1038_22

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Table of Contents

1, Comprehensive Industry - Japan

2, Iron and Steel - Japan

3, Non-ferrous Metals - Japan

4, Paper and Pulp (Japanese only)

5, Cement - Japan

6, Chemicals - Japan

7, Pharmaceuticals - Japan

8, Petroleum - Japan

9, Automobiles - Japan

10, Shipbuilding (Japanese only)

11, General Machinery (Japanese only)

12, Electronics - Japan

13, IT Services - Japan

14, Telecommunications - Japan

15, Broadcasting (Japanese only)

16, Marine Shipping (Japanese only)

17, Logistics - Japan

18, Electric Power - Japan

19, City Gas (Japanese only)

20, Retail - Japan

21, Food and Beverage - Japan

22, Food Service Industry - Japan

23, Construction (Japanese only)

24, Real Estate and Housing - Japan

25, Travel and Tourism - Japan

26, Nonbank (Credit Cards & Credit) (Japanese

only)

27, HR Service Industry (Japanese only)

Ja an Industr Outlook / 38

2012 No.1

Contact:

Industry Research Division

Mizuho Corporate Bank, Ltd.

[email protected]
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FY2012 Japan Industry Outlook (Food Service Industry)

The Food Service Industry

Summary

Food service expenditures (per household member) in 2011 are forecasted to beminus 3.2% year-on-year as a whole, largely due to the fall in food service

expenditures immediately after the Great East Japan Earthquake, despite signs of

the leveling off of the expenditure declines from June and beyond. Food service

expenditures in 2012 are forecasted to increase 1.8% year-on-year. While

reconstruction-related demand is expected to peak out in the second half of the

year, bringing with it some uncertainties about the mood of self-restraint in

consumption, food service expenditures are forecasted to increase in 2012 as a

whole with the income environment expected to improve, including an increase

in summer bonuses as corporate performance improves.

Net sales of all stores of food service chain companies as a whole in 2011 wereminus 1.2% year-on-year as a result of the impact of negative factors, including

the mood of self-restraint in consumption following the earthquake, restraint in

summer events, and poor weather. Net sales of all stores in 2012 are forecasted to

increase as a whole, due to the expected increase in the number of customers and

sales per customer based on the easing of the self-restraint in consumption

following the earthquake and improvements in the income environment.

Furthermore, the number of stores is expected to increase as a result of new store

openings, primarily in the FF category.

The fiscal 2011 mid-term results of 39 listed food service companies (with overJPY20 billion in net sales) showed revenue increases and profit increases owing

to the significant number of new store openings in the Japanese fast food

category (hereinafter FF category) centered around the gyudon chain

companies. The fiscal 2011 results of eight major companies were dominated by

the results of individual companies, including Zensho HDs revenue increase as a

result of opening new Sukiya stores and McDonalds HDs revenue decrease as a

result of franchising and store relocations.

I. INDUSTRY TRENDS

1. Food service expenditure trends

Food service expenditures (per household member) in 2011 are forecasted to be

minus 3.2% year-on-year, largely due to the fall in food service expenditures

from March to May caused by the Great East Japan Earthquake, despite signs

of the leveling off of the expenditure declines from June and beyond (Figure22-1). While food service expenditures decreased by as much as 16.0%

Food service

expenditures in

2011 forecasted to

decrease 3.2%

year-on-year

Mizuho Corporate Bank, Industry Research Division1

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year-on-year in March, they recovered to register a 1.3% year-on-year increase

by July. Several overlapping factors contributed to the significant recovery in

July, including the payment of summer bonuses and the easing of self-restraint

in consumption following the earthquake, an earlier-than-usual end of the rainy

season, and one additional national holiday compared to July 2011. In August

2011, the restraint of summer events and poor weather led to fewer

opportunities for food service utilization, and food service expenditures were

minus 3.3% year-on-year. However, food service expenditures are on a path to

recovery from the earthquake disaster, with expenditures increasing 0.1%

year-on-year in October and being minus 0.3% year-on-year in November.

