Recently, McDonald’s Holdings Co. (Japan) — the largest foreign affiliate of McDonald's Corp. MCD — guided for wider losses, for this year, as a slew of food safety scandals continue to keep consumers away from its restaurants. Further, in stark contrast to a salary hike in the U.S., the chain has implemented a six-month pay cut of 20% for CEO Sarah Casanova, in addition to slashing other executives’ salary by up to 15%.
McDonald's Japan now expects an operating loss of 25 billion yen ($210 million) for 2015, more than thrice the loss it incurred last year. Notably, last year, was the first time in 11 years that McDonald’s’ Japanese affiliate reported a loss. Revenues are likely to decline 10% to 200 billion yen this year — the seventh consecutive year of decline. McDonald’s Japan also guided for system-wide sales in 2015 to decline 14.4%.
The quick-service chain also announced that it would close 131 underperforming stores in the country and cut 100 jobs to save about 12 billion yen in costs by reducing materials, distribution and overhead expenses. Additionally, the affiliate plans to renovate 2,000 stores, of which 500 will be completed this year, to increase traffic.
McDonald’s Japan also stated that a revamped pay system would lead to salary cuts for employees with low productivity and a pay hike for high-performing workers.
In the last decade, McDonald’s has benefitted from strong growth but sales began declining as consumers became dissatisfied with its service and offerings. The situation worsened in July last year, when the local television media uncovered a new scandal blaming workers at Shanghai Husi Food Co. — unit of U.S.-based OSI Group LLC — of reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat.
Shanghai Husi supplied meat to McDonald’s Japan. Its troubles were further aggravated when objects — including a human tooth and pieces of vinyl — were found inside its products.
Sales at McDonald's Japan have declined for the past 14 months and worsened this year. Year-over-year sales plunged 29% in February and March after declining 39% in January.
However, McDonald’s Japan is reportedly looking to launch certain sales building initiatives to post a turnaround. These include a new loyalty program along with promotional coupons and a mobile app to gather real-time customer feedback. The company expects to return to profitability in 2016 backed by these measures.
McDonald's currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry are Cracker Barrel Old Country Store, Inc. CBRL, Darden Restaurants, Inc. DRI and BJ's Restaurants, Inc. BJRI. All these stocks sport a Zacks Rank #1 (Strong Buy).
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