Message from the President

Accelerating “Evolution” and “Revitalization” in the Wake of Market Recovery
Establishing a Foundation for Sustainable Growth

Yasutaka Kawamura,

Responding to challenging cost environment in the third year of the pandemic
Successful conversion to C&C locations helped achieve our planned figures

In FY2022, social and economic activities showed signs of recovery from the previous year, with the lifting of activity restrictions during the long holidays in May. This progress was halted by the seventh wave of COVID-19 infections that spread in July, bringing back unpredictability. The food service industry faced difficulties in attracting customers back. Similarly, businesses in other countries faced a significant challenge in terms of market environment, especially in China where the strict zero-coronavirus policy remained in place until December.
Moreover, the escalating costs of crude oil, primarily caused by the situation in Ukraine and other factors, resulted in a notable surge in utility expenses. Combined with soaring raw material prices, labor, and distribution, this led to an unprecedented surge in overall costs.
In FY2020, when the pandemic started to spread, our group adopted "structural changes" aimed at ensuring survival. One of these measures involved lowering the breakeven point, which was intended to maintain our previous profit level even if sales dropped to 90% of the FY2019 level. Although this measure significantly contributed to the rebound in profits in FY2021, the cost increases in FY2022 nearly offset the impact of the "structural changes." Throughout the year, our management team continued to send out positive messages to employees, mindful of the strain to control cost on the site, to manage costs and launch price revisions and other concrete measures to tackle the challenging situation.
In this business environment, our primary business Yoshinoya achieved a year-on-year sales growth of 6.3%.This outcome is a testament to our successful transition to Cooking & Comfort (C&C) locations - a top priority policy for us, and customers' acceptance of price revisions, combined with a robust external sales business. Although the profits were lower than in the previous fiscal year, the profit margin was close to that during the pre-pandemic period.
Our efforts were successful in generating increased revenue and profit in the consolidated results for FY2022, which were very close to our planned objectives, with net sales of 168.0 billion yen (up 9.4% from the previous year) and operating income of 3.4 billion yen (up 45.2%). Our ordinary income for the year was 8.7 billion yen (down 44.1%) and the net income attributable to parent company shareholders was 7.3 billion yen (down 9.2%). These figures exceeded our planned objectives, partly due to the larger-than-expected subsidy for businesses that cooperated with pandemic control measures.
We give a certain credit to the fact that we were able to achieve the operating income figures in our initial plan, which represents the profit of our main business, despite the challenging cost environment during the third year of the pandemic. However, we believe that the results are not fully satisfactory in terms of growth and profitability. Regarding our investment for growth, the transition to C&C locations by Yoshinoya has been largely executed according to plan. Unfortunately, we have not made significant headway in introducing new model stores in the Hanamaru business or pursuing new M&A opportunities, leading to delays similar to those experienced in the previous year.

In the face of rising costs for various items, we have maintained the number of customers at existing stores
by enhancing overall store experience while implementing price revisions.

In October 2022, Yoshinoya revised the prices of its main products, including "Gyudon Namimori" (regular-size beef bowl). The implementation of price revisions was a necessary response to ensure a stable supply of products while maintaining quality, despite the rising costs of various items. This marks the second consecutive year of price increases, following the price revision conducted in October 2021, which was a response to the soaring cost of imported beef. The Yoshinoya brand is committed to its fundamental principle of serving delicious meals at affordable prices, as encapsulated by its motto of "tasty, cheap and fast." This phrase represents the cornerstone of its values, which the company has embraced since its inception as a pioneer in casual dining. While our decision on the price increase is influenced by the external environment, it remains a challenging choice for us to make.
On the other hand, the number of customers at existing stores, which is an important barometer of customer support, remained nearly unchanged in FY2022 compared to the previous fiscal year. However, the average spending per customer at Yoshinoya has increased by over 200 yen in the past decade, currently standing at approximately 660 yen. This increase in average spending has contributed more than 20 billion yen to Yoshinoya's operating revenue growth of around 30 billion yen over the same period.
Even with the rising prices, we are committed to enhancing our hospitality to ensure customer satisfaction and provide value dining experience that goes beyond cost, rather than simply passing on costs. We are confident that these efforts have helped maintain the number of customers and increase their average spending even after the price increase.

Delays experienced in the “revitalization” phase in the first year of medium-term management plan
The operating income target is within reach, complemented by “evolution”

