Business Risks

(1) Food Safety Management
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: High)

Ensuring the safety of food products is of critical importance to the Group’s restaurant and food product sales businesses. The Group has established a dedicated Quality Assurance Department and implements comprehensive hygiene control throughout the entire process, from procurement and manufacturing to food preparation at stores. In addition, the Group maintains systems to provide appropriate disclosures, including the timely updating of allergen and country-of-origin information in line with product changes.

Nevertheless, if product-related incidents such as food poisoning outbreaks, hygiene issues, labeling errors, or similar events occur, such incidents may not only cause significant inconvenience to customers but may also damage the Group’s brand image and social credibility, result in compensation liabilities, and adversely affect operating results. Relevant matters are reported to directors and other responsible officers on a regular or as-needed basis, and measures are implemented to prevent recurrence.

(2) Changes in Consumer Preferences and Competitive Risks
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: High)

The Group’s operating results are significantly influenced by economic conditions, particularly consumer spending trends. While growth in the overall restaurant industry remains limited, competition continues to intensify due to the expansion of the ready-made meal market led by convenience stores, the rapid growth of food delivery services, and the diversification of sales channels responding to evolving consumer lifestyles and preferences.

The Group continues to pursue sales growth through initiatives including the development of new business formats, product development and menu revisions, expansion of takeout offerings, new store openings across Group companies, and overseas business expansion. However, further intensification of competition may adversely affect the Group’s operating results.

(3) Procurement of Raw Materials and Price Fluctuations
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: High)

The Group continually seeks to mitigate procurement risks by diversifying sourcing channels and developing alternative supply regions for the wide range of food ingredients used across its businesses. However, disease outbreaks, adverse weather conditions, natural disasters, disruptions to imports and exports caused by conflicts, infectious diseases such as COVID-19, fluctuations in foreign exchange rates, and other factors may make it difficult to secure a stable supply of necessary raw materials or may increase procurement costs, which could adversely affect the Group’s operating results.

(4) Securing Human Resources and Labor-Related Issues
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Medium)

The Group employs a large number of full-time employees, contract employees, part-time employees, and temporary staff, many of whom work in stores and production facilities. If rising wages, increasing recruitment costs, and growing labor demand in Japan make it difficult to secure the workforce necessary for operations, labor costs may increase, store opening plans may need to be revised, or certain stores may be temporarily closed, any of which could adversely affect the Group’s operating results.

In addition, amendments to labor-related laws and regulations, immigration laws, pension systems, or other legal requirements relating to the treatment of part-time and temporary employees may increase personnel expenses and negatively affect the Group’s operating results.

(5) Store Opening Strategy and Network Expansion
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Low)

The Group continues to open new stores and renovate existing locations as part of its growth strategy. Prior to opening new stores, specialized departments conduct market research and profitability analyses and make investment decisions based on rigorous investment criteria. However, increases in investment costs resulting from higher construction and labor costs, construction delays, or changes in the business environment after store openings may prevent the Group from achieving expected profitability and could affect operating results.

(6) M&A Activities
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Medium)

The Group may pursue mergers and acquisitions (“M&A”) as one means of achieving business growth. In evaluating potential transactions, the Group conducts due diligence with internal and external specialists and seeks to ensure the objectivity of equity valuations. However, if contingent liabilities or previously unidentified risks emerge after an acquisition, or if integration activities are delayed and expected synergies are not realized, impairment losses on goodwill or other factors could adversely affect the Group’s operating results.

(7) Dependence on the Yoshinoya Business
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: High)

The Yoshinoya segment accounts for a relatively large proportion of the Group’s consolidated revenue. While the Group continues to position Yoshinoya as its core business segment and promotes store openings and renovations, it is also focused on fostering a third core business to reduce dependence on the Yoshinoya segment. Nevertheless, deterioration in the domestic performance of Yoshinoya, changes in consumer preferences, increases in raw material costs, or disruptions in procurement conditions could materially affect the operating results of the Group as a whole.

(8) Country Risks Associated with Overseas Expansion
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Low)

The Group operates company-owned stores and franchise businesses in overseas markets, including the United States, China, and Southeast Asia. Unforeseen changes in political conditions, economic conditions, legal and regulatory frameworks, natural disasters, business customs, or other country-specific risks in the countries where the Group operates may adversely affect the Group’s operating results. In addition, infringement of the Group’s trademark rights through the use of similar trademarks may damage brand value and reputation.

