s Holdings Company (Japan), Ltd., an affiliate company 50% owned by McDonald’s Corp., announced a 2.2% year-over-year drop in same-store sales for the third quarter, although comparable guest counts were up 2.9%. The company attributed the sales decline to an “increasingly turbulent” business environment “due to IEO [Informal Eating Out] market volume contraction and demand shift to HMR [Home Meal Replacement] market.”
McDonald’s Japan says it will refocus attention on four areas, one of which is “brand extension.” This includes “full-scale deployment” of both “McDelivery” service and the “McCafé by Barista” menu. Delivery has been testing for the last year and has delivered strong results, the company says. During the current quarter, delivery is being expanded to additional cities, and will be followed by national deployment in 2013.
The rollout of delivery could provide McDonald’s with insights that could be applied elsewhere, including the U.S. Burger King recently announced it is offering delivery is selected boroughs of New York City as well as in several other cities.
McCafé also has tested well. McDonald’s Japan says its “plan is to launch a full-scale nationwide deployment mainly at suburb drive-thru restaurants.”
As part of the “optimization of restaurant portfolio” focus, McDonald’s Japan says it will “strategically close” 110 of its more than 3,000 restaurants, in addition to “routine closures.” The company says it already has closed 433 and relocated 633 more as part of an “ongoing restaurant portfolio re-engineering” program that also includes opening new high-volume “Gold Standard” drive-thru restaurants.
McDonald’s Japan says it will pursue two types of marketing strategies: “one that generate profit and appropriately enhance product and brand value, and the other that yield temporary sales and profit but do not provide sustainable sales.” In part, this means focusing on value-priced items such as 15-piece Chicken McNuggets and value-priced “McLunch” offerings.
Other menu strategies include optimizing the number of limited-time offer promotions while shifting focus to “unique menus that only McDonald’s can offer,” such as the Big Mac and Chicken McNuggets. McDonald’s breakfast menu gets classified as a “primary investment” target and will get additional marketing and advertising support, including coffee-sampling promotions.
The last of the four new strategic pillars involves increased franchising as McDonald’s Japan moves toward its goal of being 70% franchised by the end of 2013.