Our group is determined to redefine the food service industry by creating new markets and values under our long-term vision "NEW BEGINNINGS 2025 (NB2025)," which encompasses a 10-year period from FY2016 to FY2025. In FY2022, we launched a three-year medium-term management plan centered around the themes of "Evolution" and "Revitalization" as we execute our business strategy to achieve sustainable growth. Our goals for the third year of the plan in the consolidated financial results for FY2024 include achieving "net sales of 180 billion yen," "operating income of 7 billion yen (operating margin of 3.9%)," "ROIC of 5.0% or more," and "debt-to-equity ratio of 0.6 or less.” To achieve these targets, we are improving capital investment efficiency and profit levels by deepening group management and business strategies.
In the first year of the plan, our "Evolution" initiative aimed to convert the Yoshinoya business to a C&C store format. We successfully opened and renovated 83 stores, which is less than our annual target of 110 stores (renovations and openings). Many existing stores recorded an increase in sales since the conversion, demonstrating the effectiveness of the initiative. Additionally, we have established a low-investment model for C&C store implementation and launched a system to accelerate format conversion. The achievements of the "Evolution" initiative include the enhancement of product value with a strengthened focus on the sales of karaage chicken and the use of digital technology such as smartphone apps and tablet ordering.
Our "revitalization" efforts remained sluggish in the first year despite our efforts to restore the performance of the Hanamaru, China, and Setagaya businesses to their pre-pandemic levels. As we continue with our reform measures and await the end of the pandemic, we recognize the importance of being prepared for a favorable turnaround in the business environment, to catch a tailwind by having our sails wide open.
Our medium-term management plan outlines growth investments of 40 billion yen over the next three years, with 30 billion yen dedicated to capital investment, primarily in existing businesses, and 10 billion yen for M&As. Regarding investment in existing businesses, we plan to focus on format conversion to C&C stores, which has demonstrated a higher rate of success, and stepping up operations in other countries. Initially, we aimed to convert 500-600 stores to the C&C format over three years. However, we believe that by introducing a low-investment model, we can increase the figure to 800 stores by FY2025 and beyond.
Our primary target for M&A is the ramen category, which we hope to establish as the fourth pillar of our business. Our selection criteria for M&A targets include stores that are popular locally and have investment and average spending per customer figures similar to Yoshinoya and Hanamaru. We are not limiting our business options to Tokyo or 100% share acquisition. Our policy for the ramen category is to create a medium-sized multi-brand business with multiple brands rather than developing a major brand that operates a large number of ramen stores. We aim to achieve synergies through partnerships with Withlink for chain M&A and with Setagaya for individual store M&A.
Our strategy for achieving the numerical targets in the final year of our medium-term management plan does not rely on M&A, but rather on organic growth. We are confident that we can reach our goal of”180 billion yen” in net sales with the post-pandemic recovery. As long as the cost environment remains stable, we are fully capable of achieving our target of “7 billion yen in operating income.” Although the “revitalization” of the Hanamaru business, a key aspect of our policies, may experience delays, we believe that growth through the “evolution” of Yoshinoya can more than make up for any potential shortfall.

Promoting human-centered management through “genuine humane resource utilization”
Maintaining and improving corporate culture that offers opportunities to all “people.”

As of the fiscal year ending on March 31, 2023, it is mandatory for financial reports to include the disclosure of human capital information. In response, businesses are reevaluating their management strategies to consider the utilization of human resources, and are seeking to quantify and visualize their human capital.
From the very beginning, our group has always held the philosophy of "For the People" at the heart of our management approach, recognizing that “people” are our most valuable asset in generating value. Our commitment has been to question how we can best serve our customers, business partners, shareholders, investors, local communities, and our Group employees. As a company dedicated to promoting opportunities for all, we will enhance our corporate value by providing unique values that only "people" can offer as we strive to foster the success and growth of our employees and undertake various initiatives that contribute to society. That, we believe, is our vision of human-centered capital management.
Up until now, we have implemented our approach to "people" without making a strong appeal to the outside world because it has been taken for granted inside the company. However, with the increased emphasis on human capital management, we recognize the importance of actively communicating our approach to the public.
For instance, the “genuine merit system" advocated by our group is a genuine one that provides opportunities for success and growth to all individuals, regardless of their academic background, experience, gender, nationality, age, or any other personal attributes. At our stores, part-time employees have the opportunity to become full-time employees. From the moment they join us, we keep the door open for potential promotions to senior management positions. Members of "New Long-Term Forum," which is responsible for formulating the company's long-term vision for the next fiscal year, mentioned earlier, are selected based purely on the quality of the reports submitted by the applicants and their performance during interviews, without any consideration for their current position or past performance.
Our approach of fostering and utilizing individuals, and recognizing their value as "human beings," is an integral part of our initiatives to promote "genuine work style reforms." As one example, we offer paid vacation time not only to our full-time employees but also to our part-time store staff, and we actively encourage them to utilize this benefit. This is not a newly implemented policy. As evidence, when I was employed part-time at a Yoshinoya store some 35 years ago, I utilized 100% of my allotted paid vacation time.
By maintaining our corporate culture of human-centered capital management and leveraging it as a foundation for further opportunities, we can ensure the sustainable growth of our group.
To enhance the development of the next generation of managers, we have initiated workshop-style activities for area managers and supervisors to share my learning about management.
Since assuming the position of President, I have not experienced a situation that can be described as favorable, given the numerous swift and drastic changes in the environment. However, I am optimistic that this fiscal year will bring about some positive changes as we work towards recovery from the pandemic's effects, and I am hopeful that we will experience renewed growth. We respectfully request that all our stakeholders continue to provide their understanding and long-term support for our group's business.

April 2023, Yasutaka Kawamura