Facing falling profits at home, Japan’s rotary sushi chains advance overseas expansion
Osaka, Japan-based Kura Sushi, which operates the Kura-zushi rotary sushi chain, announced on 21 January it will open its first store in mainland China.
The restaurant will be located in Shanghai. Kura-zushi (“Zushi” is an alternate pronunciation of “sushi” in Japanese) already had 442 shops in Japan, 23 in the United States, and 20 in Taiwan as of October 2019, and is also planning on opening a new shop in Tokyo’s Asakusa area, a popular tourist area of Tokyo.
The rotary sushi sector is growing in Japan, but for JPY 100 (USD 0.92, EUR 0.83) before tax for a plate of two nigiri as the standard, and steep competition in the sector, profit margins are thin. Some rotary sushi chains are looking for more domestic growth even as others have seen their number of outlets shrink. But mostly, the sector’s big players are looking to overseas expansion for future profits.
According to the Food Service Industry Research Institution, the overall market size of sushi shops in 2016 was JPY 1.5 trillion (USD 13.6 billion, EUR 12.3 billion), making up 10.8 percent of restaurant sector revenues. Within the sushi category, the conveyor belt or rotary (kaiten in Japanese) sushi market amounted to JPY 640 billion (USD 5.8 billion, EUR 5.2 billion), or about 43 percent.
Fuji Keizai Co.’s Food Service Industry Marketing Handbook 2017 estimated that Japan had about 41,500 sushi restaurants in 2016, a decline of 2.4 percent in the number of outlets since 2012. However, the drop in number of shops did not mean less revenue for the sushi sector. Rather, smaller, upscale sushi shops were closing while high-volume family-style conveyer-belt sushi chains were consolidating the market. Conveyor belt sushi shops increased from 3,830 in 2012 to 4,150 in 2016, up 8.4 percent. The top five sushi chains in 2017 were all of the casual kaiten-zushi type. By sales, they were: Akindo Sushiro (JPY 166 billion), Kura Corporation (JPY 115 billion), Hama Zushi (JPY 107 billion), Kappa Zushi (JPY 67 billion), and Genki Zushi (JPY 30 billion). In number of outlets in 2017, Sushiro had 500, Kura Zushi had 410 shops, Hama Zushi had 505, Kappa Zushi had 345, and Genki Zushi had 155.
Currently, Sushiro, based in Suita City, Osaka Prefecture, has more than 500 stores under its own brand. According to its FY2018 annual report, the company plans to open 100 more Sushiro brand stores in the three-year period ending in 2021. The company has said that as part of its expansion plan, it will open 15 additional locations in South Korea and 13 in Taiwan. Future target markets are Hong Kong, Singapore, and North America. The company will also branch out into casual Japanese-style izakaya pubs under the brand “Sugidama.”
One of Sushiro’s strong points is that it has cut out middlemen, and contracts for sourcing directly with fishing and aquaculture companies. However, it is behind some of its competitors in international expansion. Sushiro has most of its outlets in western Japan, reflecting its origin near Osaka. Sushiro is also facing increasing labor costs – as are many retail businesses in Japan – but as its order-taking and serving processes are largely automated, it believes that it can gain a competitive advantage through further automation. To further this goal, it is exploring the implementation of automated and cashless checkout and payment.
There are signs of further consolidation in the market. Akindo Sushiro and Genki Zushi announced a merger plan in 2017 that groups the two companies under a holding company controlled by Genki parent company Shinmei Holdings Co., a rice wholesaler. However, the plan was called off in June 2019 due to differing strategies on store operations in Japan and overseas expansion.
The Kura-zushi chain promotes food with no chemical seasonings, artificial sweeteners, artificial colorings, or artificial preservatives. It presses its shari (vinegared rice portion) of the nigiri sushi by hand. And the chain offers half-size shari for some of its menu offerings.
While the Japanese government has complained that overseas sushi is often not authentic, kaiten sushi in Japan strays far from its roots in order to appeal to families with children. Kura offers rice topped with short-rib, various kinds of tempura, hamburger, roast beef, and fish topped with cheese. Kura goes farther, offering ramen, udon, and eel rice bowls, fried chicken, potato croquets, and a variety of cakes and other desserts.
Hamazushi Co., a subsidiary of Tokyo-based Zensho Holdings, operates the Hama-zushi chain. The parent also operates the popular Sukiya beef bowl chain, as well as some lesser-known brands. It is also following the trend of a diversified menu, including many beef and duck sushi toppings. However, the chain has lost market share in recent years, reducing its restaurant count from 505 in 2017 to 450 shops tday.
Kappa-zushi, owned by Kanagawa-based parent Kappa Create Co., Ltd., was the largest conveyor-belt sushi company until 2010, but lost sales because it did not increase non-sushi side dishes as quickly as other conveyor-belt sushi companies. However, it began to offer special campaigns such as all-you-can-eat sushi. Currently, it is running a half-priced beer campaign at its 325 stores (down from 345 stores in 2017).
In its first quarter FY2020 report, Genki Sushi acknowledged facing a tough business environment, with rising material prices and labor shortages, along with consumer demand for low prices squeezing profits, which were down year-on-year by nearly a quarter. The company’s strength is in areas north of Tokyo and overseas. For its overseas operations, the company makes money by selling ingredients to franchisees. It operates 156 of its own restaurants in Japan (of these, 126 are non-revolving type), while overseas, it operates an additional 193 stores, of which 82, or 40 percent, are of the non-revolving type. The company has said it is planning to expand the number of non-revolving type shops.
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