Food service expenditures in 2012 are forecasted to register growth in the first

half of the year as the income environment improves with the recovery in

corporate performance. In the second half of the year, whilereconstruction-related demand is expected to peak out, bringing with it some

uncertainties, the income environment is anticipated to remain as solid as the

first half of the year. Hence, food service expenditures for the whole year are

forecasted to increase 1.8% year-on-year.

Food service

expenditures in

2012 forecasted toincrease 1.8%

year-on-year

The ratio between food service and home meal replacement expenditures as a

share of the food expenditures in 2011 (ratio of home meal replacements) has,

as a whole, maintained a certain ratio even after the earthquake and is

forecasted to be 28.3%, around the same level as the previous year (Figure

22-2). Due to a decline in opportunities for food service utilization, the ratio offood service expenditures decreased by minus 0.4p year-on-year. Meanwhile,

as demand for home meal replacements increased through their sales at retail

stores, such as convenience stores, owing to their convenience in terms of both

price and location, the ratio of home meal replacements increased by 0.3p

year-on-year. As such, awareness is quickly spreading about the convenience of

home meal replacements among consumers.

Earthquakes

effect to cause

shift in consumer

demand from

food service to

home mealreplacement


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[Fig. 22-1] Food service expenditure and food expenditure (monthly)

year-on-year rate of growth (per household member)

(Source) Compiled by MHCB Industry Research Division based on

Ministry of Internal Affairs and Communications Statistics Bureau's

Household Survey Report.

(Note) Figures for two or more person households.

[Fig. 22-2] Ratio of food service and home meal replacement expenditures as a

share of food expenditures

(Source) Compiled by MHCB Industry Research Division based on

Ministry of Internal Affairs and Communications Statistics Bureaus

Household Survey Report.

(Note) Home meal replacement expenditures are prepared foods

excluding frozen prepared foods and food stuff for cooking. 2011

figures are based on MHCB Industry Research Division forecasts.

17.9 17.7 18.0 17.7 18.0 18.0 17.9 18.1 18.2 18.0 18.1 17.7

9.2 9.6 9.7 9.8 9.7 10.2 10.4 10.2 9.9 10.0 10.3 10.6

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e

(Unit: %)

Home meal replacement

Food service

2 8 38 42 88 28 38 32 8 22 7 67 72 7 47 1

Ratio of home meal replacement

CY

2 7 7

-

-

-

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

e

08

/1 2 3 4 5 6 7 8 9

10

11

12

09

/1 2 3 4 5 6 7 8 9

10

11

12

10

/1 2 3 4 5 6 7 8 9

10

11

12

11

/1 2 3 4 5 6 7 8 9

10

11

18.0

14.0

10.0

-6.0

-2.0

2.0

6.0

10.0

14.0

12 12

()

(Unit: %)

12-mont h moving averages

(food expenditure)

food expenditure

12-mont h moving averages

(food service expenditure)

food service expenditure

Food service

3.2%

Food

1.1%

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2. Chain company trends

The trends of franchise chain companies, which account for JPY3.9 trillion

(estimate) of the JPY22.9 trillion-food service market in 2011 (estimate), areexamined based on the company trends of the Japan Food Service Association

(JF) members (requirement for full membership: company with over JPY100

million in annual sales) (Figure 22-3). Net sales of all chain companies,

including sales of newly opened stores, were minus 1.2% year-on-year in 2011

as a result of the impact of negative factors, including the mood of self-restraint

in consumption following the earthquake and poor weather in August and

September (Figure 22-4).

Net sales of all chain companies in 2012 are anticipated to increase throughout

the year due to the easing of the self-restraint in consumption following the

earthquake and an improved income environment with the recovery in

corporate performance. However, reconstruction-related demand is expected to

peak out, bringing with it some uncertainties, and the situation remains

unpredictable.

