Japan McDonald’s to axe stores and jobs amid widening losses

In contrast to a recent move to raise wages for its US employees, McDonald’s in Japan is enacting a more stringent performance-based pay for workers and forecast a widening of losses in its second-biggest market.

The fast-food chain on Thursday said it would close 131 underperforming stores in Japan and axe 100 jobs, amid the fallout from a string of food-safety scandals.

McDonald’s Japan — which has 3,100 outlets and 2,700 employees in the country — said it expected its net loss to widen from Y21.8bn in 2014 to Y38bn ($318m) this year, on sales forecast to contract 10 per cent. Last year’s loss was its first swing to the red in 11 years.

McDonald’s will also renovate 500 stores this year, and said it was unsure of the size of its 2015 dividend, given the grim outlook for the restaurant chain.

The Japanese unit, half owned by its US parent, has implemented a six-month pay cut of 20 per cent for Sarah Casanova, its chief executive, while other executives will have their monthly salary reduced by up to 15 per cent.

The struggling burger chain has grappled with declining sales worldwide amid changing consumer tastes and questions over the quality of its products.

In Japan, McDonald’s had enjoyed nearly a decade of strong growth but sales began slowing as consumers became disgruntled with its service and food offerings.

Its troubles were exacerbated by a chicken safety scare at its China-based supplier last July, and an incident earlier this year when objects — including a human tooth and pieces of vinyl — were mixed inside its products.

Sales at Japanese stores have fallen for 14 consecutive months with the decline accelerating this year. Sales fell 29 per cent in February and March after sliding 39 per cent in January year-on-year.

Ms Casanova said she hopes to return the company to profitability by 2016 through “every measure possible” from improving the menu line-up and renovating 2,000 stores over the next four years.

McDonald’s Japan also said that a revamped pay system would result in salary cuts for employees with low productivity, while wages for high-performing workers would be raised. Last year, wage levels were unchanged regardless of the performance of its employees.

The move in Japan comes in the wake of McDonald’s decision this month to raise its US minimum wage to $1 more than the local standard for 90,000 workers at 1,500 company-owned restaurants.

The nationwide protests over raising the minimum wage have deepened McDonald’s home market challenges, with protesters criticising the increase for applying to just 10 per cent of the company’s US stores.

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Letter in response to this report:

Extraordinary example of worker productivity / From Stanley M Guralnick