Starting a business in Japan: Wendy’s

December 26th, 2011By Category: Starting a Business

Two years after exiting the Japanese market, American fast-food restaurant Wendy’s returns to Japan Tuesday with the first store opening in Omotesando, located at 5 chome Jingu-mae.

It is the result of a joint venture agreement between Wendy’s/Arby’s International Inc and Higa Industries Co Ltd, a successful food importer and distributor based in Tokyo.

Higa Industries is led by American entrepreneur Ernest Higa, who owned and operated 180 Domino’s Pizza stores in Japan before selling the business in February 2010. A pioneer of the Japanese home delivery market, Higa’s stores became known for gourmet pizza products and the use of the Internet and wireless technology to promote menu items and enhance the customer ordering experience.

This is the first joint venture for Wendy’s/Arby’s International. In December 2009, Wendy’s did not renew its franchise agreement with its former franchisee for Japan, resulting in the closure of 71 restaurants.

Higa said that since that time, there has been a huge Wendy’s following in Japan that developed on social media, urging Wendy’s to return to the Japanese market.

Wendy’s will introduce four types of “Japan Premium” products only available in Japan, including the “Foie Gras Rossini” with original foie gras terrine, along with an upgraded line of long-awaited classic products, including Dave’s Hot-n-Juicy hamburgers, premium chicken sandwiches, “Garden Sensations” entrée salads, chili and Frosty.

Regular burgers will cost from 380 yen to 780 yen, while the four premium burgers will range in price from 780 yen to 1,280 yen for the Foie Gras Rossini. Salads cost from 480 yen to 630 yen, and baked potatoes 360 and 380 yen.

Ernest Higa, Chairman and CEO, Higa Industries Co Ltd

 Wendy’s Japan plans a national rollout in the coming years, with the goal of achieving Wendy’s estimated market potential of 700 restaurants throughout Japan.

 Japan Today visits Higa at his offices in Toranomon to hear more.

Why did you decide to relaunch Wendy’s in Japan?

I thought about how and why many of the major restaurant chains which came to Japan over the years did not succeed. Only a few did – McDonald’s and KFC, for example. I believe that if a chain has several thousand stores in the United States and their sales are several billion dollars in sales, the business model must be good but perhaps the missing element was their failure to adapt to the Japanese market.

Given my experience with Domino’s, I thought Wendy’s would be a great opportunity. I was already in that mindset, trying to figure out which chain to do and when, and then the opportunity to do Wendy’s came up. At the time, I had just sold Domino’s and felt I had some experience and knowledge to perhaps do it right with Wendy’s.

How were negotiations with the head office in the U.S.?

We came to an agreement to do a joint venture in early March. We hadn’t put our money into the joint venture yet, when the triple disaster in Tohoku happened. They were wondering what was going on and I also wondered if we should go ahead with the investment. There was a period of uncertainty about the future; however we both decided to go ahead and closed the deal in April.

The key factor was that we both felt Japan is still a critical market, especially if you look at the restaurant industry. The economy is now the third largest in the world, but the restaurant market is the 2nd largest, at about $240 billion. For Wendy’s, it’s their first investment in a joint venture outside the United States. They have cited three strategic markets – China, Brazil and Japan. So we are both committed to making this work.

What has been the biggest challenge in relaunching Wendy’s?

 Getting the first store up and running because so much is involved, whether it is the supply chain side, the site selection, construction and making sure we are on the same page as Wendy’s America.

 When I did Domino’s, I thought it was very critical to adapt it for the Japanese market. I did a lot of brand repositioning and product adaptation and added Internet ordering. How you adapt and what you adapt for the local market are crucial. There is no manual.

With Domino’s, I was a licensee but in this case, I decided to do a joint venture. I own 51%. The rational behind that was that I wanted to be sure that I was in a position to adapt Wendy’s for the local market. I wouldn’t have taken it on, otherwise. If we do the same thing as before, we’ll end up with the same result.

So what can we expect on the menu?

 In terms of product, we have two strategies. One is to maintain the original American menu but upgrade it. The other is to add products just for the Japanese market. On the original menu, the upgrade has to do with what they are doing in the U.S. with the Gold burger. They are using a new technology to produce the hamburger itself. The bun also has a different formula, different taste profile and will be toasted, so that requires a different process in the store. You need the equipment to do that.