Next, chain company trends are examined according to four categories: FF

category (2011 market size: JPY1.7 trillion1); family restaurant category

(hereinafter FR category; 2011 market size: JPY0.8 trillion); pub and izakaya

category (2011 market size: JPY0.5 trillion); and dinner restaurant category

(hereinafter DR category; 2011 market size: JPY0.2 trillion). To understand

the characteristics of each category, both one-month and three-month moving

averages are confirmed to analyze the trends. Net sales of all stores in 2011 in

the FF category, while registering minus 8.3% year-on-year based on the

1 The 2011 market size of each category is projected based on Japan Food Service Associations March 2011 Food Service

Industry Management Trends Survey Report and Market Trends Survey and is comprised of 95 listed companies.

(Source) Compiled by MHCB Industry Research Division

based on Japan Food Service Association documents.

(Note) Three-month moving averages.

[Fig. 22-3] Estimated size of

food service market by category (2011)

[Fig. 22-4] Chain companies (monthly) year-on-year

growth (all stores)

Net sales of all

stores (includingnew stores) in 2011

minus 1.2%

year-on-year

Net sales of all

stores (including

new stores) in 2012

forecasted to

increase

Background and

trends of sales

recovery differ by

chain category

(Source) MHCB Industry Research Division projections based

on Japan Food Service Association's March 2011 Food

Service Industry Management Trends Survey Report and

Food Services Report and Foodservice Industry Research

Institutes 2010 Food Service Industry Market Projection.

-6

-4

-2

0

2

4

2000

2002

2004

2006

2008

2010

08/2

08/4

08/6

08/8

08/10

08/12

09/2

09/4

09/6

09/8

09/10

09/12

10/2

10/4

10/6

10/8

10/10

10/12

11/2

11/4

11/6

11/8

11/10

11/12

CY)

6

8 (%)

Sales Store number

Customer number Sales per customer

JPY19.0

trillion

(83%)

JPY3.9

trillion

(17%)

Franchise stores

TotalJPY22.9

trillion

Private stores

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single-month average in March, recovered to +2.0% year-on-year based on

three-month moving averages in November (Figure 22-5). The major

contributing factors were that among the FF category, chain companies such as

leading gyudon companies Sukiya, Yoshinoya, and Matsuya as well as

leading self-service udon noodle company, Marugame Seimen, continued to

open new stores even after the earthquake. In 2012, new gyudon and

self-service udonnoodle stores are expected to open. As a result of this increase

in store numbers, net sales of all stores are expected to see a positive trend. Net

sales of all stores in 2011 in the FR category fell to minus 9.4% year-on-year

based on the single-month average in March as a consequence of the

earthquake (Figure 22-6). From June and beyond, while the number of

customers increased, helped by marketing measures centered around the mass

media, net sales of all stores based on three-month moving averages stayed at

0% year-on-year even in December, due in part to the poor weather from

August to September. In 2012, while companies will be less willing to open

new stores and the number of stores will hover around the same level, brand

shifts by existing stores of companies, such as Skylark and Royal HD, and

renovations of the existing stores of companies are projected to increase the

number of customers, in turn leading to a positive trend in net sales of all stores.

Net sales of all stores in 2011 in the pub and izakayacategory fell sharply by

minus 19.8% year-on-year based on the single-month average in March and

continued to decrease based on both one-month and three-month moving

averages (Figure 22-7). This negative trend has continued almost consistently

since November 2008. The reasons include the increase of the elderly

population, the decrease in alcohol consumption among the young generation,

and the novelty of existing izakayastores wearing off among consumers. For

these reasons, net sales are projected to continue to decrease in 2012. Net sales

of all stores in 2011 in the DR category, while falling to minus 19.5% compared

to all years based on the single-month average in March, showed strong

recovery in June, increasing 0.6% based on three-month moving averages

(Figure 22-8). It is projected that this is the result of an increase in the number

of customers and sales per customer and that this capture the consumers needs

to enjoy a little luxury in response to the self-constraint in consumption. Net

sales of all stores in 2012, while expected to increase due to the easing of the

self-restraint in consumption following the earthquake in the first half of the

year, are forecasted to decrease as companies slow down in new store openings

in the second half of the year, causing store numbers to level off.


