I once went to a Denny's in the Shinjuku ward of Tokyo. It was a cheesy choice, but I was curious as to how the chain's massive portion sizes translated to this more restrained culture, where eating until one is 80% full is a commonly practiced habit. I was pleasantly surprised when I found that Denny's had deftly shifted from large portion sizes to smaller portions that comprised a "set" - a popular service style in Japanese consisting of a main, a vegetable/salad, and a drink.
I have never, however, set foot inside of a Subway in Japan. Despite eating Subway fairly regularly in the US, I see no need to eat sandwiches in a country where cheap fast food options are plentiful and delicious.
Apparently, I'm not the only one who thinks that way. Japanese themselves are avoiding Subway in droves, leading to a mass shuttering of stores across the country. As a result, the chain now finds itself on the precipice of collapse in Japan.
The brand's impending doom raises an interesting question: Why did Subway's offerings fail to resonate with Japanese consumers? A few answers can be found by comparing Subway's strategy with that of another large Western company who's managed to thrive.
Subway's Big Gamble: Changing Japanese Food Culture
To be fair, Japan is the least of Subway's problems. The chain is facing decreasing profits worldwide. It shuttered some 800 stores in the US in 2017, and an additional 500 stores last year. Despite re-gearing itself successfully towards a more health-oriented menu and message in recent years, Subway is struggling to compete against chains like Panera and Au Bon Pain. It's also facing increased competition from local chains and stores that can offer customers fresh, locally produced meat and produce.
‘It’s just not what people want anymore’: Subway to close hundreds of U.S. stores
Additionally, it's a tough time for any restaurant business in Japan. Even traditional Japanese restaurants, izakaya (Japanese pubs), and family restaurants are struggling to stay afloat. Restaurants find themselves resorting to unique services, such as offering all-you-can-drink subscription models, to attract and retain regulars.
But Subway's problems in Japan are particularly acute. In the US, the number of Subway stores exceed the number of McDonald's restaurants. But Subway hasn't managed to take root in Japan in the same way.
And now it seems it never will. News broke last week that AG Corporation (エージー・コーポレーション), a Subway franchisee that at its peak ran 20 stores in metropolitan Tokyo, has filed for bankruptcy. The news spelled big trouble for the brand, which in the past four and a half years has seen 200 stores close across the country.
In his article on the financial predicament of Subway, store management consultant Sato Masashi puts forward some reasons for Subway's impending demise. The large one he cites is the company's flagship product: sandwiches.
There's no custom of sandwiches being a staple food in Japan, and Japan Subway couldn't make such a custom take root.
In other words, Subway made a fundamental gamble that it could change Japanese food culture, and make sandwiches, if not a core part of the Japanese diet, then at least an acceptable alternative.
Some might say it was arrogant for Subway to attempt such a brash maneuver, but I think it stood at least a 50/50 chance. Japan's food culture has grown over the past hundred years to assimilate a large host of "Western" foods. In fact, pasta is so popular that it's starting to threaten the market for rice.
Moreover, there are popular sandwich options in Japan, such as the katsu, or fried pork cutlet sandwich (pictured above). So potentially, if Subway had managed to make its offerings unique enough to the local market, it could have sparked a Sandwich Revolution in Nippon.
But that hasn't happened. Moreover, says Sato, Japanese consumers found plenty else to complain about when it came to the Chain Invader:
The store's high prices, the slow service, and the difficulty in ordering were also cited as limiting factors.
Finally, says Sato, many Subway stores in Japan are in a state of disrepair, and badly in need of renovation. Consumers - particularly female consumers - aren't apt to spend time dwelling in a store that isn't oshare (お洒落), or stylish. Even the Subway in Daikanyama - one of Japan's ritziest neighborhoods, and the stomping ground of more than a few Japanese celebrities - looked run down and shabby compared to every other store that surrounded it.
