How chocolate fries and Pikachu turned around McDonald's Japan

McDonald’s Japan took a series of hits starting in 2014 that threatened to crack its Golden Arches: a supplier was selling expired chicken, a human tooth was found in french fries and a child was injured by a plastic shard inside a sundae.

Sales plummeted to their lowest since the company went public in 2001, and the chain closed hundreds of restaurants. McDonald’s Corp in the US said it was considering selling its 49.9 per cent stake in the Japanese company as losses piled up.

“I remember thinking at that time: ‘McDonald’s is over,”’ said Ichiro Fujita, a Torrance, California-based consultant who helps bring foreign restaurant brands to Japan. “A lot of people even said they might need to change the name because the image was so bad.”

Yet CEO Sarah Casanova decided to counterpunch. A company lifer who took over McDonald’s Holdings Japan in 2014 with little command of Japanese, Casanova visited all of the country’s 47 prefectures to assure diners — especially mothers — that her company was implementing safeguards, and to ask them what they wanted from McDonald’s.

“It made us go out and listen to customers,” Casanova, 52, said of the crisis. “We were not doing a great job of giving them what they wanted.”
 

Armed with their feedback, Casanova revamped the menu to add local flavours like the pork-and-ginger “Yakki Burger” and quirky headline-grabbing items like chocolate-covered fries. She gave many outlets a facelift and forged a partnership featuring Pokemon characters. She cut off the troubled Chinese chicken supplier and introduced measures so parents could trace where their children’s meals were coming from.

Since then, the shine has returned to the arches. McDonald’s Japan stock closed at an all-time high September 11 as part of a 62 per cent increase this year. Shares dropped 1.1 per cent Friday in Tokyo.

Meanwhile, same-store sales climbed for the 21st consecutive month in August, and the company raised its full-year profit outlook twice.

For the first time since 2012, it’s opening more stores in Japan than it’s closing during a six-month period. The local company is the largest overseas footprint for Oak Brook, Illinois-based McDonald’s, with about 2,900 stores in Japan.

“They focused on the foundations — renewing stores, changing its menu and listening to the voices of moms,” said Seiichiro Samejima, a Tokyo-based analyst at Ichiyoshi Research Institute. “It wasn’t a sudden turnaround, but something done step by step.”

What makes the turnaround all the more remarkable is that it was driven by one of the few female — and foreign — chief executives in Japan. Between 2004 and 2016, only three women were among the 456 CEOs appointed by Japan’s largest corporations, according to a study of 2,500 global public companies by PwC’s Strategy&. That’s less than one-tenth of 1 per cent.

Globally, 117 women were among the 3,790 new CEOs during that period — a total of 3.1 per cent.

Prime Minister Shinzo Abe’s government has pinpointed the lack of female managers as a key economic issue as Japan tries to compensate for a shrinking workforce. “You rarely see foreign females in managerial positions at Japanese corporations, much less at the helm,” said Kathy Matsui, chief Japan strategist at Goldman Sachs Group Inc. “That’s a good signal to Japanese society that women can do it, even foreign women that don’t speak fluent Japanese.”

The currents were flowing against Casanova even before the scandals. When she took over McDonald’s Japan, the business was already troubled. Annual revenue was in a freefall since 2009, and would continue dropping through 2015. Same-store sales were declining, and annual operating profit hadn’t grown since 2011. “If there’s one thing I’ve learned in all the different countries I’ve worked in: never presume to know what a customer wants,” she said at her office in Tokyo.