McDonald’s Japan: One Chain’s Recovery From Stagnant Sales

By Takayuki Fujiyoshi, NPD Director, NPD JapanCREST

After a period of flat sales, McDonald’s Japan – the largest restaurant chain operator in Japan – has entered a stage of growth. The chain experienced deficits in 2002 and 2003; however, in 2004, it enjoyed a surplus for the first time since 2001. These gains resulted from a strong sales recovery, with five consecutive quarters of year-over-year same-store sales growth. How did McDonald’s Japan achieve this remarkable recovery?

At the start of 2004, McDonald’s Japan appointed a new CEO: Eikoh Harada, former CEO of Apple Computer Japan. Harada set about rebuilding McDonald’s brand equity to put the company’s chain store sales back on course. His strategy was to identify new areas of growth for the company. In particular, McDonald’s Japan focused on the “midnight market” of business after 9:00 p.m. Harada believed this would increase customers’ opportunity to visit McDonald’s stores (some locations had already extended hours in this way), thereby enhancing the value of McDonald’s to them. As a result, in 2004 most of McDonald’s restaurants in Japan extended their business hours, closing at 11:00 p.m. instead of 9:00 p.m.

In Japan, convenience store chains such as Seven-Eleven, Family Mart and Lawson had already embarked on developing the midnight market to attract young customers. In fact, convenience stores had dominated Japan’s midnight market for years. By extending its store hours, McDonald’s challenged c-stores’ domination of this daypart. NPD Japan’s UTIL CREST data shows McDonald’s share in the QSR segment during the 9:00 – 11:00 p.m. daypart increased from 1.9% in 2003 to 3.9% in 2004.

After securing its position in the midnight market, McDonald’s sought its next opportunity to grow sales. Since March 2005, McDonald’s Japan has focused on the early morning market, opening 1,800 stores (about 50% of total McDonald’s locations in Japan) a half-hour earlier. This move from opening between 7:00 and 9:00 a.m. to opening at 6:30 a.m. may help McDonald’s capture a greater share of the early morning market, just as extended nighttime hours did for the chain. A new morning menu marketed with heavy television advertising in Japan is also part of the strategy. As with the midnight market, McDonald’s aims to compete with the convenience store channel, which has long been an early-morning stronghold.

NPD’s ability to monitor the impact of McDonald’s changing hours stems from its UTIL CREST service, part of JapanCREST Ltd. UTIL CREST is a consumer panel service in Japan, tracking the foodservice market. It allows food and beverage operators to assess the total foodservice market, category share, major chain share, user demographics, customer satisfaction and more.

To find out more about UTIL CREST, please contact Takayuki Fujiyoshi at +81-3-5350-7684 or e-mail takayuki_fujiyoshi@npd.com.