Converting Unprofitable Hong Kong Restaurants and Opening New Locations

「As a result, revenue for the consolidated fiscal year was ¥2,611 million, down 2.1% year on year, and segment profit (operating profit) was ¥36 million, compared with a segment loss of ¥48 million in the previous year. Going forward, we believe we can continue expanding the scale of the business by responding flexibly to the individual needs of Japanese food-service companies. Although the food-service business struggled during the current fiscal year, we will seek to restore performance by negotiating rent reductions for the stores with large losses among the 10 existing stores and those due for contract renewal during the year, as well as exploring new delicatessen openings.」

「At ASMO CATERING Hong Kong, sales at the 12 food-service stores were roughly in line with the previous year, but the business cannot be said to have recovered and conditions remain challenging. By strengthening control over labour and other expenses, the loss at the earnings level was reduced by more than half from the previous year. At future contract renewals, we will continue to request that developers review rents at unprofitable stores. If no agreement is reached, we will close the stores and work to return the food-service business to profitability.」

「As for the Kei Tin store of Ginza Kaguraya, which had been a major cause of poor performance for several years, we closed the store upon the expiry of its contract on 30 September 2024.」

「Our business has 4 medium-sized restaurants with seating for no more than 100 people, including Wafu Shokudō Torazō and Udon-dokoro Imasuke. Going forward, we will target families up to their early 40s, who are considered relatively unlikely to consume outside Hong Kong frequently, and develop products for this segment.」

「Sales in the food processing and sales business increased steadily each quarter, reaching ¥925 million, up 42.1% year on year. Hiring difficulties continue in Hong Kong’s food-service industry, and demand for our OEM food processing, which can handle small lots, is particularly strong among Japanese restaurants that emphasize authentic products. Order volumes are expected to increase further. To meet this demand, we plan to expand the processing facilities at our central kitchen.」

「Amid these challenging conditions, we captured business opportunities from the active expansion of Japanese food-service companies into Hong Kong. Sales in the food processing and sales business continued to expand, reaching approximately 46% of total sales in the first 2 quarters of the current consolidated fiscal year.」

「The food processing and sales business continued to expand sales steadily during the first quarter of the current consolidated fiscal year, reaching approximately 42% of total segment revenue. Many store openings by Japanese providers that will become customers are planned, and the market is expected to expand. Profit declined from the first quarter of the previous consolidated fiscal year because government subsidies related to COVID-19 ended in the previous consolidated fiscal year.」

「Sales in the food processing and sales business also continued to expand steadily, reaching approximately 34% of total segment revenue. Many customer Japanese companies are scheduled to open stores, and the market is expected to expand further.」

「The food processing and sales business continued to generate steady sales. In particular, demand from existing customers operating Japanese restaurants has continued, and we recognize the potential to generate stable earnings as the range and variety of products sold expand. As a result, revenue for the first 3 quarters of the current consolidated fiscal year was ¥1,845 million, up 24.9% year on year, and segment profit (operating profit) was ¥2 million, up 53.4% year on year.」

「Under these conditions, the ASMO CATERING HK business addressed the recovering demand for eating out through frequent price adjustments, menu reviews and price increases. In addition, the food processing and sales business, which obtained ISO 22000 (food safety) certification in the previous consolidated fiscal year, increased orders not only by acquiring new customers but also from existing customers operating Japanese restaurants.」

「To address soaring food prices, we made frequent price adjustments and reviewed product content for each store format. By implementing price increases of approximately 10% to 15%, including menu revisions, we secured profit. As a result, revenue for the first quarter of the current consolidated fiscal year was ¥547 million, up 24.0% year on year, and segment profit (operating profit) was ¥5 million, compared with a segment loss of ¥4 million in the same quarter of the previous year.」

「In October 2021, accompanying the reopening of the Tai Po store of YATA, a local Japanese supermarket, we newly opened Takumi Kobo Hideyoshi and Japanese Delicatessen Sai.」

