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How Wendy’s Successfully Penetrated the Japanese Market After Long Struggles

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Wendy’s had long struggled to penetrate the Japanese market. Initially the Daiei Group tried to bring Wendy’s to Japan but failed. The next owner of Wendy’s’ Japanese franchise, Zensho Holdings Co. also failed miserably. However, Japanese-American entrepreneur Ernest M. Higa seems to have managed to do the task. This article will discuss the challenges Wendy’s faced when entering the Japanese market, how Ernie Higa addressed those challenges, macro environmental factors that impacted the success of the brand in Japan, future threats the Japanese fast food market is facing , and potential solutions.

The prior challenges that Wendy’s faced when they entered the Japanese market
There is no one-size-fits-all formula in business, especially when Japan is involved in the conversation. According to Japanese-American entrepreneur Ernie Higa, even if a company has a good product and good pricing, penetrating the Japanese market is more difficult compared to the US’s market. Foreign enterprises have experienced it first-hand time and again. The third-biggest U.S. fast-food restaurant company [2011] (Reuters, 2011), Wendy’s was no exception. Even after 30 years of its presence in Japan, the company was still unsuccessful. For Wendy’s, it’s their first investment outside the United States (Japan Today, 2012). In 2008 the company had only 71 stores in Japan, quantity next to nothing if your ambition is to be an established brand in the world’s third-largest economy. In 2009 all of Wendy’s stores in Japan were closed (Hill, 2022).

In 2011, Japanese-American entrepreneur Ernie Higa with his Higa Industries Co Ltd, bought a 51% stake in the Wendy’s joint venture (Reuters, 2011). Higa had successful experience in bringing Domino’s pizza to the Japanese market and operating 180 Domino’s Pizza shops in Japan (Reuters, 2011). The first Wendy’s shop reopened in 2012 and by July of 2015, only two shops were in operation (Shteynberg & Stoller, 2020).

The problems Wendy’s under the leadership of Ernie Higa had to overcome

Problem 1:
One of the biggest obstacles for expansion of Wendy’s in Japan was a location (Shteynberg & Stoller, 2020). Since Japanese customers had gotten accustomed to home or office delivery, opening shops in high pedestrian areas was of utmost importance for the survival of Wendy’s. As a result Wendy’s was competing against convenience stores and pharmacies for good locations in Japan (Shteynberg & Stoller, 2020).

Problem 2:
Consumer backlash against McDonald’s due to food safety scandals had increased the barriers to entry for other United States-based food chains (Shteynberg & Stoller, 2020). It could be interpreted as Japanese consumers having low trust in the quality of foods offered by American fast food chains.

Problem 3:
According to a 2015 report, convenience store fast food made up 67% of the industry (Shteynberg & Stoller, 2020). Convenience stores are not convenient competitors for fast food chains. A potential consumer goes to a fast-food store for only one reason which is to buy food. On the other hand, many different factors may allure a consumer to the convenience store and while the consumer is there, he/she may buy fast-food even though it wasn’t his/her main purpose of visiting the store.

Problem 4:
Due to depopulation, a labor shortage was and still is a big problem for many companies, especially fast food stores (Shteynberg & Stoller, 2020). In addition to labor shortage, Japanese workers have a whopping 40% lower productivity compared to US workers, which hindered the possibility of raising salaries and alluring employees (Shteynberg & Stoller, 2020). Hiring migrant workers were not the easy solution either. Migrant workers struggle to learn Japanese language and due to the homogeneous population, foreign workers are still not welcome in many areas of the country.

How Wendy’s changed the 4 Ps to solve those challenges and re-enter Japan

Place: To get high foot traffic locations, in 2016 Ernie Higa bought a 100% equity of First Kitchen Ltd from Suntory Holdings Ltd. At that time, First Kitchen had 136 restaurants in desirable locations.

Promotion: Wendy’s strategy was to focus on niche markets rather than mass markets, therefore promoted itself as a “fast-casual” dining experience —a more upscale version of fast food offering “value for money.” (Shteynberg & Stoller, 2020). To go along with the promotion, First Kitchen shops were redecorated to give it a fancier atmosphere. One point worth special attention is Ernie Higa didn’t want to replace First Kitchen with Wendy’s, instead he wanted to combine both of the brands’ competitive advantages. Meals from both brands would be included in new menus, to denote this fact the shops were rebranded as Wendy’s First Kitchen.

Price: Salaries in Japan hadn’t seen a rise in almost 2 decades. The country also suffered from inflation, hitting consumers spending power, to be more precise in 1997 annual restaurant spending was 390billionbutin2012itwas390 billion but in 2012 it was340 billion shrinking by $50 billion (Mertens, 2012). Against this backdrop of trends, Wendy’s decided to go premium and offer its products at premium prices. For example, Big Mac, a premium product of leading foreign brand McDonald’s cost 113 yen, while the Foie Gras Rossini burger, a premium product of Wendy’s was 1,280 yen, 11 times more expensive (Shteynberg & Stoller, 2020).

