Business Risks
Yoshinoya Holdings Business Risks
Updated on
Among the risks that could affect the operating results, financial standing, and stock price of the Group, those risks that could seriously impact the investment decisions of investors are described below. The statements below related to the future are determined by the Group as of the end of the consolidated fiscal year, but the statements do not necessarily cover all risks related to the continuation of business by the Group, and the Group could be affected in the future by risks not covered herein or by any other risks that are considered to be of lower priority.
(1) Risks related to procurement of raw materials and surging prices
The food ingredients used by Group companies are wide-ranging, so the Group will continue to work to hedge risks by developing new production regions for raw materials and practicing non-centralized procurement. However, it is possible that it may become difficult to stably supply raw materials in the necessary quantities due to the impact of disease, bad weather, natural disasters, discontinuation of imports and exports due to conflict, or an infectious disease such as COVID-19. In addition, it is possible that the Group's performance would be seriously impacted by an increase in cost of sales caused by an increase in purchase prices from changes in feed prices, market prices, or exchange rates, etc.
(2) Risks related to securing human resources and labor
The Group employs large numbers of full-time employees, contract employees, and part-time employees. Most work at restaurants and factories, etc. If in the future it becomes difficult to secure employees for the Group in conjunction with higher wages, increased recruitment costs, or increased demand for labor in Japan, it is possible the Group's performance would be affected by an increase in personnel expenses to secure the necessary number of employees, revisions to restaurant opening plans, or temporary shutdowns at some restaurants. In addition, a portion of the part-time workforce relies on foreign workers. Due to changes in the population makeup going forward, it may not be possible to secure an appropriate workforce, and the burden of personnel expenses may increase if laws are amended related to the treatment of part-time workers, such as labor laws and immigration law as well as employees' pension insurance, and this could seriously impact the Group's performance.
(3) Reliance on the Yoshinoya business
Sales from the Yoshinoya segment account for 67.2% of the Group's net sales in the consolidated fiscal year under review. Going forward, Yoshinoya will continue to be the Group's mainstay segment and we plan to open new restaurants and make renovations, etc., but to free ourselves from reliance on the Yoshinoya segment, we will focus on cultivating a core business. However, the Group's reliance on the Yoshinoya business will continue at a high percentage, and the Group's overall performance could be seriously impacted if the performance of Yoshinoya in Japan stagnates, the preferences of consumers change, prices for raw materials increase sharply or the procurement situation worsens, etc.
(4) Food safety management
In the Group's core businesses of restaurants and external sales (online sales), ensuring the safety of products is extremely important. The Group has established the Group Quality Assurance Office as a dedicated division, thereby performing consistent hygiene control thoroughly from sourcing and production to cooking in restaurants, in order to provide safe food to customers under the supervision of the office. Also, the Group is well prepared and able to make appropriate information disclosure such as updates to allergen information or production place information according to the improvement and removal of products. However, in the event of hygiene problems such as food poisoning, or product accidents caused for example by errors in labeling, the Group's business performance could be significantly affected due to damage to the Group's corporate image, payment of damages, etc.
(5) Changes in the preferences of consumers and competition risks
The Group's performance is largely affected by economic trends and trends in personal consumption in particular. Amid sluggish growth in the overall food service market, the market has experienced increasingly intense competition based on the change in its major customer segments due to the diversification of sales channels intended to meet consumer needs in line with new lifestyles, which includes the dramatic expansion of the food delivery business as well as the home-meal replacement market, which is the sale of boxed lunches and prepared foods by convenience stores. To bolster its sales, the Group will continue its efforts to spur the growth of its consolidated companies and will build its overseas operations with the development of new business categories, changes in its product planning, and responses to the increasing demand for take-away food. Notwithstanding these efforts, if competition intensifies further, the Group's business performance could be affected.
(6) Risks associated with natural disasters and pandemics
If major earthquakes, storms, floods, or fires cause damage to facilities, including restaurants and plants, or to information systems, or damage to customers and employees, or interfere with sales activities, purchases, or distribution, the Group's business performance could be affected. The Group has developed its emergency response manual through the formulation of a business continuity plan, the implementation of disaster prevention training, the introduction of the employee safety confirmation system, and others. If any of the aforementioned natural disasters occurs, a certain amount of time could be required until normal business activities are restored. In addition, if it becomes difficult for the Group to continue sales activities due to inability of ensuring the safety of customers and employees caused by the spread, etc., of infectious diseases (including COVID-19), the operating results, etc., of the Group could be affected.
