McDonald's Japan may miss H1 earnings target-paper

Reviewed by Hitoshi URABE

Article:
"McDonald's Japan may miss H1 earnings target-paper"
Forbes
http://www.forbes.com/markets/newswire/2003/06/18/rtr1004601.html

Comments:

McDonald's shops are a part of Japan's scenery in cities and suburbs, and their hamburgers have won the position to be a staple food for significant portion of Japan's population.

In 1996, the price of McDonald's hamburger was lowered to 80 yen from 120 yen to celebrate their 25th year in Japan, for a limited period. Sales increased dramatically during the special-price period, and soon after the period was over, they came up with the pricing scheme where a hamburger is priced at 65 yen on weekdays and double that, 130 yen, on weekends. This invited mixed responses. While for many young workers it was a lifesaver as Japan was already in recession and their salaries were depressed, it was not well received by parents who must take their kids to Mac on weekends. It was not necessarily the price level itself that dispirited the parents, but the attitude of the company which seemed to be taking advantage of them by taking their kids hostage.

It did, however, make the competitors rethink their strategies, among which was Burgerking, leading to the eventual retreat of this latecomer into the Japanese market planning to expand their network in the land at the time. Other hamburger shops also changed their strategies in one way or another, to avoid confronting McDonald's in a price war.

Then last year, in August of 2002, they lowered again the price of their hamburger to 59 yen (50 cents US) and that for everyday, including weekends. At first it brought in a lot of customers and a surge in sales. But the initial euphoria faded as the skepticism, already implanted in people's minds during the previous phase, began to grow. It was pretty obvious, even for naive parents and teenagers, that 59 yen would not pay for the hamburger they eat. Accordingly, people assumed that there must be a trick in the pricing scheme, or a skewed price list which would enable the company to make money. This has resulted in apathy among people, and an erosion of the brand image had begun.

Finally recognizing the situation, McDonald's has recently announced, among other measures, to change their pricing policy. They are going to raise the price of a hamburger to 80 yen next month.

Incidentally, they are also raising, or restoring, the price of a Big Mac, from 199 yen to 250 yen next month which could have a larger impact on world economy, as it would affect the Big Mac Index announced by the prestigious Economist magazine, intended to visualize the ppp (purchasing power parity) theory on foreign exchange rate fluctuations.

There are some in Japan who denounce McDonald's from nutritional as well as cultural point of view. But it is a fact that most, if not all, kids simply adore McDonald's to the extent their parents just cannot simply ignore it. For good or bad, McDonald's has become a part of Japanese culture.