Business / Corporate

Wendy's Japan chief hopes First Kitchen tie-up is recipe for success

by Kazuaki Nagata

Staff Writer

When U.S.-based hamburger chain Wendy’s came back to Japan in December 2011, it aimed to increase the number of outlets to 100 in five years.

But now, over three years later, Wendy’s has just two outlets open here.

Wendy’s Japan chief Ernest M. Higa admits that things have not turned out as planned, since it has been difficult to secure prime locations in cities. But he stressed that the company has been learning the Japanese market and is still looking to expand with a concept of “fast casual” — meaning a more upscale dining experience than regular fast food.

To survive competition as more rivals head here, Wendy’s is now teaming up with First Kitchen, another Japanese fast food chain, to combine the two brands at the same outlets, an experiment that Wendy’s says has been working well so far.

“My biggest barrier to get enough stores was really getting good locations,” Higa, head of Wendy’s Japan and Higa Industries Co., said in a recent interview.

“I believe that in the last few years, I’ve been able to adopt the concept more and more so for Japan . . . I’ve been able to increase the sales in this deflation environment,” he said.

Back in the 1980s, Tokyo-based Higa Industries introduced Domino’s Pizza from the U.S. and grew the pizza delivery culture in Japan. That experience is apparently what attracted Wendy’s when the firm wanted to re-enter the Japanese market.

Higa said he was initially hesitant when the firm asked him to run the chain.

“I thought it was a very difficult concept because McDonald’s is such a dominant player here in this market,” he said. Wendy’s was run by Zensho Holdings Co., operator of beef bowl chain Sukiya, before the burger chain withdrew from the market in 2009.

But Higa, being an entrepreneur, looked at the offer to bring back the chain to Japan as a challenge and also saw some potential.

The U.S. restaurant industry has been seeing two trends, he says.

One is the fast casual trend, which he says is made up of eateries that are a little more expensive than fast food chains but where people can eat more casually than in restaurants.

The other trend involves gourmet hamburgers, which are becoming more popular in the U.S., he said.

These trends had not come to Japan yet in 2011, but Higa thought they would eventually arrive.

“If I could combine these two concepts and re-brand Wendy’s when I bring it back not as a fast food hamburger chain but as a fast food casual gourmet hamburger chain, then there is a possibility to develop a new niche (market),” Higa said, adding that his strategy is not to compete with the pricing of fast food chains.

That is why, when Wendy’s re-entered Japan, it offered menus like burgers with truffle and foie gras. Some of the burgers currently sold at the stores are priced at over ¥600.

Yet one unexpected challenge for Higa has been to find profitable locations to open stores.

When he was running Domino’s, he didn’t have to have stores located in prime spots because it was a delivery service, he said.

Plus, he has to compete not only with other fast food chains but also with convenience stores and drug stores for locations with high pedestrian traffic.

One possible solution that Higa came up with was to jointly run stores with First Kitchen, a burger chain operated by Suntory.

Suntory has about 130 First Kitchen stores nationwide, including in busy locations in cities.

The two firms opened a joint store in Roppongi in March that serves both menus from Wendy’s and First Kitchen.

Higa said this experiment has turned out well so far, as Wendy’s is seeing a 160 percent sales increase year on year, while its benchmark for success is 120 percent.

Higa added that Wendy’s and First Kitchen complement each other’s strengths.

While Wendy’s offers premium hamburgers that mainly attract male customers, First Kitchen has other menus like pasta and desserts, which appeal to female customers.

Wendy’s and First Kitchen are set to open the second joint store in Ueno in August.

“If this test works out, then we’ll talk about expanding more conversions throughout the First Kitchen stores,” he said.

Still, rival burger chains are expected to increase in the near future with Carl’s Jr. planning to open the first store in the fall, followed by Shake Shack next year.

Although the Japanese market is difficult, Higa supposes that new burger stores keep arriving because of its sheer size.

But he says the new rivals will probably face the same challenge he has, which is to find good locations. Their entry should also benefit Wendy’s by helping to spread the concept of fast casual, as Carl’s Jr. and Shake Shack are also considered fast casual chains.

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