Exporting Fast Food : Trade: A Japanese entrepreneur opens noodle shops in the United States, while an American firm introduces submarine sandwiches to Japan.

Satoshi Sakurada and Marty Schwartz don’t know each other, but both are intent on bettering the U.S.-Japan relationship. Their idea of international exchange, however, is stomach to stomach.

Sakurada is a high-flying entrepreneur who abruptly quit his job as a Nikko Securities salesman and became the undisputed burger king of Japan. His inspiration was the Tommy Burger, the chili-and-beef Southern California landmark that he ate almost every day during a two-year stint in Los Angeles for Nikko in 1962.

A decade later, he founded MOS Food Services Inc. in Japan--offering a modified Tommy Burger with meat sauce. He went on to establish 982 shops, the nation’s biggest hamburger chain.

Now Sakurada has recrossed the Pacific, this time bringing East to West in the form of Japanese noodle houses. Since July, he has opened three Mikoshi restaurants in Los Angeles, offering fried and boiled noodles.

Marty Schwartz is director of international development for America’s fastest-growing fast-food franchise, Subway Sandwiches and Salads. The Connecticut-based firm will open its first four shops in Japan next year in a joint venture with such Japanese giants as Nippon Steel and Mitsui & Co.

Can the Japanese, who view sandwiches as dainty affairs of cucumber slices and thin white bread, stomach Subway’s 12-inch-long, three-inch-high belly busters of meat and cheese?

“They may be shocked,” said Koichi Motegi, whose Los Angeles-based consulting firm is also a project partner. “But we can educate the consumer.”

Can Americans toss out years of manners and learn to slurp soup with gusto, the only way to properly savor the full flavor of ramen?

“Even 20 years ago, the idea of eating raw fish was considered barbaric” in America, Sakurada said in an interview at a Mikoshi noodle house on Vermont at 2nd Avenue. “I want to start a major cultural change in the U.S. to make slurping acceptable.”

Such issues aren’t exactly the hottest items on the menu of U.S.-Japan relations, but they’re a lot more palatable than trade wars.

Linda Sherman, director of Asia Pacific strategic consulting for Coopers & Lybrand in Los Angeles, said fast-food franchises require three characteristics to be successful in Japan: A charismatic leader, a menu adapted to Japanese tastes and enough shops to justify mass advertising.

Sherman said the threshold number of stores is about 200.

“The first year can be a test year, but in the second year, if you don’t start getting some mass, you can be limited on a long-term basis,” said Sherman, former general manager of Sara Lee Bakery in Japan.

McDonald’s, for instance, operates 714 stores in Japan and offers soup on its menu to cater to Japanese eating habits. Kentucky Fried Chicken has 875 outlets and adapted its menu by not offering mashed potatoes.

Perhaps the biggest innovator has been Sakurada, who introduced the first soy-sauce burger in Japan and recently added a rice burger to his menu.

The Mikoshi Story

Sakurada’s odyssey from securities salesman to fast-food franchiser began in a different era, when the United States was still undisputed king of the global economic order. When he arrived in Los Angeles in 1962, just 27 years old, he was amazed by American wealth and technology.

The massive freeways, the automatic sprinkling systems, his apartment amenities stunned him.

But what turned out to be his most significant American encounter was with the humble hamburger. He had noticed constant lines at Tommy’s Burgers on Beverly and Rampart boulevards. One day he tried one--and got hooked.

“So tasty, cheap and filling,” he thought.

A decade later, after leaving Nikko and a stint at a men’s fashion store, he got his chance to sell burgers to his fellow Japanese. McDonald’s had just opened its first restaurant in Japan, and Sakurada felt that it was time to begin his own hamburger chain.

The problem was that he had less than $1,000 to his name. And bank after bank turned down his loan request for this strange foreign product.

At one bank, he said, the loan officer abruptly cut off his presentation and said the bank did not loan to mizushobai --literally, “water business,” a derogatory term referring to bars and other entertainment establishments in Japan. Sakurada was so enraged that he picked up a basket of matches and threw them at the banker. Outside, he collapsed in tears.

But there was a bright side.

“With that trauma, I was absolutely inspired,” he said. “At that time, I resolved, ‘I’m going to show them.’ ”

He sold all he owned, including his golf clubs, and raised 1 million yen--$3,300 at the time. Then he got on the phone and raised $23,000 from friends. Several months of market research later, he opened his first 90-square-foot shop in a suburb of Tokyo.

He chose a fortuitous name--MOS stands for “mountains, ocean, sun.” But his actual experience was near-disaster.

