McDonald’s Japan to close 131 stores
McDonald’s Japan will axe 131 stores, revamp its menu and refurbish 500 stores this year as it tries to reduce a projected US$319 million loss.
Listed McDonald’s Holdings Company (Japan) said it expects sales to fall by 14 per cent this calendar (and financial) year. Worse, it projects a loss of 38 billion yen (US$319 million) reflecting the ordinary loss and impairments. System-wide sales combine company sales and those of its franchisees.
The company says in the year ahead it will implement a Business Revitalization Plan aimed to “bring our customers visible points of change and become a Modern Burger Restaurant that Connects with Customers”.
The plan has four pillars: New customer focused initiatives, speeding up restaurant revitalisation, localising its business structure and improving cost and resource efficiency.
McDonald’s Japan outlined the four pillars in a statement:
- Customer Focused Initiatives
“We strive to bring more comfortable dining experience for our customers. Some immediate initiatives currently under trial and to be announced in the very near future include:
✧ New set menu that provide more customised choice and wider variety for our customers.
✧ New Happy Meal options.
✧ A new personalised digital loyalty program with relevant coupons.
✧ A mobile app which gathers real-time feedback from our customers.”
- Accelerate Restaurant Revitalisation
“We will further accelerate remodeling of existing restaurants to provide more modern, clean, inviting restaurants environment for our customers to enjoy their meals. Presently, only 25 per cent of our restaurants fit our vision of a Modern Burger Restaurant; we plan to remodel approximately 2000 restaurants aiming to have 90 per cent of our restaurants upgraded to modern within four years. In 2015, we are targeting to remodel approximately 500 restaurants located in food courts or shopping malls. In addition, we will close 131 underperforming restaurants this year that have no long-term growth potential, and will reallocate resources resulting from the strategic closures to invest in remodeling restaurants with greater growth potential.”
- Localise Our Business Structure
“Broad-scale national strategies, such as national marketing, menu development and operation system development, are defined as ‘Big M’, whereas the activities rooted in restaurants and/or local communities are defined as ‘Little M’. We will strengthen ‘Little M’ activities and operate our business in a manner more rooted in local communities and restaurants.
“In order to realise management from a position that is closer to our customers, we will introduce Regional Headquarters. We will reorganise McDonald’s Japan into three regions. Each region will have business functions such as marketing, HR and finance, and have full business execution responsibility for their region, which will enable each region to reduce the layers within organisation and to implement activities rooted in the local community and customers. Also, we will further strengthen Marketing activities to meet the demands of the local communities and customers.”
- Improve Cost and Resource Efficiency
“To concentrate our resources into investments for long-term business growth, we will effectively allocate our resources such as people and capital, and drastically transform our cost structure.
Accelerate Restaurant Revitalisation: New restaurant development will be very carefully selected and we are shifting our resource from new store openings to remodeling existing stores. We will prioritise remodeling of existing restaurants rather than new opening to offer great restaurant experiences and bring our customers visible points of change.
On the other hand, we will secure capital for investment through strategic closures. Strategic closures are expected to incur non-recurring cost of approximately 4 billion yen and improvement in profitability of about 2.4 billion yen (annualised).
Re-engineer our costs structure: To maximise the effect of the regional HQ structure, we will review and reprioritise the HQ functions and operations and will put the right people into the right jobs. This involves the offering of voluntary early retirement packages to approximately 100 permanent positions in our Tokyo HQ and the field.
We have identified more than 12 billion yen in cost saving potentials across food & paper, logistics and labor and we will promote cost optimisation.
Financial support to franchise owners: We will continue to provide financial support to franchise owners this year to offer continuous great restaurant experiences to all of our customers.
Borrowing facilities: To secure capital required to execute our Business Revitalization Plan, we have increased borrowing facilities and borrowed 22 billion yen.
McDonald’s Japan said the board accepts responsibility for recent results and the disappointing forecast, so will reduce the pay of its board and senior executives by between 10 and 20 per cent.
“We expect to post a huge loss for FY2015 impacted by non-recurring one-time cost and investments associated with the above-mentioned Business Revitalization Plan. However, by executing this Business Revitalization Plan, we expect to return to profitability in FY2016.”