Thursday, February 11, 2010

How do you sale 'bail' in Japanese?

Did I miss some sort of zombie uprising in Japan? Or maybe the leak of a flesh-eating microbe from a germ-warfare lab? I’m just trying to understand why the world’s second-largest economy has been retagged in such short order as a place where U.S. restaurant companies would rather not be.

Not long ago they were gazing upon the market with the sort of slack-jawed lust they currently hold for China or India. Now they can’t get out of there fast enough.

McDonald’s indicated this week that it’ll close about 430 stores in Japan within the next 18 months. That’s despite what CEO Jim Skinner had earlier described as “sold progress” in the face of “significant economic headwinds” during 2009. Comparable sales for the units there had been positive, a sign of considerable strength in the world’s current economic plight.

McDonald’s is hardly alone in being spooked about Japan. Wendy’s announced its pullout in December, after operating there for 29 years. Even stranger, the chain’s new owner has cited international development as a key strategy for bolstering the brand’s fortunes. The only nation with a bigger economy than Japan’s is the United States.

But the retreat isn’t limited to quick-service companies. The parent of Outback Steakhouse recently alerted lenders that it’s considering the divestiture of its restaurants in Japan, along with outlets in South Korea and Hong Kong. It cited “attractive market conditions,” which must be inconspicuous to Wendy’s/Arby’s Restaurant Group and the company that owns McDonald’s Japanese operations (the concern is a joint with U.S.-based McDonald’s Corp.)

Outback’s parent, OSI Restaurant Partners, said it’d also consider the sale of development rights to Asia if lenders were willing. That’s hardly a vote of confidence in the opportunities of a onetime Asian tiger like Japan.

What makes OSI’s interest all the more puzzling is its partial ownership by Bain Capital, the mega-sized private equity firm.

As a major stakeholder, Bain presumably had to give its okay before OSI could consider a sale of the Asian steakhouses. Not long after OSI aired the possibility of a divestiture, Bain indicated that it was buying a controlling interest in another foodservice company: The Japanese franchisee of Domino’s Pizza.

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