「The food processing and sales business, which uses a central kitchen, has steadily increased its customers among Japanese restaurants that continue to open in anticipation of the post-COVID period and is becoming a core business.」

「The food processing and sales business continued to increase its customer base and perform well. A full recovery in the restaurant business will require the resumption of travel between mainland China, Hong Kong and neighbouring countries, so until then we will work to restore performance with the strong food processing and sales business as our mainstay. As a result, revenue for the first quarter of the current consolidated fiscal year was ¥441 million, up 21.6% year on year, and the segment loss (operating loss) was ¥4 million, compared with a segment loss of ¥18 million in the same quarter of the previous year.」

「In the food processing and sales business, whose customers are Japanese restaurant companies, sales per customer store declined from the previous fiscal year, but an increase in the number of customer stores kept sales and profit for the business as a whole firm. Sai, the delicatessen shop operating inside the Japanese food supermarket APITA in Taikoo Shing, also continued to perform well by capturing demand for prepared meals.」

「Going forward, we expect the effect of vaccines, whose rollout is expected to begin in Hong Kong in the near future, to trigger the easing of restrictions. We will prepare for future business development with a view to the new lifestyle that will emerge in Hong Kong after COVID-19.」

「Amid the prolonged COVID-19 pandemic, food supermarkets continue to perform extremely well. As eating at home in Hong Kong is likely to become an established habit even after COVID-19, we plan to develop our business going forward with reference to the operating model of Sai, the delicatessen shop inside APITA in Taikoo Shing, which recorded sales of 118% of the previous year’s level in the first half of the current fiscal year.」

「From early May, various restrictions were gradually eased, and June sales recovered to the 80% range year on year. ... Despite the difficult operating environment caused first by last year’s large-scale protests and now by the COVID-19 pandemic, the Sai delicatessen shop inside a Japanese food supermarket has continued to grow.」

「With the outlook uncertain, we have shifted from opening company-owned stores requiring substantial investment to developing new customers in our food processing and sales business, which uses our central kitchen as a strength, and to opening in food courts. In the food processing and sales business, we have begun transactions with major restaurant companies that recently entered Hong Kong, in addition to existing customers. In the food-court business, we opened Kobe Kitanosaka in March 2020 in the food court of DON DON DONKI OP Mall Main Store, the second Don Quijote store in Hong Kong.」

「Although the protests are expected to gradually subside, the outlook remains uncertain. We are therefore focusing on developing new customers for our food processing and sales business, which uses a central kitchen and requires no new investment, rather than opening company-owned stores, which require substantial investment and involve risk. We have already begun transactions with several major restaurant companies that recently entered Hong Kong.」

「In this extremely challenging operating environment, we introduced newly segmented lunch and afternoon menus at each Wafu Shokudō Torazō restaurant, replacing the uniform all-day menu, in order to improve the profitability of existing stores. The effect is beginning to appear particularly at the Kei Tin store, where lunch sales had been weak.」

「To address the rising trend in costs, we are moving rapidly to adjust prices, including price increases, in line with each cost. To address rising food costs, we will work to establish a scheme for directly importing some ingredients from mainland China or factories in Southeast Asia producing for Japan, rather than importing them from Japan as we have done to date. As a certain volume must be consolidated, we will seek to reduce costs through joint purchasing with other companies in the same industry. Through these initiatives, we will strengthen the profitability of existing stores before proceeding with new openings.」

「We opened the Kei Tin and Wo Che stores of the same format one after the other in December, and all 3 stores have performed well. We had previously partnered only with Japanese supermarkets and department stores, but we have also begun a new initiative with PARKn SHOP, Hong Kong’s largest local supermarket chain. We opened our Takumi Kobo Hideyoshi shop at the TASTE Tung Chung store in October and at the TASTE Festival Walk store in January. Both stores are performing in line with plan.」

