Deal focus: Longreach’s fast-track Japan burger play

Expanding a budget-priced restaurant chain across an expensive real estate market like Japan is not for the faint of heart. Longreach Group, however, has identified a rare inroad into the country's fast-food and fast-casual dining sector through a two-part transaction that gives the firm an immediately scalable platform and a unique niche in this competitive market.

The North Asia-focused GP - which targets buyouts in the range of $30-200 million - is acquiring a majority stake in Wendy's Japan as part of a deal that will see the hamburger restaurant merged with a more locally integrated chain, First Kitchen. A subsidiary of Suntory Holdings, First Kitchen is a hamburger restaurant that diversified into pizza, pasta and fried chicken. Suntory was no longer growing the brand, however, and therefore made the asset available for the Longreach-Wendy's approach.

The plan is to leverage First Kitchen's long-term leases at 136 established locations to create a new play in Japan's restaurant space, fusing the Japan-oriented tastes of First Kitchen with the all-Western offering at Wendy's. This locally sensitive co-branding strategy has already been validated at two "Wendy's First Kitchen" test locations in Tokyo and is expected to be rolled out nationwide in the coming years.

"This is an example of how we are bringing our ‘narrow and deep' international strategy to life by initially focusing on four key markets - Japan, India, Brazil and the Middle East - where we see considerable upside potential over the next few years," says Bob Wright, an executive vice president at Wendy's. "We believe our best approach is to support our franchisees in building Wendy's brand strength in local markets and enhancing the economic model of their restaurants."

Wendy's exited the Japanese market in late 2009, closing 71 restaurants after deciding not to renew its local franchise agreement. When Japan's Higa Industries, the current owner, revived the chain two years later, it planned to expand to 100 outlets. However, high real estate costs, cultural challenges related to the menu, and fierce competition from entrenched hamburger rivals kept this plan in check. Wendy's currently has only one location in Japan.

Higa president Ernie Higa - who brought Domino's Pizza to Japan before its sale to Bain Capital in 2010 - is expected to be a valuable US contact for Longreach as it institutionalizes the leadership bench, deepens execution power and manages exclusive Japanese franchise rights for the global chain.

He will also function as the firm's local partner, after building lines of communication between the deal's various parties, as Wright notes. "This deal would not have been possible without the vision and dedication of Ernie Higa and the Wendy's Japan team, who understand the importance of great customer service, continuous innovation and playing a different game when competing against well-entrenched restaurant competitors."

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• Topics
• North Asia
• Consumer
• Buyouts
• Japan
• The Longreach Group Limited