(JP) Link: Subway's FC Store Management Company Declares Bankruptcy; 200 Subway Stores Closed in 4-1/2 Years, and Mass Closing of Stores Continues
「サブウェイ」FC店運営会社“破産” 4年半で200店減のサブウェイ、今も大量閉店進行中（佐藤昌司） - Yahoo!ニュース
Writer panpanpapa drives home similar points as Sato in a blog he wrote about his own reluctance to go to Subway. With a plethora of cheap fast food options in Japan - donburi bowls, fixed meals, ramen - it's no wonder that most people don't choose Subway. And, as panpanpapa notes, few Japanese would feel comfortable eating bread for three meals a day. Beyond that, however, Subway is relatively expensive compared to the other options available:
Even though a beef donburi bowl and a hamburger can be had for around 300 yen, a subway sandwich is around 400 yen at its cheapest, and it's common for a set to cost over 800 yen.
I'd have to have sunk into a poverty mentality to think I could put out 800 yen for a simple sandwich.
(JP) Link: Why I Won't Go to Subway
私がサブウェイを利用しない理由 - 知らなきゃ大損！お金を貯めるWeb時代の歩き方
Does Subway Offer Too Many Choices? Make-Your-Own Subs vs. Teishoku
One issue that I see in all of the articles I've read on this subject was the complaint that Subway's ordering process was "difficult". To be honest, I've sometimes avoided Subway in the US for just this reason: ordering is long and, for ordering a stupid sandwich, complex. You choose your bread. Then your meat. Then your toppings. Oh, and sauces and oils. Any seasoning on that? How about a drink? A bag of chips? A cookie?!
Part of me wonders (And I'm speculating here) whether this was too much choice for most Japanese consumers. Contrast this plethora of choices with teishoku (定食), or "fixed meal", a mode of service where a restaurant may offer one or two main dishes accompanied by a fixed number of sides. Sometimes the sides are served directly as part of the meal; at some locations, you can select your own sides from a buffet-style lineup.
This method of ordering is dirt simple. Plus, it's fast: since the kitchen is handling a set number of food items, it can have them out to you within minutes.
Other methods of ordering in Japan are equally quick. Food such as ramen and udon can commonly be ordered by buying a ticket from a vending machine and handing it to the person behind the counter. Udon chains such as Hanamaru give you a limited number of udon options, then let you pick accoutrements such as katsuage and croquettes directly from the counter as you walk towards the cash register.
Whomever architected Subway's launch in Japan believed they could take a service model that worked decently in the US and transplant it, unchanged, to its Japanese operation. Granted that hindsight is always 20/20, but in hindsight, this appears to have been a fatal error.
Starbucks: Expensive but Popular?!
In his article on the condition of Subway stores, Sato Masahi described a visit he made to a local Subway:
I visited the Subway in South Aoyama Gaienmae (Tokyo, Minato Ward; now closed) that was run by AG Corporation. The aging was truly noticeable. The color on the walls was fading, and the lack of space between seats made for a cramped feeling. A few stores away was "Starbucks South Aoyama 2nd Street" (Tokyo, Minato Ward), which made for an unfavorable comparison. Starbucks also sells sandwiches, so the competitive crossover isn't slight. At any rate, it's not surprising that people shunned the South Aoyama Gaienmae Subway.
The comparison to Starbucks is notable, as the Seattle based coffee chain seems to have no issue with growing its business in Japan. Known more popularly by its diminutive name, "Sutaba" (スタバ) opened its first store in Tokyo's high end Ginza shopping district on Matsuya Avenue 20 years ago. Since then, it's growing to over 1,300 stores as of 2017, outstripping local chains such as Dotour Coffee, Komeda, and San Marco.
One reason for Starbucks' success, as noted above, is that the stores meet the Japanese expectation of "oshare", or stylish. They're places where you feel comfortable spending a long period of time meeting with friends, holding a meeting, working alone on your laptop, or reading a book. Starbucks' store in the city of Toyama, near Kansui Park, is lauded by some as the prettiest Starbucks in the world: the glass building offers a park-view deck, and seems to meld naturally with its surrounding environment. Customers can view the cherry blossoms from the deck in the spring, and in the winter can revel in the blanket of snow enveloping the park.
(JP) Link: The Most Beautiful Starbucks in the World is in Japan! In Toyama of All Places - I Got Jealous When I Heard from Locals Why It's So Beautiful
世界一美しいスタバは日本にある！ まさかの富山県だった / 県民が語る “美しい理由” を聞いたらメッチャ羨ましくなった
While being "oshare" is a winning attribute, some readers may be wondering: if Japanese consumers think Subway is expensive, then why are they flocking to Starbucks, which is perceived as pricey even in the US?