Product: Among 4Ps, the biggest change was applied to products. Ernie Higa’s past successful experience with Domino’s pizza came handy in finding ways to customers’ hearts. According to Ernie Higa’s reasoning, Japanese consumers had strikingly different preferences compared to their western counterparts (Shteynberg & Stoller, 2020). He summarizes these differences into three categories, the first one being the source of greater satisfaction. Japanese consumers get greater satisfaction from better quality, unlike American consumers who display greater satisfaction on bigger sizes. The second one importance being put on appearance: appearance plays a vital role, as the saying goes “in Japan you eat with your eyes”. The last one, a desire for more variety: a Japanese consumer wants more variety.

Knowing Japanese consumers’ preferences and the concept of franchising helped Ernie Higa to find a balance between adherence to the established brand franchise stores represent and addressing the unique demands of local market and customers franchise stores serve. As a result a new menu that was both inspired by Japanese food and American food was created (Hill, 2022).

Let’s go deeper to grasp the scale of change on the menu.

On the menus of Wendy’s shops in the US there are three sauces: ketchup, mustard, and mayonnaise. In addition to the above three sauces, the menu of Wendy’s in Japan includes mentaiko sauce, cheese sauce, garlic mayonnaise, hot sauce, and avocado sauce (Hill, 2022). The burgers themselves too have much more variety in Japanese shops of Wendy’s, in addition to the classic American Wendy’s burgers, Japanese shops of Wendy’s offer a Barbecue Pulled Pork Burger, a Cheese Bacon and Egg Burger, Bacon Mushroom Melt Burger, Umami Chicken Tatsuta Burger and Wild Rock, Jr. Teriyaki Cheeseburger. That’s not all though. Japanese Wendy’s shops not just have more variety but have some meals that can be found only in Japan.

In 2012 Wendy’s introduced four types of “Japan Premium” products only available in Japan, including the Foie Gras Rossini with original foie gras terrine, upgraded Dave’s Hot-n-Juicy hamburgers with square patties, premium chicken sandwiches, “Garden Sensations” entrée salads, chili and Frosty (Japan Today, 2012). Currently, Wendy’s First Kitchen also offers pasta, soup and desserts, all of which are only available in Japanese Wendy’s shops. Each of these offerings has multiple variations.

What macro environmental factors impacted the success of the brand in Japan
Admittedly, the smart strategy employed by Ernie Higa helped Wendy’s First Kitchen to re-enter the Japanese market. However, there were some macro environmental factors that also helped the brand, while others were a hindrance to its success. While as mentioned in earlier paragraphs, distrust of Japanese consumers on US fast-food chains, inflation and stagnant salaries of consumers were macro-level obstacles for Wendy’s success, an increase in meat consumption and scarcity of products needed for the proliferation of fast food in Japan were positive macro environmental factors that helped Wendy’s First Kitchen. In Japan where the main cuisine comprised of rice and fish, the triple increase in meat consumption in 50 years is certainly a positive factor for fast food companies (Shteynberg & Stoller, 2020). Another factor, according to Shteynberg & Stoller (2020), products needed for the proliferation of fast food are unique and rather difficult to obtain in Japan, giving competitive advantage to foreign entrants like McDonald’s and Wendy’s over domestic chains.

Future threats the Japanese fast food market is facing and potential solutions

Shrinking Market:
Due to the shrinking population, domestic demand is also shrinking (Kajimoto, 2017). According to Reuters’ 2017 survey 40% of businesses cited the country’s shrinking market as their biggest threat. Unfortunately, there is no quick nor easy solution to this problem. Even if there is a solution, it should be initiated by a government in my opinion.

Labor shortage:
The shrinking population is not only causing a decrease in the number of domestic consumers, but also causing labor shortages. The same survey by Reuters reports that 32% of Japanese firms say that their business is affected by labor shortage. Considering the decrease in population is still continuing, the labor shortage problem is only going to get worse.

Possible solution to this problem might be a mixture of technology, and Japanese and migrant workers. Japanese workers can do the job that requires talking to customers, migrant workers can do tasks that don’t require great command of the Japanese language while technology comes to help to fill in the gaps left by humans.

Weakening of Japanese Yen:
As of 2024 USD to JPY exchange rate is $1:142JPY, reaching a two decade low level. Since Wendy’s First Kitchen is not an exporter, rather an importer of many products necessary for making burgers, a weak yen is not pleasant news to them. The reasonable approach to solve this problem is to substitute important goods to local ones.

Conclusion

Wendy’s had struggled for 30 years to penetrate the Japanese market. Ernest M. Higa, however, could manage to do the task by adjusting the products to local preferences, positioning the brand as a high quality fast food chain and opening stores in high pedestrian areas. Unfortunately, it is not a happy ending yet. To continue writing its successful chapters, the company must overcome challenges posed by the shrinking population and the weakening yen.

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