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Business

McDonald's not feeling the love in Japan as public loses appetite

TOKYO -- McDonald's decision to consider selling a chunk of its stake in McDonald's Holdings Co. (Japan) stems from concern about dim prospects for recovery from a protracted slump and a shift that has cost Japan its central role in the U.S. fast-food giant's plans.

     The holding company was established in 1971 as McDonald's Japan, a 50-50 joint venture between McDonald's and Fujita & Co., a trading company run by Den Fujita. An aggressive store-opening strategy spread the chain's convenient hamburgers throughout the country. Customers flocked to the company's low-priced offerings around 2000, when the economy was mired in deflation.

     McDonald's Japan listed on the Jasdaq market in 2001. The Fujita family sold nearly all of its shares by 2005, while the American parent continued to hold a roughly 50% stake.

     Same-store sales began slumping around 2012 amid escalating competition with other budget restaurants and with convenience stores. The problem was compounded by reports in July 2014 that the company had used expired chicken, as well as by contamination of food with foreign objects in January 2015. All-store sales have tumbled 30% from a peak five years ago. The U.S. parent apparently saw a need for restructuring with outside money and expertise.

     McDonald's itself has struggled in recent years as consumers worldwide have drifted away. CEO Steve Easterbrook, who took office in March, has changed the company's global organizational structure. The old geographical market groupings were reworked this July into four new categories: the U.S., international lead markets expected to drive growth, high-growth markets, and foundational markets.

     Japan has been categorized as a foundational market contributing relatively little to overall profit, putting it among around 80 countries and regions in such areas as the Middle East, India and Latin America. Operations in many of these markets are run by local businesses that pay royalties to the American company. In Japan's case, McDonald's likely determined that the market has little bearing on group earnings despite the high number of stores.

(Nikkei)

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