McDonald’s has dropped plans to sell a stake in its resurgent Japanese business, following an improvement in its financial outlook.
Operating profit in its local subsidiary, McDonald’s Holdings Co Japan, is expected to grow to ¥9 billion ($80.8 million) in 2017 and return to growth for the first time in three years.
The company has “made the decision to not proceed with the transaction at this time,” McDonald’s chief finance officer Kevin M Ozan told investors, as quoted by Reuters. “We believe the market is poised to maintain its strong momentum.”
The development suggests that the market has now recovered from low consumer confidence, weakened by a number of food scandals.
Japan was one of several ‘foundational markets’ to contribute to a 10.7% increase in comparable first-quarter sales, with double-digit comparable sales on top of double-digit performance in the first quarter of 2016. Footfall improved, and Ozan said that the company is now ‘confident that it has the right capabilities and customer-focused plans to grow our business in Japan’.
Analysis: McDonald’s back in business in Japan
Last year, Yum! Brands spun off its Chinese business in an effort to capture further growth and drive value on its own. Until this week, it had seemed as though McDonald’s might do something similar with its Japanese business, having harboured plans for some time to sell all or part of its local subsidiary. But that tactic has been abandoned, now that McDonald’s Japan has returned to growth.
The main thing is that the country appears to have regained confidence after being impacted by a comprehensive food safety scandal. A local supplier had provided out-of-date meat to chains like McDonalds, KFC and Burger King – first in China and then, it emerged, in Japan. So the $80 million that McDonald’s is forecast to make this year is a far cry from the $180 million loss that it made in 2014, at the outbreak of the scandal and a repetitional low-point for the industry.
McDonald’s has been gradually tempting consumers back into their stores through innovative new menu items that combine sweet with savoury: first with French fries topped with chocolate, then with a vanilla ice cream sundae made using sweet potatoes. The products appealed to Japanese consumers, who have traditionally been far more adventurous with their food choices than Western consumers.
The decision to retain its Japanese operations follows the announcement of a new ‘long-term global growth plan’, presented by McDonald’s CEO Steve Easterbrook at the start of the month. The plans revolve around enhancing its digital capabilities and use of technology, establishing new financial targets across multiple areas of its business, and redefining the customer experience through the development of new food delivery services.
Yesterday, McDonald’s announced that it would trial a food delivery partnership with Uber in the UK.
“We are building a better McDonald’s, one that makes delicious feel-good moments easy for everyone,” Easterbrook said, “and I believe the moves we are making will reassert McDonald’s as the global leader in the informal eating out category.”
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