CONSUMERS SPENDING FOR QUALITY

Burger King stages return under new management, realities

by Kaho Shimizu

Six years after withdrawing from the Japanese market, American fast-food chain Burger King is back, bringing with it the concept of a premium big hamburger in hopes of winning over consumers bored with typical fare.

Burger King will kick off its re-entry Friday at a new outlet in Shinjuku Ward, Tokyo. The second is scheduled to open June 22 in Ikebukuro, Toshima Ward, followed by six more in and around the capital by the end of next March.

Burger King Corp., based in Florida, first came to Japan in 1996 and operated about 25 outlets in the Tokyo area before it was forced to pull out in 2001 after losing a price war with McDonald’s and other fast-food chains.

Things are different now, Burger King Japan Co. President Shinichi Kasa said.

“At that time, price was the only factor for consumers in choosing a product,” he said, adding that Burger King, whose core products are the large, high-priced Whopper burgers, couldn’t match the needs of the time.

“Now, times have changed, with consumers shifting from ‘cheap is better’ to a willingness to spend money for good quality products,” said Kasa, who worked for McDonald’s Co. (Japan) for nearly 30 years in a variety of key positions.

Burger King Japan is a joint venture between confectioner Lotte Co. and management consulting firm Revamp Corp. and has an exclusive franchising contract to develop the hamburger chain here.

Kasa said Burger King hopes to attract people in their 20s to 50s who love thick burgers, adding that the Whopper still enjoys a deep-rooted loyalty among some people.

The Whopper features a flame-grilled beef patty measuring 13 cm in diameter and weighing 113 grams. According to Burger King Japan, it is 2.5 times heavier than the one used by McDonald’s.

For those who want an even bigger burger, there will be the Double Whopper, which has two patties — or more for an additional fee if that’s what the customer wants.

The regular Whopper will be priced at 370 yen while the Double Whopper will go for 520 yen. The standard set menu will be around 700 yen, compared with about 500 yen at McDonald’s and 600 yen to 700 yen at the MOS Burger chain.

For the Japanese market, Burger King will also offer a Whopper Teriyaki burger.

Priced at 390 yen, it will be one of only a few original items developed locally in time for the opening of the first outlet.

Burger King, which operates hamburger restaurants in more than 65 countries, teamed up with Japan Tobacco Inc. and Seibu Railway Co. when it made its first foray into Japan.

At that time, the Whopper was priced at 350 yen and the Whopper with cheese cost 390 yen, both 20 yen less than what they’ll go for this time around.

In the first go-around, set meals featuring the leading products ranged from 650 yen to 690 yen, according to JT.

The economy is currently on an upswing and consumer tastes may be a bit different, but some experts believe these factors alone won’t guarantee Burger King’s success.

Because it is tying up with different partners this time, Burger King Japan has little detailed information about what went wrong in the past, leaving the joint venture unable to analyze why it was forced to pull out.

“Burger King is sure to have a tough time,” said Seiichiro Samejima, a food-sector analyst at Ichiyoshi Research Institute Inc., citing intensifying competition among hamburger chains.

“McDonald’s is taking an all-around approach to increase the number of customers,” while MOS Burger and Lotteria are trying various measures to win back those who have drifted away, Samejima said.

McDonald’s Co. (Japan) Ltd., which launched a 100 yen campaign in April 2005 by offering small drinks, cheese burgers and chicken burgers for 100 yen each, succeeded in boosting customer numbers but suffered a double-digit drop in profits in the 2005 business year.

While keeping those items at 100 yen, the nation’s biggest hamburger chain raised prices in May 2006 by 10 yen to 50 yen on 60 percent of its entire product line in an effort to boost profitability.

The price hikes resulted in a drop in customers for the next three months, but since then the number has been rising.

“We didn’t lose customers because we” implemented various measures to meet diversifying customer demand, McDonald’s spokesman Kenji Kaniya said.

One example he cited was implementing a cook-to-order system at almost all of its 3,800 outlets, which cost McDonald’s nearly 15 billion yen. With the system, the chain can provide customers with burgers and other items fresh from the stove in 35 to 50 seconds after the order is placed.

Popular temporary items also attracted customers at McDonald’s, including the Mega-Mac, four-patty burger. When it debuted in January, 3.32 million — nearly double the initial target — were sold in four days, outstripping demand. For a while, outlets’ Mega-Mac ads carried a notice that the burgers were not available, until the stock shortage was rectified.

The 350 yen Mega-Mac was offered between Jan. 12 and March 14 on a limited daily basis.

McDonald’s plans to offer the Mega-Teriyaki from Friday until July 19. It will have two teriyaki pork patties and will be priced at 330 yen.

McDonald’s said there is no plan to put the Mega-Mac on the regular menu, but did not deny the possibility.

Kaniya said McDonald’s now has 1,200 outlets, mostly with drive-throughs, that operate round the clock. The total was 25 just a year ago, and the move has been highly popular, he said.

Meanwhile, Lotteria Co., which operates roughly 600 outlets, is trying to turn itself around.

“Many people are familiar with the Lotteria brand,” but there has been nothing particularly distinctive about its shops or products, Lotteria President Shingo Shinozaki said.

Lotteria refurbished more than 200 outlets last year, introduced new flagship products based on the Straight Burger in May 2006 and launched five new dessert items in March that use Lotte ice cream and chocolate.

Lotteria is a group company of confectioner Lotte and is under rehabilitation with the help of Revamp, both of which run Burger King Japan.

“To make customers better aware of Lotteria’s origins as an affiliate of Lotte, we thought providing good desserts will allow us to differentiate ourselves,” said Shinozaki, who came from Revamp in January 2006.

MOS Food Services Inc., which operates 1,461 outlets nationwide, is also trying various measures to rev up business.

To counter falling sales, MOS began offering discount coupons in April for the first time in its 35-year history, while launching its first campaign in June to reward customers who collect stamps with free burgers and gifts.

Offering discounts is a turning point for MOS, which targets high-end customers with the average price of its set meals standing at 700 yen.

“We are losing customers . . . we have to try whatever we can” to win them back, MOS President Atsushi Sakurada told a news conference in April.

To survive the already intensifying competition, Burger King will have to work hard to attract people who do not have a particular favorite hamburger shop.

“I go to burger joints probably once a month,” said Hiroshi Kawahata, after buying a take-out lunch at a McDonald’s near Burger King’s new outlet in Shinjuku.

Kawahata, a 35-year-old company employee, said he usually has lunch at eateries other than hamburger chains.

“Maybe I will go to the new Burger King if it’s close to my office, maybe not,” he said.