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II. CORPORATE EARNINGS

1. Mid-term results of food service companies (39 listed companies)

The fiscal 2011 mid-term results of 39 listed food service companies with over

JYP20 billion in net sales showed revenue increases and profit increases (net

sales +0.2% and operating income +12.6% compared to fiscal 2010 [Figure

22-9]). The revenue increase stemmed in large part due to new store openings

by low-priced brands. Specifically, Japanese FF Zensho HD (sales +7.5%

year-on-year) and Matsuya Foods (+6.9% year-on-year) increased sales by

actively opening new stores and increasing customer numbers through

price-down campaigns in the gyudonbusiness. In addition, Toridoll, operator of

(Source) Compiled by MHCB Industry Research Division basedon Japan Food Service Association documents.


[Fig. 22-5] (Monthly) year-on-year rate of growth in FF

category (all stores)

(Source) Compiled by MHCB Industry Research Division basedon Japan Food Service Association documents.


[Fig. 22-6] (Monthly) year-on-year rate of growth in FR


(Source) Compiled by MHCB Industry Research Division based

on Japan Food Service Association documents.


(Source) Compiled by MHCB Industry Research Division based

on Japan Food Service Association documents.


[Fig. 22-8] (Monthly) year-on-year rate of growth in DR


[Fig. 22-7] (Monthly) year-on-year rate of growth in

pub/izakayacategory (all stores)

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2000

2002

2004

2006

2008

2010

08

/2

08

/4

08

/6

08

/8

08

/10

08

/12

09

/2

09

/4

09

/6

09

/8

09

/10

09

/12

10

/2

10

/4

10

/6

10

/8

10

/10

10

/12

11

/2

11

/4

11

/6

11

/8

11

/10

11

/12

(CY)

(%)

Sales Store number

Cus tomer number Sal es per customer

-8

-6

-4

-2

2000

2002

2004

2006

2008

2010

08

/2

08

/4

08

/6

08

/8

08

/10

08

/12

09

/2

09

/4

09

/6

09

/8

09

/10

09

/12

10

/2

10

/4

10

/6

10

/8

10

/10

10

/12

11

/2

11

/4

11

/6

11

/8

(CY)

0

2

4

6

8

10

11

/10

11

/12

(%)

Sales Store number

Customer number Sa les per customer

-15

-10

-5

0

5

10

15

2000

2002

2004

2006

2008

2010

08

/2

08

/4

08

/6

08

/8

08

/10

08

/12

09

/2

09

/4

09

/6

09

/8

09

/10

09

/12

10

/2

10

/4

10

/6

10

/8

10

/10

10

/12

11

/2

11

/4

11

/6

11

/8

11

/10

11

/12

(CY)

(%)

Sales Store number

Cus tomer number Sales per customer

-12

-10

-8

-6

-4

-2

0

2

4

6

8

2000

2002

2004

2006

2008

2010

08

/2

08

/4

08

/6

08

/8

08

/10

08

/12

09

/2

09

/4

09

/6

09

/8

09

/10

09

/12

10

/2

10

/4

10

/6

10

/8

10

/10

10

/12

11

/2

11

/4

11

/6

11

/8

11

/10

11

/12

(CY)

(%)

Sales Store number

Customer number Sal es per customer

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the self-service udonnoodle restaurant chain (+24.8% year-on-year), increased

sales by new store openings. The profit increase stemmed from companies

continued closures of unprofitable stores and wide-ranging cost review, coupled

with new store openings by Japanese FF, including Zensho, Matsuya Foods,

and Toridoll. While the overall result was revenue increases and profit increases,

among the 11 food service categories, only 3 had revenue increases and profit

increases due to the impact of sales declines in the earthquakes immediate

aftermath.