The editors of opinion site 10MTV argue that Japanese consumers understand that, when they sit in Starbucks, they're not just "having coffee" - they're having an experience that encompasses multiple factors, including a stylish store, a smoke-free environment (critical in Japan where public smoking is still the norm), and great customer service. It's a different way of marketing one's business that can prove successful if done right:
早い！ 安い！ うまい！ のように、わかりやすい看板を立てお客さんを呼び寄せるのは、一つの方法です。しかし、すべてのお店がそのやり方でうまくいくわけではありません。ターゲットを絞り、重点的なサービスをおけば、その分高くなっても人はやってくるのです。安いことよりも静かにおいしいコーヒーを飲むことに重きをおく人は、雰囲気や接客態度、サービスが良ければまた来ようと思います。「高い」と思うのは、それがコーヒーの値段だけだと考えてしまうからです。
Putting out an easy to understand sign proclaiming you're "Fast! Cheap! Delicious!" is one method of attracting customers. But not every store can pull that off. If you narrow your target and establish a tailored service, people will come even if your product is expensive. People who put a stress on drinking delicious coffee in a quiet space over cheap prices will return if they receive a good atmosphere, good customer-oriented attitudes, and good service. That's because they'll think that the only thing that's "expensive" is the cost of the coffee.
(JP) Why Do People Go to Expensive Starbucks?
なぜ人は高い「スタバ」に行くのか | 10MTVオピニオン
Starbucks Emphasizes the Voice of the Customer
In a separate article for Mag 2 News, our good friend Sato Masashi found what he believes is another reason for Starbucks's success when he visited the Ginza home store on its 20th anniversary. He was impressed that the store had left out a box to collect thoughts and good wishes from customers as a way of celebrating the store's 20th. Sato says he found similar feedback mechanisms at other stores around Tokyo.
This feedback mechanism, Sato argues, creates a perception that the store is actually listening to its customers, and is interested in a two-way conversation:
It's critical to receive consumer and customer's messages, opinions, and desires. It's a declaration that customers are important to you, and an expression of self-confidence. If the store receives words of praise, that'll also drive employee motivation. You can also improve your service.
(JP) Link: Starbucks Still Popular After 20 Years? What I Understood Visiting Japan's First Store
スタバはなぜ20年も人気なのか？ 日本の第1号店を訪れてわかったこと - まぐまぐニュース！
Lessons Learned from Subway and Starbucks
I can see a couple of common lessons for Western businesses in these contrasting examples.
First, store conditions are critical for success in Japan. In some cases, it may be even more critical than the number of storefronts a chain has in the country. Back in 2015, McDonald's shuttered 131 stores in order to save cash for interior renovation. And the example of Starbucks shows how far a great interior can go to winning the hearts and minds of Japanese consumers.
Second, price is an important, but not final, consideration. If all stores are offering in Japan is food, then price will be the overwhelming factor. Most chains and small fast food places in Japan take pride in keeping their prices low, and the so-called "one-coin meal" - a lunch or dinner you can buy for a single 500 yen (appr. $4.50) coin - is still a popular and much-loved concept.
Subway came in with a high price point, but no positives to offset it. Its cramped and dilapidated stores, its slow service, and its confusing ordering process did nothing to set it apart from competitors. By contrast, Starbucks' high price point is offset by its ability to create clean and well-run islands of refuge in dense urban areas.
Third, rewriting Japanese culture is a risky move. This is particularly true of food, which is a point of cultural pride in Japan. Subway wanted to create a Sandwich Culture in Japan, but it did little to convince customers why they should eat turkey subs instead of 300 yen hamburgers or 500 yen ramen bowls.
By contrast, while Japan already coffee shops and cafes, most were old, outdated, smoke-filled, and noisy. Starbucks offered an updated version of the traditional kissaten (喫茶店) that young, image- and health-conscious Japanese consumers found appealing. What Starbucks provided was not a cultural change, but a cultural update.
I suppose there's a slim chance that Subway could turn its fortunes around in Japan. But the clock is ticking fast, and unless the sandwich giant finds a way to fix its broken business model, it might find itself saying sayonara to the Land of the Rising Sun.
I'm the publisher of Unseen Japan. I hold an N1 Certification in the Japanese Language Proficiency Test, and am married to a wonderful woman from Tokyo.
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