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McDonald’s Japan to surpass 500 billion yen in sales for first time in 2008

Just a few years ago, things were looking grim for McDonald’s Japan. A nasty price war back in 2000 helped lead to the departure of Burger King from the Japanese market (though Burger King has been resurrected), but took its toll on McDonald’s ability to profit heavily from economies of scale.

The tables have turned. Yesterday, McDonald’s Japan announced that it expects sales at its 3,754 Japan locations to top 500 billion yen for the first time ever in 2008. This would make 2008 the fifth consecutive year in which McDonald’s sales have risen. November sales were reported to have been 14.4% higher than a year ago.

What has McDonald’s done? The firm embarked on a storm of “campaign” marketing with the conversion of thousands of shops to 24-hour eateries, rolling out the Mega Mac, its launching of higher quality coffee at 120 yen per cup, and the recent re-introduction of the Quarter Pounder to Japan (for more on the marketing campaign behind the Quarter Pounder, see Japan Marketing News).

Yes, Japan used mega model Yuri Ebihara as the poster child of the - ahem - Ebi Burger a few years back. However, it seems as though the sheer outrageousness of the Mega Mac, combined with the need for higher quality coffee at a lower price (Disclaimer: I haven’t actually tried it, I’m going on what I’ve been told) and the fact that customers are watching their wallets more closely as each month passes have combined to form a sort of perfect storm for McDonald’s.

This has translated into impressive share price growth for McDonald’s Japan, which traded at about 1,300 yen a share back in October and closed at 1,941 yesterday. However, that price is still off from its decade-high of 5,080 yen a share in July 2001.

The resurgence of McDonald’s in Japan fits in perfectly with the rise in sales in lower-priced goods over the past year. Sales of mini notebook computers are surging. Store brands such as Seven Premium and Aeon’s Topvalu have been seeing increases in sales (125% and 50%, respectively), as has clothing retailer Uniqlo. Just a couple of years ago I was told by one analyst that Uniqlo would slowly die off as it was a relic of Japan’s “lost decade,” and that Japanese people would no longer want to be associated with cheap clothing when the economy was surging ahead. Uniqlo announced 2.9% growth in sales for the year ending August 31, while Louis Vuitton has decided not to build a flagship store in Ginza. The tables have turned, at least for now.

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