His average daily sales were less than 4,000 yen, or $13. He worked seven days a week, sleeping three hours a day. He dropped nearly 30 pounds, to an anemic 134, and his hair turned white from the stress. After six months, he collapsed from exhaustion.

Recuperating in bed gave him the chance to reflect. “It was like an oasis in the middle of the desert,” he recalled.

He decided that he had to change his business approach. The shift was subtle but important: Rather than put the onus on the customer to buy, he put it on himself to sell, through impeccable service and an irresistible product. The philosophy is summed up in another company acronym: HDC, which stands for “hospitality, deliciousness and cleanliness.”

Shortly afterward, he introduced Japan’s first teriyaki burger--an instant hit. “After that, I saw the pot of gold at the end of the rainbow,” Sakurada said.

His MOS outlets differ from other fast-food franchises because they are located in local neighborhoods rather than pricey districts such as the Ginza. He also downsized the kitchen to one-fourth the size of McDonald’s. Those features save a lot of yen.

While it costs more than $1 million to open a McDonald’s franchise in Japan, according to Sherman and Motegi, it costs only one-fifth to one-fourth that to open an MOS outlet. Sakurada has so many franchise applicants that he can choose just 5% and continue to open 125 stores a year.

Today, the publicly held firm is booming, with operating revenue jumping 26% to $219 million in 1990. Profit grew 21% over the previous year to $26 million.

With success firmly in hand, Sakurada turned his attention to the American market. With too much competition in burgers, he decided to offer Japanese noodles instead. Dishes range from the best-selling teriyaki chicken ramen to fried yakisoba noodles to a spicy dish called “three-alarm” ramen.

After three years of what he calls a “development period,” he hopes to open 100 restaurants a year, first expanding to San Francisco, then the East Coast and the Sun Belt.

“Eighteen years ago, I felt so strongly the successful potential for hamburgers in Japan,” said the charismatic entrepreneur. “Now I feel the same degree of inspiration about a quality ramen dish.”

The Subway Saga

Marty Schwartz’ road to Japan was not nearly so agonized. In fact, he had Japanese suitors scrambling for the chance to represent Subway. The chain is expanding at a phenomenal rate of 1,000 outlets a year for a total so far of 5,100 shops.

“There’s no one like us,” said Schwartz, a breezy pitchman. “When McDonald’s starts putting a submarine sandwich in their stores and calls it McSub, you know you’ve arrived.”

So did the Japanese. Schwartz entertained serious proposals from three groups before settling on the joint venture with Motegi & Co., Nippon Steel, Mitsui & Co., Mitsui Taiyo Kobe Bank and Taisho Marine & Fire Insurance Co.

At first, Schwartz was surprised by all the attention. “The Japanese are very good at taking a product and copying that product and improving on it,” he said. “So why don’t they do it with a sandwich shop?”

Because, Motegi answers, Subway has the kind of secret technology that the Japanese just love.

“The actual sandwich is cut into a V-shape so the ham and pickles won’t fall out. This is new,” he said. “They also have the secrets of the frozen-dough technology.”

“You laugh,” Motegi said, “but they spent 25 years to come up with this concept.”

Motegi said the group test-marketed the sandwich on 150 people in Tokyo, and 95% said they wanted to buy one on the spot. Because it was stuffed with fresh meat and vegetables, they viewed it as healthful. And because it was big, they felt they were getting more food for the yen.

Other reasons the group is banking on success are creative financing and access to sites near train stations, in partnership with Japan Railways.

Because the only cooking required is a stove for bread, the site can be as small as 300 square feet. This reduces the major cost in a franchise operation: the security deposit. In Japan, landlords demand several months rent in advance.

In the case of McDonald’s, the deposit amounts to two-thirds the $1.1-million average start-up cost.

Subway’s smaller spaces will shave the start-up cost to as little as $200,000. And in a creative twist, the joint venture will also offer financing for the advance rent money. They plan to open 1,000 stores in 10 years.

The group also will experiment with seasonings to suit the Japanese taste and may make the sandwich smaller. But Schwartz said the Japanese who have tried the sandwich in its pure American form have gobbled it up.

“We’ve had a lot of groups come here, and the one thing all the Japanese have in common is that they would eat like crazy. Like no one ever fed ‘em. Everyone went away ecstatic,” Schwartz said.

FAST-FOOD FRANCHISES IN JAPAN

Franchise Year Number of Franchise started outlets MOS Burger 1972 921* Kentucky Fried Chicken 1970 875 McDonald’s 1971 714 Mister Doughnuts 1970 589 Baskin Robbins 1974 440 Shakey’s 1973 63

*as of May, 1990

Source: Gaishoku Sangyo Noritsu Kyokai