(Source) Compiled by MHCB Industry Research Division based on corporate financial statement documents.(Note) Major food service companies: 39 listed companies with over JPY20 billion in sales (fiscal 2010 results) andpublic records of net sales and operating income by category (1. Western FR: Saizeriya; Joyfull; CreateRestaurants; Saint Marc HD; Nippon Restaurant System; 2. Japanese FR: Gourmet Kineya; Sato RestaurantSystems; Sagami Chain; 3. DR: Kisoji; Umenohana; 4. Western FF: McDonalds Holdings Japan; Kentucky FriedChicken Japan; Mos Food Services; 5. Japanese FF: Zensho [individual basis]; Yoshinoya HD [gyudonbusiness];Matsuya Foods; Ichibanya; Toridoll; Fujio Food System; 6. Izakaya [Japanese style bar/restaurant]: Colowide;Watami [food services business]; Daisyo; Via HD; Dynac; Sanko Marketing Foods; 7. Cafe: Starbucks Coffee

Japan; Doutor; 8. Food service: SHiDAX; 9. Kaitenzushi [revolving sushi bar]: Kappa Create; Kura Corporation;Genki Sushi; 10. Home meal replacement: Plenus; Hurxley; Rock Field; Kozosushi So-Honbu; 11. Chinese/Ramen:Ohsho Food Service; Ringerhut; Kourakuen; Hiday Hidaka)While Nippon Restaurant System and Doutor are listed in separate categories, they are counted as one company.

[Fig. 22-9] Fiscal 2011 mid-term results by food service category (year-on-year change)

-40.0

-30.0

-20.0

-10.0

-15.0 -10.0 -5.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0 5.0 10.0 15.0

Revenue increase / profit decrease

Revenue increase / profit increaseRevenue decrease / profit increase

Revenue decrease / profit decrease

Kaitenzushi (3)

Japanese FF(6)

Chinese (4)

Western FR (5)

Total (39)

Cafe (2)Western FF (3)

Homemeal

replacement (4)

DR (2)

Izakaya (6)

Japanese FR (3)Net sales : -2.86%Operating income: +523%

Service (1)Net sales: - 4.68%Operating income: +1031%

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(8 major companies)

McDonalds HD Japan; Zensho HD; Yoshinoya

HD; Colowide; Watami; Royal HD; Seven & i

Food Systems; and Saizeriya

(Source) Compiled by MHCB Industry Research

Division based on corporate financial statement

documents.

(Note) Figures: Consolidated base; For Seven & i

Food Systems, figures from Seven & i Holdings'food business are used. Figures for FY2011 and

FY2012 are based on MHCB Industry Research

Division forecasts.

2. Results of eight major companies

The fiscal 2011 results of eight major companies show revenue decreases and

profit increases, with net sales minus 1.0% and operating income up 5.9%

year-on-year (Figure 22-10). With regard to net sales, while Zensho HDs

opening of new Sukiya stores is expected to increase revenues, McDonalds

Holdings Japans revenue decreases as a result of franchising and store

relocations are forecasted to weigh down overall revenues. As for operating

income, Zensho HDs profit increase owing to expanded sales, McDonalds

improvement in cost ratio through franchising, and all companies reductions in

cost ratio and selling, general and administrative (SGA) expenses through

cost-cutting measures are forecasted to increase overall profits.

The fiscal 2012 results of eight major companies are forecasted to record a

JPY22 billion yen increase in revenues year-on-year due to: 1) Sales increases

from Zensho HDs and Yoshinoya HDs new store openings and new menus for

their gyudon business; and 2) Sales increases from Watamis new office

openings for its nursing care and elderly-oriented home delivery service

businesses. Profits are also forecasted to increase by JPY6.3 billion

year-on-year due to: 1) Profit increases from the above sales increases for

Zensho HD, Yoshinoya HD, and Watami; and 2) Improved cost ratio from

McDonalds Holdings Japans franchising efforts.