(9) Natural Disasters and Pandemics
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: High)

The Group operates stores, factories, and other facilities throughout Japan. Large-scale earthquakes, floods, typhoons, fires, or other disasters may damage facilities or information systems, disrupt operations, procurement, and logistics, or result in injury to customers and employees, which could adversely affect operating results.

The Group has established business continuity plans (BCPs), conducts disaster preparedness drills, maintains employee safety confirmation systems, and has developed emergency response manuals. However, restoring normal business operations following a major disaster may require a considerable period of time. Furthermore, widespread infectious diseases may make it difficult to secure sufficient customers or employees and could disrupt the Group’s business operations.

(10) Climate Change
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Low)

The Group recognizes climate change as an important management challenge. Transition risks associated with climate change—including higher procurement and energy costs resulting from environmental regulations and the risk of reputational damage if the Group is perceived as lacking environmental responsibility—as well as physical risks—including acute risks such as factory shutdowns, logistics disruptions, and store closures caused by typhoons, and chronic risks such as declining ingredient quality and rising procurement costs due to higher average temperatures and changing weather patterns—could adversely affect the Group’s operating results.

(11) Information Systems and Management of Personal Information
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: High)

The Group relies heavily on information and communication systems for supply chain management, store ordering, customer ordering, and payment processing. Although preventive measures are implemented to reduce risks arising from system failures, computer viruses, and cyberattacks, disruptions caused by malicious attacks or other incidents could hinder efficient operations and the timely provision of products and services to customers, result in a loss of public trust, and adversely affect operating results.

The Group is also investing in the planned replacement of legacy systems and in information systems that contribute to productivity improvements.

(12) Reputational Risks
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Low)

The publication of inappropriate comments, images, or other content relating to the Group or its stakeholders through the internet or other channels may give rise to reputational damage or concerns regarding food safety. Regardless of whether such information is accurate, it could adversely affect the Group’s business operations, operating results, brand image, and social credibility.

Furthermore, reputational damage affecting competitors or other participants in the restaurant industry may also negatively affect the Group if such events reduce public confidence in the restaurant industry or food safety more broadly.

(13) Compliance and Legal Regulations
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Low)

The Group is subject to a wide range of laws and regulations, including the Companies Act, the Financial Instruments and Exchange Act, tax laws, and regulations governing food safety, store facilities, labor practices, and environmental matters. The Group has established a Risk Management Committee and shares and implements measures to address legal and regulatory changes that may affect its operations. However, failures to comply with applicable laws and regulations could damage the Group’s reputation and adversely affect operating results.

The Group also conducts franchise operations both in Japan and overseas, and compliance failures by franchisees may similarly result in reputational damage. In addition, the strengthening of legal or regulatory requirements may increase compliance-related costs and adversely affect operating results.

(14) Rising Interest Rates
(Occurrence Timing: No specific timing; Probability of Occurrence: Medium; Degree of Impact: Low)

The Group finances a portion of its funding requirements through interest-bearing debt, including borrowings and bonds. As a general principle, financing is centrally managed by the parent company, and funding decisions are made after careful consideration of market conditions and financing terms. However, rising interest rates resulting from changes in domestic or international financial markets or monetary policy may increase financing costs and adversely affect operating results.

The Group also recognizes the risk that disruptions in financial markets may make it difficult to issue bonds or obtain financing on planned terms. To address interest rate risk, the Group seeks to maintain financial soundness through measures such as managing the balance between fixed-rate and floating-rate debt, diversifying funding sources, and periodically reviewing hurdle rates used in internal investment decision-making.

(15) Leasing of Real Estate
(Occurrence Timing: No specific timing; Probability of Occurrence: Low; Degree of Impact: Low)

The Group leases offices as well as the land and buildings used for the majority of its stores. Lease terms may generally be renewed upon agreement with the lessor; however, in the case of fixed-term building lease agreements, there is a risk that renewal may be refused upon expiration of the lease term. In addition, even under ordinary lease agreements, lease agreements may be terminated due to circumstances affecting the lessor, or the Group may be subject to requests for rent increases.

Furthermore, the Group may be required to vacate certain leased properties due to factors such as the deterioration of leased buildings over time or land expropriation. Such events could adversely affect the Group’s operating results.

The Group also places security deposits with lessors. There is a risk that a portion of such deposits may become unrecoverable as a result of a lessor’s bankruptcy or other circumstances affecting the lessor.