Country Risk Analysis Business Venture

Country Risk Analysis Business Venture

McDonald's Japan: Market risks

Ps -- Product, Promotion, Pricing, Placement

Distribution/supply chain

Regarding its product, McDonald's in Japan has sold itself upon its reputation for cheap beef and tried to convert Japanese consumers to eating hamburgers as a fun slice of Americana encased in a sesame seed bun. But fears about the safety of beef deterred many Japanese customers. "The Japanese partnership with the U.S. chain, which operates about 3,700 burger stores, ran into trouble in recent years after a mad-cow disease scare, which began in 2001 and drove Japanese away from beef, although McDonald's uses only Australian beef unaffected by the brain-wasting disease. ("McDonald's Japan to re-vamp stores, images, 2005, Fox News)

Also, McDonald's is a value-priced product. "Customers have only walked under the golden arches because the food is so cheap. The margins, therefore, have been driven cripplingly low. High turnover and financial losses are a doom-laden combination anywhere in the world, but particularly in Japan where the cost of expansion has been so great," and "Rather than an astute player of Japan's precipitous deflationary curve, they say, McDonald's is emerging as its first major victim...At one stage late last year, [in 2003] McDonald's storefronts became a live-action portrait of Japan's deflation" as the prices of burgers visibly dropped from morning to night (Lewis 2003:1). McDonald's trendy promotional image was hurt when "postings announcing dramatic new price-cuts were hastily plastered in place before the customers' very eyes...deflation has started to write the ultimate symbol of globalization [Ronald McDonald] out of the script in one of its most critical markets [Japan]. Once McDonald's loses a significant price advantage, it has little to offer a market now" dominated by other value chains, hurting its placement at the bottom tier of the price index (Lewis 2003:2).

Social/cultural risks

At first, McDonald's in Japan had to cultivate a Japanese appetite for its primary product of hamburgers. Many older Japanese, like Takashi Iwata, a retired plumber from Machida, said that they preferred both the taste of traditional Japanese products, and why, regarding price: "should I go to McDonald's to eat, when I can spend just a little bit more and have a lovely plate of fresh sushi in a nice restaurant?" (Lewis 2003:2). Even amongst younger Japanese, food fashions are famously fickle, and the infatuation with this slice of Americana has begun to die as Starbucks and other American chains became ubiquitous and threatened McDonald's promotion of itself as a uniquely American chain and also its market placement, as other discount food take-out chains threatened its placement.

In 2005 "The bagel with cheese, lettuce and tomato" became part of a new Japanese breakfast menu. "Fish sandwiches, juice and salad were also added for a healthier overall menu" image ("McDonald's Japan to re-vamp stores, images," 2005, Fox News). But rather than cater to healthy tastes, to distinguish itself in the Japanese market, McDonald's has found it more effective in 2007 to instead promote specials like the "Mega Mac, a hamburger with four patties," which "was originally to be a limited time offer," but the fast food chain decided to extend the promotion in order to meet the increased demand for Japanese wishing to sample how 'Americans really eat' -- even though ironically the burger is much more caloric and high in cholesterol than anything McDonald's in America offers to American consumers ("McDonald's extends Mega Mac campaign to meet demand," 2007, Japan, Inc.).

Cyber/technology

When McDonald's had lost its social cache during its low point in 2003, it was increasingly the designees of solitary diners who preferred to look at their cell phones or laptops than chat. Such diners bring in less revenue, price-wise, and often consume smaller, less pricy products (Lewis 2003:2-3). The image of solitary diners also hurts the company's promotional image of family wholesomeness, and positioning as a trendy, fun place to eat out -- especially important in Japan. However, the ability of users to surf the Internet and learn about new promotional offers and ways of eating at different McDonald's around the world has generated interest in the Mega Mac