「Until now, the fast-food business had operated only in Japanese supermarkets and department stores. On 23 October, we opened Takumi Kobo Hideyoshi at the Taste Tung Chung store, part of the Park’n Shop chain, which has the largest number of stores in Hong Kong. This is our first opening in a local supermarket, and it has performed extremely well. In the restaurant business, Wafu Shokudō Torazō, which opened in April and was the Hong Kong company’s first street-front location, has also continued to perform well. We opened its second store, the Kei Tin store, on 4 December and its third store, the Wo Che store, on 21 December, one after the other, and both have performed well. We will continue opening stores in this format.」

「Existing stores at our main locations, Japanese department stores and supermarkets, have also continued to suffer from weak sales since last year because there are too many stores. Wafu Shokudō Torazō, which opened in April this year, has performed well after more than six months in operation. It represents a successful new initiative, offering reasonably priced Japanese food at a street-front location rather than in the large shopping malls, Japanese department stores and supermarkets that have supported the business to date. We will open 2 additional Wafu Shokudō Torazō restaurants by December 2018. In late November, we will also open Takumi Kobo Hideyoshi at the Higashi-Tung Chung store of Taste, a local food supermarket chain where we have not previously operated. Starting with this store, we will expand into local food supermarkets as well as the Japanese locations where we have continued to struggle.」

「On 17 April, we opened a street-front restaurant in the Cheung Sha Wan area of Kowloon under the new low-price format Wafu Shokudō Torazō, centered on ramen, boxed meals and rice bowls. Sales have been strong since opening, coming in substantially above expectations.」

「Given soaring rents and competition from brands newly entering Hong Kong from Japan, it can be said that securing prime properties in the shopping malls where we have traditionally opened stores is impossible. We therefore need to expand into suburban street-front locations rather than relying on the many existing Japanese supermarkets or shopping malls pursuing an increasingly upscale strategy.」

「As a new market within the growing number of Japanese supermarkets, we will open 1 delicatessen shop in a supermarket food section in January 2018 and 1 in February 2018, a format we have not previously operated.」

「As supermarkets themselves are becoming smaller, many new locations do not include the food courts where we have traditionally opened stores. Going forward, we plan to propose new shop formats that can also operate within supermarket food sections.」

「We will also open our new brand, Miyakojimaya, at Tseung Kwan O, the ninth new store of YATA, a local Japanese supermarket chain in Hong Kong. This is a new shop format that adds pancakes, soft-serve ice cream and other sweets to Takumi Kobo Hideyoshi, our Osaka-style flour-based food concept centered on okonomiyaki and takoyaki.」

「In the ASMO CATERING (HK) business, amid intense competition, we opened Torazō Shokudō on 1 October at the Tsuen Wan store of YATA, a Japanese supermarket, to improve profitability. It is a small fast-food shop of approximately 60 square metres, centered on ramen and Japanese boxed meals, located within the food section of the YATA store. We also worked to close and review unprofitable restaurants, but as labour and rent costs remained high, revenue and profit declined.」

「In the ASMO CATERING (HK) business, amid intense competition, we opened Torazō Shokudō on 1 October at the Tsuen Wan store of YATA, a Japanese supermarket, to improve profitability. It is a small fast-food shop of approximately 60 square metres, centered on ramen and Japanese boxed meals, located within the food section of the YATA store. We also worked to close and review unprofitable restaurants, but as labour and rent costs remained high, revenue and profit declined.」

「Against this backdrop, we newly opened Cosmos House Cornhill to improve profitability. The restaurant is located in a mall directly above Tai Koo Shing Station on the MTR, in a suburban city on Hong Kong Island with the largest Japanese population. Under the name “Cosmos House Pancake Cafe,” we developed the menu and store image around the concept of a Western-style family restaurant offering an extensive dessert menu centered on pancakes. Benefiting from the recent café boom in Hong Kong, the restaurant has performed well since opening on 5 August.」

「In the ASMO CATERING (HK) business, we are working to strengthen profitability by converting unprofitable restaurants to different formats and opening new restaurants. Going forward, we will work to improve and maintain the quality of our menus and services and secure stable earnings.」