Risk from intensifying competition and declining customer traffic at overseas stores

「Excluding the Taipo Hideyoshi store, which closed in October last year, and the Tung Chung Hideyoshi store, which closed in January this year, the 10 existing stores in the restaurant business continue to struggle, with aggregate sales below both budget and the prior year's results.」

「The phenomenon known as “northbound consumption,” in which Hong Kong residents travel to mainland China, including Shenzhen, to shop and dine rather than spending in Hong Kong, continues and is having a significant impact on the performance of Japanese supermarkets and department stores.」

「Hong Kong residents continue to travel overseas, mainly to China, during holidays such as Lunar New Year, with outbound travel exceeding inbound travel. Service industries such as retail and food services have been severely affected, and the former level of activity has not returned.」

「During the pandemic, food supermarkets increased sharply as Hong Kong residents, whose dining-out ratio had been very high, changed their eating habits significantly and more people began eating at home. In the post-COVID period, food supermarkets have clearly become excessive, causing stores such as Takumi Kobo Hideyoshi and Japanese delicatessen 彩 inside food supermarkets to struggle.」

「In Hong Kong, as in the first quarter, no recovery has been seen in demand in the retail and food-service industries that was expected in the post-COVID period. Temporary factors include Hong Kong residents, fatigued by the pandemic, traveling to Japan and other Asian countries, as well as an outflow of people to mainland China, particularly on weekends. A more structural factor is that Hong Kong society is entering a period of fundamental change, which is thought to have been triggered by the political turmoil in 2018.」

「In Hong Kong, travel between Hong Kong and mainland China was normalized in February 2023 following the easing of the zero-COVID policy, and a rapid economic recovery was expected. However, after travel was normalized, the number of Hong Kong residents crossing the border to mainland China and overseas for shopping and dining increased sharply, far exceeding the number of visitors entering Hong Kong from mainland China. In addition, tourists’ consumption patterns have shifted away from the former focus on shopping, and the economic recovery has therefore been extremely gradual.」

「Although demand in the retail and food-service industries was expected to recover sharply following the easing of entry and exit restrictions on travelers from China and other countries, outbound travel exceeded inbound travel. Even during peak periods such as Lunar New Year and Easter, the former level of activity was not seen, and demand has not returned to pre-COVID levels.」

「Although travel restrictions on visitors from overseas and Taiwan have not yet been fully lifted in Hong Kong’s retail and food-service industries, which are highly dependent on inbound consumption, we are preparing to capture the expected recovery in inbound consumption once the restrictions are completely removed.」

「In Hong Kong’s retail and food-service industries, which are highly dependent on inbound consumption, foot traffic in the city has gradually begun to return since quarantine at designated hotels upon entry was no longer required from September. Although we expect it will take time for entry from China, where significant demand can be expected, to fully resume, we will prepare to capture post-COVID demand while assessing developments.」

「In the ASMO CATERING (HK) business, although COVID-19 infections within Hong Kong have been contained, cases that had been kept close to zero in various parts of mainland China have begun to rise gradually. Because the Hong Kong government has been extremely cautious about easing restrictions, the recovery trend seen at the restaurants since the second quarter of the current fiscal year has once again stalled.」

「However, the number of small food supermarkets has increased in neighborhoods, and food supermarket openings have recently become excessive. As a result, our stores located inside Japanese supermarkets continue to struggle.」

「Although the spread of COVID-19 within Hong Kong has been almost brought under control, the authorities remain highly vigilant because infections continue to spread in Southeast Asian countries with which Hong Kong has close ties and extensive travel links. Despite community transmission being almost zero, restrictions on restaurants, including a limit of 4 people per table and seating capacity of no more than 50%, have not yet been lifted.」

「Restrictions remain in place, including seating capacity of no more than 50% and a limit of 4 people per group, and considerable uncertainty continues.」

「In the ASMO CATERING (HK) business, the number of COVID-19 cases in Hong Kong, which had been declining since September, began increasing again in November. As a result, the Hong Kong government imposed stringent restrictions from 10 December, including a ban on restaurant operations after 6 p.m.」

「In the ASMO CATERING (HK) business, the number of COVID-19 cases, which had been trending downward, began increasing in early July due to the third wave, prompting the reintroduction of various operating restrictions on restaurants, which had been gradually eased, in a very stringent form. Although the number of new cases has been declining since September, the authorities have been criticized for having invited the third wave by easing restrictions too readily during the second wave. Accordingly, we expect it will take time for restrictions to be eased this time. As a result, revenue for the six months ended the second quarter of the current fiscal year was ¥674 million, down 30.9% year on year, while the segment loss (operating loss) was ¥43 million, compared with a segment loss of ¥51 million in the same period a year earlier.」

「From late March 2020, restrictions were imposed on restaurant seating as measures to prevent the spread of COVID-19, including operating at no more than 50% of seating capacity, prohibiting groups of more than 4 people from sitting together, and requiring at least 1.5 m between tables. In addition, the movement of people was significantly restricted through the almost complete closure of public facilities such as schools and government facilities, as well as the introduction of working from home at many private companies, resulting in a substantial decline in sales.」

「Existing-store sales in February were severely affected, reaching 64.8% of the same month a year earlier.」

「Sales generated by inbound visitors from mainland China, which have driven consumption in Hong Kong’s retail and food-service industries in recent years, have also declined sharply, affecting all stores.」

「We have been struggling with the dual burden of rising costs: higher personnel expenses, including a worsening labor shortage that became pronounced after last year’s Lunar New Year and the resulting surge in wages, and higher food ingredient prices, particularly for fresh produce. In addition, demonstrations against the government’s proposed fugitive offenders ordinance, which began across Hong Kong in May, have continued for an extended period, particularly on Hong Kong Island. As a result, sales at stores, particularly on Hong Kong Island, have remained sluggish, and the operating environment has continued to be the most challenging in several years.」

「For the other existing stores, customer traffic per store has also declined at competitors’ fast-food outlets as competition has intensified due to excessive openings of Japanese supermarkets and department stores, and sales at our stores continue to struggle.」

「Existing stores at Japanese department stores and supermarkets, the group's primary operating locations, have continued since last year to underperform amid an oversupply of stores.」

「Large station-front malls in Hong Kong, previously the group's main operating locations, have in recent years been flooded with new brands from Japan. As competition intensified, the group was repeatedly forced to withdraw not only from potential new locations but also from profitable stores that had supported its earnings, which was the main reason for its difficulties in recent years.」

「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.」

「In the ASMO CATERING (HK) business, sales at existing stores continue to struggle due to declining customer traffic at the department stores and supermarkets where the company primarily operates.」

「There used to be only a few competing stores inside Japanese supermarkets, one of the group's core store formats, but the recent increase in new stores has intensified competition and begun to affect the company's sales.」

「Because the group's stores are located overseas, including in Hong Kong, the group works to obtain and monitor information on local conditions at an early stage. Various types of food-service businesses operate in the locations where the group opens stores, and competition among operators to open stores is intensifying. If competing stores open within the same trading area, the performance of the group's stores may fluctuate.」

「In the ASMO CATERING (HK) business, amid intense competition, the company is working to improve profitability,」

「Various types of food-service businesses operate in the locations where the group opens stores, and competition among operators to open stores is intensifying. If competing stores open within the same trading area, the performance of the group's stores may fluctuate.」