McDonald’s Japan Growth Strategies

Today, McDonald’s Company (Japan), Ltd, the consolidated subsidiary of McDonald’s Holdings Company (Japan), Ltd. (head office: Shinjuku, Tokyo; president & chairman: Eikoh Harada) is going to announce ‘Japan McDonald’s Growth Strategies’ as follows.

Based on the QSC (trusted quality, speedy and friendly service, clean and comfortable environment), McDonald’s Company (Japan), Ltd (“the Company”) introduced various products and marketing strategies and deployed aggressive restaurant portfolios including strategic restaurant closures and restaurant development strategies centered on large-scale & drive-thru restaurants to enhance customer and corporate value.
However, business environment is increasingly turbulent due to IEO* market volume contraction and demand shift to HMR* market, and as a result, same-store sales for the consolidated 3^rd quarter dropped by 2.2% YoY. Amid such a situation, from 3^rd quarter this year the Company has been establishing long-term and highly profitable business base line and development of strategies to create further growth opportunities. Today, we would like to share the overview of our growth strategies.

＊IEO (Informal Eating Out: mainly applies to eating-out market excluding drink outlets & facilities for providing meals )
＊ HMR(Home Meal Replacement: mainly applies to foods prepared in a store and consumed at home)

The Company is going to focus its management resource to below areas:

• ■optimization of restaurant portfolio
• ■strengthen franchise business
• ■stronger marketing
• ■brand extension

Ongoing restaurant portfolio re-engineering is steadily yielding results, including restaurant development centered on large-scale & drive-thru restaurants, strategic closure of 433 restaurants, and relocation of 633 restaurants. Amid IEO market contraction the Company expanded its visit opportunity share, proving that our restaurant portfolio re-engineering is delivering positive results. Based on above, the Company is going to further optimize restaurant portfolios based on below 3 principles:

Comparison with other store type clearly indicates that Gold Standard drive-thru restaurant has the competitive edge. Stronger focus on opening of Gold Standard drive-thru should bring significant increase in sales & profitability and build a solid base line.

In FY2013, the Company will strategically close 110 restaurants, in addition to routine closures. Further, many of our restaurants are still limited in sales, unable to provide full-menus and cannot expect to deliver long-term growth. Therefore, in addition to the planned 110 closures in FY2013, the Company will carefully review shareholders value, market share, relationship with land owners and continue with strategic relocation & closures.

Possession of land & building and building (on leased land) at promising areas are opportunities for enhancing restaurant profitability. Based on Company comparison, possession of land & building brings additional profit of approximately 6% or 1% with building ownership. As you can see, opportunity to acquire high-quality real estates is not small at all.

The Company continues to implement aggressive franchising to enhance management efficiency and maximize investment at nationwide restaurants. We are going to speed up this process with a goal of reaching franchised restaurant ratio of 70% by the end of 2013. In addition, role of company-operated restaurants will be clarified to define best franchise ratio for stronger base line and execute franchising measures accordingly.

Analysis of sales structure revealed two types; one that generate profit and appropriately enhance product and brand value, and the other that yield temporary sales & profit but do not provide sustainable sales. Since the 3^rd quarter, the Company has already began shifting investments to primary measures namely ‘Value’, ‘Menu’, ‘Breakfast’ and ‘Convenience’ to build sustainable sales with healthy returns (= business base line).
VALUE: In addition to 100yen Mac, we will introduce the popular Nugget 15-pieces (started from 3^rd quarter) and implement actions such as‘McLunch’that contribute to weekdays lunch time sales to enhance overall‘value’perception.
MENU: Number of limited-time products will be optimized and balance with guest count capturing measures to achieve sales & profit growth. In addition, focus will be made on unique menus that only McDonald’s can offer, such as Big Mac, French Fries, Chicken McNuggets. Aggressive brand campaign and store-front promotions will be leveraged to enhance business base line.
BREAKFAST: Breakfast market will be positioned as strategic and primary investment target, and breakfast campaigns will be implemented throughout the year. Coffee Sampling has already begun from October 2012 and succeeded in capturing new customers (total of 3 million cups offered in 12 days).
CONVENIENCE: Convenience will be enhanced through Gold Standard drive-thrus mentioned earlier and the following brand extension.

In addition to the ongoing business structure re-engineering process, the Company is going to make full-scale deployment on‘MacDelivery Service’and‘McCafe by Barista’, as part of McDonald’s brand extension. MacDelivery test is being conducted from last year at restaurants, delivering strong results. Starting from 4th quarter this year, this service will be expanded mainly at metropolitan cities, followed by nationwide deployment. Test restaurants confirmed positive results from McCafe by Barista as well, and our plan is to launch a full-scale nationwide deployment mainly at suburb drive-thru restaurants.