After leaving Japan in 2009 because of problems with a partner at the time, fast-food giant Wendy's (NAS: WEN) recently made a comeback by opening its first outlet in Tokyo and said it plans to set up around 100 stores in the country over a span of five years. If successful, this could be one heck of a burger party, albeit with an Asian touch!
Need to gear up
Wendy's has certainly taken things seriously after a poorer-than-expected third quarter, with revenue increasing a meager 1.8% to $611 million from the corresponding last-year quarter. On top of it, Wendy's also recorded a $4 million loss in the quarter, mainly due to expenses incurred during the sale of its Arby's chain.
Not that the company has not done anything about it on home turf. It has added to its menu by offering breakfast and other upscale items such as Redhead Roasters coffee blend. The strategy has apparently worked as Wendy's is set to push rival Burger King to the third spot in U.S. sales among fast-food establishments, with McDonald's on top.
Seeking growth overseas
The Japanese comeback is another strategic move to seek growth overseas, as the company estimates the market could support as many as 700 restaurants in that country. Wendy's is also reportedly looking for partners as it plans to foray into China and Brazil as well.
The stumbling blocks
Companies entering the Japanese market are likely to wade through tricky waters. While the population comprises a large number of aging, single people who are in favor of eating a quick meal -- which certainly favors the fast-food market -- the Japanese population is said to be notoriously finicky in their eating habits. Success in Japan is likely going to be an all-or-nothing game, riding on whether Wendy's can nail the right menu variety and pricing.
Wendy's "only Japanese" options have proved to be a big attraction, as shown in the huge crowds thronging the first store on its opening. What remains to be seen is whether the innovation will last, given that Wendy's also has to get the pricing right, as it attempts to get closer to Yum! Brands' KFC, a fan favorite in the country.
Although Japan has a $240 billion restaurant market, given the country's tough recovery from the devastating March earthquake, spending cash on food may not be consumers' priority. Rival McDonald's, for instance, has already forecast a decline in sales, its third consecutive one for now.
The Foolish take
Wendy's has laid out a clever strategy for Japan, by joining forces with a proven partner along with adding locally exclusive items to its fast-food offerings. And its past experience in Japan is certainly a valuable proxy. But then again, with seasoned players already on the ground, and finicky tastes to cater to, let's give Wendy's some more time for the taste to really sink in to Japanese palates.
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At the time thisarticle was published Fool contributor Subhadeep Ghose does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Yum! Brands.Motley Fool newsletter serviceshave recommended buying shares of Yum! Brands and McDonald's. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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