Wendy's (WEN) will close all of its 71 restaurants in Japan by the end of the month, the chain's Japanese franchisee, Zensho Co. Ltd., announced on Friday. The news arrived just a matter of days after rival McDonald's (MCD) reported that sales in Japan were so poor in November that they offset strong results in Australia and helped weigh the entire Asian region's performance down during the month.
The unexpected Wendy's closings come despite the franchisee's profitable fiscal year, which ended in March 2009, and sales of 6.2 billion yen ($70 million) at its Wendy's restaurants. Zensho, which bought the country's franchises from supermarket chain Daiei in 2002, merely said it was making the move because it needed to focus on its other interests, chiefly the Sukiya beef bowl chain.
According to the Wall Street Journal, McDonald's has been succeeding with a 100-yen "one coin" promotion in Japan that is similar to its dollar-menu deal in the U.S., and has historically been so strong that rival Burger King lost a bitter price war in 2001 and pulled out. In 2007, Burger King came back, and now has 16 outlets in the country.
Yet, the surprising announcement about Wendy's in Japan leads me to suspect that profits and sales in the past month or two have slipped so sharply that Zensho may be pessimistic about the continued success for Americanized fast food in the country.
The messages about imported fast food in Japan are so mixed, and Japanese franchise owners so tight-lipped, it's tough to divine the reason for this precipitous decline. Newsweek columnist Daniel Gross, on a visit to Tokyo this summer, identified American food brands as a bright spot of fondness in a sea of cultural snobbery. His evidence, however, was based on the observations of only a week in the country. Another U.S. cultural pundit posited in August that a growing backlash against Western fast food was part of a crisis of self-confidence in Japan, and an active dislike of Americans among young people.
Some Japanese are suspicious of foreign goods, perhaps because the country's agricultural imports make up 60% of its caloric consumption as of 2008; data from October indicates this trend is only increasing. This isn't working for the country, says the BBC: Japan is in the nadir of a "food crisis," leading the Japanese government to begin actively promoting the health of a traditional diet based on fish and rice in 2007.
Making things more difficult for America's fast food mainstays is the country's famous entrepreneurial spirit, which has lead to the rise of many local burger chains, each with a special gimmick that must have locals yawning over Wendy's square, square burgers and dull beige drinks. Zetsumyo Hamburger, for instance, gives customers individual cubicles in which to eat and advertises a money-back guarantee; Mos Burger and Freshness Burger both serve a messy, meaty sloppy joe-like sauce on their burgers.
In Japan, perhaps, even the fast food must have its eccentric Japanese style. Wendy's wasn't delivering well enough. With both McDonald's and Burger King faltering and the Japanese bureaucrats and pundits calling for a return to traditional rice and fish, I suspect Zensho is the sort of company that knows when to fold 'em.
What's your investing game plan?View Course »