(7) Legal regulations
The Group is subject to the Companies Act, Financial Instruments and Exchange Act, Corporation Tax Act and other general laws and ordinances and also to various laws, regulations, and restrictions on systems related to restaurant operations, including food sanitation, restaurant facilities, labor, and the work environment. The Company has established the Risk Management Committee based on risk management regulations, and response measures are shared and implemented when there are regulatory changes in the legal system that affects the Group. However, if deficiencies or violations occur with respect to regulatory changes in the legal system, the Group's credibility could be impacted and the Group's operating results could also be impacted. In addition, the Group also carries out business activities via franchise contracts in Japan and overseas, and even in cases in which a deficiency or violation occurs at a franchisee, it is possible that the Group's credibility would be damaged. Moreover, if these legal regulations are strengthened, the Group's performance could be impacted by an increase in new costs to comply with them.
(8) Applicaton of impairment accounting
The Group assesses store assets based on the assumption of a business recovery, etc. that is deemed rational as of the present time, but if an event occurs that has a major impact on assumptions for recovery time and performance forecasts, additional impairment losses could occur and affect the Group's business performance. The Group posted an impairment loss of 1,036 million yen in the current fiscal year.
(9) Real estate leasing
The Group leases its offices and most of the land and buildings for its restaurants. Although the leases can be renewed through agreements with the lessors, in the case of a fixed-term building lease agreement, its renewal may be rejected upon expiration of its term, or, even in the case of a normal lease agreement, such lease agreement may be cancelled by the lessors, or such lessor may be offered an increase in rent-fee. Also, the Group may have to vacate properties under lease due to deterioration, expropriation, etc., of the buildings under lease, which could affect the Group's performance. In addition, the Group deposited guarantee money of 11,331 million yen to the lessors at the end of the business year, which poses a risk that such guarantee money may become partially irrecoverable due to a lessor's bankruptcy or any other circumstances.
(10) Risks relating to information system
The Group relies greatly on information and communication systems for supply chain management operations, orders from stores, orders at stores, and approval procedures, etc. For the Group's information systems, appropriate measures are taken to prevent program malfunctions, computer viruses and cyberattacks, etc. and efforts are made to mitigate risk. However, should the system go down due for example to a malicious attack, business efficiency could be reduced and timely provision of products to consumers could be impeded, leading to a loss of confidence in the Group, which could affect the Group's business performance.
(11) Protection of personal data
The responsible department of each Group company discloses their privacy policies, thereby properly managing the personal information of their customers, employees, and shareholders and striving to prevent leakage of such personal information. However, it is difficult to completely eliminate the possibility of leakage or fraudulent use from unauthorized access and any leakage of personal information could damage the Group's brand image and lead to the loss of credibility of the Group, the occurrence of expenses to respond, and the payment of damages, etc., which could affect the Group's business performance.
(12) Reputational damage from the Internet, etc.
If reputational damage or concerns about food safety are caused by inappropriate posts or the publication of pictures, etc. on the Internet related to the Group and related parties, regardless of their veracity, the Group's business, performance, brand image, and social credibility could be impacted. And even if the Group's competitors suffer reputational damage, if society's evaluation of the restaurant market as a whole or its confidence in food safety deteriorates, the Group's business, performance, brand image, and social credibility could be affected.
(13) Climate change
Increasing efforts are being made at the global level to limit climate change in part by establishing laws and regulations to rationalize energy usage and address global warming. The Group also recognizes the significance of climate change, and climate change transition risks (the risk that procurement and energy costs go up due to environmental regulations, etc. to address global warming, the risk the Group loses social credibility if the Group is seen as not considering the environment, etc.) and physical risks (the acute risk of restaurants being shut down, operations being stopped at factories and logistics facilities, etc. because of a typhoon, and the chronic risk of lower quality food ingredients and higher prices, etc. due to increased average temperatures and changes in climate patterns) have the potential to impact the Group's performance.
(14) Country risk in overseas development
The Group directly manages restaurants and develops franchises, etc. in overseas markets that include the U.S., China, and Southeast Asia. The risk of unpredictable change in the political situation, economy, legal regulations, or natural disasters in countries where the Company develops overseas subsidiaries, country risks specific to that country's business practices, etc., and restrictions on business activities caused by amendments to the country's laws have the potential to impact the Group's performance. In addition, if the Group's rights are infringed upon by confusingly similar trademarks, it could lower the Group's brand image.