McDonald's Japan to Close Hundreds More Stores

Hundreds of McDonald’s restaurants will be closed next year to boost profit margins due to a decline in demand for fast food caused by power shortages resulting from the March 11 earthquake.

As of the end of June McDonald’s had 3,273 stores in Japan, a reduction of 211 stores since a year earlier, but remains far and away the nation’s biggest fast-food chain. During full-year 2010 the chain closed more than 400 unprofitable outlets. McDonald’s also plans to revamp its larger, more profitable stores to boost its gross profit margin.

McDonald’s owns a 50% stake in the chain’s Japan operations.

Total Japan revenues fell for the second year in a row in 2010 and during each month in 2011 through July 31. But a turnaround appears to be taking shape. Stores open at least a year have started to increase sales in September with the end of electricity usage limits set by utilities to cope with shortages resulting from the shutting down of the damaged Fukushima 1 nuclear power plants and other nuclear plants for safety inspections.

The cost savings from the pruning of weak outlets will result in a 74 percent jump in net income this year to ¥13.7 billion ($178 million), the highest since McDonald’s Japan listed in 2001, despite an expected 6% drop in revenue to ¥304.5 billion ($3.97 bil.). The operating margin is also likely to rise by a full percentage point this fiscal year to 9.6 percent, the sixth consecutive annual increase and more than twice the averarge since 2002.