Japan is in the middle of a French fries shortage—and it couldn't come at a worse time for fast-food giants like McDonald's and KFC already battling health scandals and an economy forcing consumers to tighten the purse strings.
KFC on Thursday said it would halt sales of fries at its 1,163 Japanese outlets, just weeks after McDonald's started rationing by barring customers from buying larger portions. Restaurants can't get enough potatoes because of a labor dispute at West Coast ports in the U.S.
McDonald's Japan, 49.99 percent owned by parent company McDonald's Corp., usually buys 120,000 tons of potatoes from the U.S. every year, so it had to come up with a backup plan to get fries back into its 3,094 Japan restaurants.
"We faced the crisis much earlier than KFC," boasts spokesman Takashi Hasegawa, who says McDonald's Japan flew 1,000 tons of potatoes via air cargo and shipped 1,600 tons from East Coast ports unaffected by the dispute on the West Coast.
Japan imported 186,000 tons of potatoes from the U.S. in 2013, about 75 percent of the country's total purchases of overseas spuds, according to Ministry of Agriculture, Forestry and Fisheries data reported by Bloomberg. It would be a lot easier importing potatoes from China, which is now promoting tubers in an attempt to make them a staple alongside rice, wheat, and corn. Unfortunately for McDonald's and KFC, buying potatoes from Japan's giant neighbor is a nonstarter. Hasegawa says McDonald's wants to buy from the U.S. "because of the quality and the taste." Last year, McDonald's and KFC sales took a hit in Japan following news a China-based supplier had provided the chains with meat that had passed its expiration date. It was the latest in a scandal-plagued year in which a human tooth was also found in an order of McDonald's fries.
Photographer: Andy Rain
The two big chains face plenty of other problems in the world's third-largest economy, behind the U.S. and China. With its shrinking and aging population, the decline in disposable income in Japan is making consumers even more sensitive about spending. Consumers are still recovering from the big tax increase Prime Minister Shinzo Abe rammed through last April and prices have also been rising thanks to the weaker yen and Abe's determination to end deflation. Since wages haven't kept pace and household earnings have dropped for 17 consecutive months, many Japanese are feeling the strain.
"More and more consumers are finding that the price of fast-food chains like KFC and McDonald's [is] simply not worth it for the quality of food and service," Yuiko Mitani, research associate at Euromonitor, says. Rivals are doing a good job targeting older customers. For instance, bento-box delivery services specifically targeting the elderly "are quite popular due to the healthy aspects of the food, flexible order and payment system as well as additional services such as that the delivery person will check in on the senior customer to make sure they are doing fine."
The fast-food operators also face growing competition from convenience stores such as 7-Eleven and FamilyMart. Those chains have added not only inexpensive coffee and doughnuts but also microwave ovens and in-store dining areas so customers can heat up ready-to-eat items like hamburgers and fried chicken. The convenience stores "are becoming more aggressive," says Thomas Jastrzab, an analyst in Hong Kong with Bloomberg Intelligence. "That puts them really head-to-head with the fast-food restaurants."
An end to the potato shortage won't take care of those threats. But it would be a good start.
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