Hamburger chains are shifting away from low-price strategies after cheap burgers failed to lure back customers following the outbreak of mad cow disease 1 1/2 years ago.
McDonald’s and Lotteria have started jazzing up their outlets along the lines of cafes such as Starbucks. The two chains are also developing “quality” hamburgers, effectively following the strategy of Mos Burger.
In August 2002, McDonald’s Holdings Co. (Japan) Ltd. slashed the price of its regular hamburger to an all-time low of 59 yen. The move failed to stem the decline in same-store sales, which led to Japan’s largest burger chain posting its first net loss in 29 years.
In a bid to return to profitability, McDonald’s launched several projects earlier this year, including a 10 billion yen face lift of 300 of its 3,900 outlets.
A store in Oji, in Tokyo’s Kita Ward, was renovated in December as a test case, and McDonald’s officials said sales at the outlet have since grown.
Other than the standard menu board and uniforms, the refurbished McDonald’s looks more like an upmarket cafe. The chain said the move was mainly designed to win back young adults, a core demographic that has been steadily siphoned off by Starbucks and other espresso bars.
The renovation also targets children. The basement floor at the Oji outlet was turned into a children’s playing space and is off-limits to everyone but parents and their kids.
The hope is to bring back families, many of whom have been turned off by fast-food restaurants that noisy high school squatters have converted into cheap hangouts.
“When I am with my family, I would not dare go to McDonald’s,” said Aya Daijima, 30-year-old mother of a 1-year-old boy, after buying a take-out lunch at a McDonald’s in Tokyo’s Shinagawa Ward.
The chain is also spending 15 billion yen to implement a cook-to-order system at all outlets by the end of 2005.
Under the new system, food will finish cooking and be served within 90 seconds of an order being placed — the same time frame required for the ready-made method.
And while McDonald’s will keep its 59 yen hamburger on the menu, it has also been test-marketing some pricier alternatives, including a 350 yen Double Cheese Quarter Pounder, at some outlets in Tokyo.
“There are customers who are moved only by prices, and there are those who demand other things, such as food safety or quick service,” McDonald’s spokesman Kenji Kaniya said.
Lotteria Co., which operates 648 outlets, has a more radical strategy.
It has already dropped all discount items from the menu, and on Thursday it begins a new campaign touting upmarket burgers.
Often considered a follower of McDonald’s, Lotteria said it hopes to reposition itself as a quality burger chain by focusing on working women in their 20s and 30s.
One of its new “gourmet” products is a revamp of its shrimp sandwich — the chain’s most popular item — into the New Ebi Burger.
Priced at 260 yen, the burger features a rye bun — reportedly 1.5 times thicker than its sandwich predecessor — and more shrimp in its patty. Lotteria said it will release other new products at similar prices.
“We have been too eager to please everyone, and we missed our target in the process,” said Hiroshi Ishiguro, an official of Lotteria’s products planning section.
The concept of a quality hamburger is nothing new. Mos Food Services Inc., the operator of 1,500 Mos Burger outlets, has long stood out in Japan’s hamburger industry by taking this approach.
Mos stores usually keep customers waiting for at least five minutes because they do not begin cooking until after an order is taken.
Mos said its hamburgers are designed to suit the Japanese palate, using, for example, miso bean paste in its meat sauce.
Rivals also reportedly envy the chain’s healthy image among young consumers.
“I usually go to McDonald’s because it’s cheap,” said Toshihiro Suwa, a 20-year-old college student in Tokyo. “But if the prices were the same, I would go to Mos, because they use a lot of vegetables.”
But quality cannot beat deflation.
Mos expects same-store sales for the year through March to fall 2 percent from the previous year.
“As their disposable income is shrinking, consumers are cutting back on eating out in general, and the mad cow scare is still hurting the hamburger chains,” said Yasuo Yaezawa, a Mos Food Services spokesman. “We have not been able to present items that can compel consumers to spend money despite these concerns.”
Seiichiro Samejima, a food-sector analyst at Ichiyoshi Research Institute Inc., said Japanese are tired of typical hamburgers, especially those of McDonald’s.
The popularity of McDonald’s Cheese Katsu Burger, which was sold during a promotion earlier this year, proves customers are hungry for new items, he said.
“In the past, restaurants — including hamburger chains — could bring in customers with even the most average of menus,” he said. “But this is no longer the case because the industry is suffering from overcapacity.”
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