 We will introduce four types of “Japan Premium” products only available in Japan, including the “Foie Gras Rossini” with original foie gras terrine, along with an upgraded line of long-awaited classic products, including Dave’s Hot-n-Juicy hamburgers, premium chicken sandwiches, “Garden Sensations” entrée salads, baked potatoes, chili and Frosty.

 For quality, service and variety, you have to really raise the bar here in Japan…and that’s one area we hope to distinguish ourselves.

 How have you been marketing the opening of the first store?

 The positive aspect of the relaunch is that Wendy’s was previously here for 30 years. Within the Japanese population, there is high brand awareness, even though they only had 71 stores. The other thing is that in our market research, the brand has a good reputation in terms of product quality and taste.

 When Wendy’s pulled out, there was a big outpouring of all these customers who went to the stores. It was actually on TV. Wendy’s America, in their wisdom, said they would be coming back. So that built up anticipation. As a result of that, there are about 30,000 people on social media, whether it is Twitter or Mixi waiting for Wendy’s to reopen. That means we already have a customer base, brand awareness and a good reputation even before we open our first store.

What are your expansion plans?

 When I did Domino’s, my strategy was to own and operate them all directly. That way, you have full control but your expansion speed is a little slower. This time, I want to do things faster. So I will open some directly controlled stores, and when I feel ready, I will franchise stores out as well, which will speed up the process.

First we have to make sure our strategies are correct for the launch. Critical mass is important in this business. It’s important to get to about 100 stores within 5 years. McDonald’s has 3,400 stores or so, but we don’t aspire to open that many. However, I believe achieving Wendy’s U.S.’s goal of 100 stores is possible.

Is it hard finding good locations?

 Yes. You need high-visibility, high-traffic locations but they are not always available, such as two former Wendy’s locations at Azabujuban and the one opposite Kiddyland in Harajuku. We are already looking at many different locations, talking with real estate companies and land owners.

Is the hamburger market in Japan saturated?

 To some extent. Interestingly, the fastest growing segment in the restaurant business in the U.S. is gourmet hamburgers. There is a strong trend toward better hamburgers and I think that is also happening in Japan.

 In Japan, if you look at demographics, McDonald’s has a lock on the kids’ market but as you get older, you want a better burger. That’s how we are looking at it. When you are 10, what you eat and where you eat is one thing, but when you are 30, you want a different atmosphere. That is one trend.

What about prices?

 Despite the 10 years of recession followed by 10 years of deflation, I believe that rather than just competing on price, the best strategy is to compete on “value for your money.” It might not be the cheapest burger but if you up the quality, then the value perception is there.

 Where are you getting all your staff from and where did you train them?

 I have some staff who were with me at Domino’s and some staff who used to be at Wendy’s. We built a test kitchen and training center here in Japan, and we also trained our people for about 8 weeks in Guam and Singapore.

 What is a typical day for you?

I try to get here about 8:30 a.m. I’ll have teleconferences with the U.S. and internal meetings. Some days, I go out to look at locations because it’s a big investment. I also have a lot of evening business dinners or receptions, but I try to avoid working on weekends.

 Are you optimistic about Japan’s economy?

Yes, I am. During the crisis, it was widely reported how resilient the Japanese people were. I think that says a lot for the people. The economy will come back because of that spirit. I was here during the bubble economy and it was a great market. We were growing 200% prior. I believe that will come back and we are still the world’s 3rd largest economy. We have rule of law, we are politically stable, although I do wonder about the political leadership sometimes, but there is still wealth in Japan.

 My hope is that the best and brightest will develop new businesses and become entrepreneurs. It’s what happened in the U.S. in the 1960s. Great human capital became the great entrepreneurs and they revitalized the economy. Japan has great human capital who don’t have a home in government and big companies due to the bad economic environment they will be forced to be innovative and help revitalize the economy.

 To finish off, I better ask you how often you eat hamburgers.

 Maybe a couple of times a week. I like hamburgers … and not just because of the job.

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GaijinPot

GaijinPot is an online community for foreigners living in Japan, providing information on everything you need to know about enjoying life here, from finding a job and accommodation to having fun.

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