III. TOPICS: Promising Business Areas in the Medium-Term Food Service Industry

With Japan set to face a decreasing population and a declining birthrate and

aging society, a mid- to long-term contraction of the domestic food service

market is inevitable. However, the Great East Japan Earthquake has triggered

Revenue

decreases and

profit increases in

FY2011

highlighted by

Zensho HD and

McDonalds HD

results

Revenue

increases and

profit increases

anticipated in

FY2012

[Fig. 22-10] Results forecast for 8 major companies

Possibility of food

service companies

capturing homemeal replacement

market

[Actual]

Companies FY10 FY11 FY12

(Unit) (Result) (Estimate) (Forecast)

(JPY100 million)

[Rate of Chan

13,809

Net Sales

Operating Incom

13,677 13,897

Operating Incom

Net Sales 8 Major

Companies

ge] (Year on Year)

FY10 FY11 FY12

(Result) (Estimate) (Forecast)

42.0 5.9 7.7

- 0.3 - 1.0 1.6

(Unit)

8 Major

Companies

(%)e

e 774 820 883

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an increase in home meal replacement expenditures. Furthermore,

home-cooked meals and home meal replacements account for a large

proportion of the food expenditures of elderly households. A key to a successful

business strategy for food service providers will thus be the capturing of the

home-cooked meal and home meal replacement markets. In particular, as many

operators of low-priced food service chains have said, it is certain that

convenience stores, too, will become competitive in both price and convenience.

In this context, food providers will face an increasingly fierce battle for the

food market, with retail stores also participating in the battle. From this

perspective, the food service industry has witnessed an increasing number of

companies starting home delivery services from their restaurants, as well as

companies establishing drive-thru services, with the aim of capturing the home

meal replacement market by offering a wide selection of eat-in, take-out

(drive-thru), and delivery services.

Nonetheless, food service companies core service is providing food and

customer service to those consumers who come to their restaurants (eat-in).

Home meal replacement services, such as take-out and delivery, are merely

additional services or an extension of eating-in. As long as the QSC2evaluation

is low (based on the eat-in menu, the cleanliness and atmosphere of the

restaurants exterior and interior, and customer service), this will not lead to the

use of take-out and delivery services, and in turn, to the capture of the home

meal replacement market. Therefore, it goes without saying that it is essential

that the food service industry continues to improve the attractiveness of

eating-in.

In view of the growing elderly population, another possible option for food

service providers is to use food as a gateway into businesses for the elderly. For

example, Watami, an izakaya(Japanese style bar/restaurant) operator, entered

the nursing care business by purchasing R No Kaigo Inc. in 2005. It has also

entered the food delivery business for the elderly by purchasing Takushoku Co.,

Ltd. in 2008. Watami has succeeded in expanding both businesses by utilizing

its knowhow in materials procurement and meal preparation accumulated

through its food service business, as well as by setting forth a concept toprovide high quality food.

Meanwhile, overseas, the middle income tier is expanding with the economic

growth in neighboring Asian countries. Also, with Japanese food increasing in

brand value, the overseas is becoming an attractive market and steadily drawing

in Japanese food service companies. Nonetheless, most companies that have

established businesses overseas are chain companies with overseas stores

numbering in the range of only a few stores to several dozens of stores. It is

difficult to say that at present Japanese food is being provided to a greater

2 QSC stands for Quality (quality of menu), Service (customer service), and Cleanliness, and is the most fundamental principle that

ought to be followed by companies and employees in the food service industry.

Possibility of

using food as a

gateway into

businesses for the

elderly

Possibility of

establishing many

stores overseas

utilizing local

companies

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number of the world population. Furthermore, due to the difference in price

levels with Japan, the contribution to the companys sales and profits continues

to remain low. For future expansions into the overseas market, it is the view of

the author that it will be most effective to forge partnerships with local

companies as a solution to different challenges confronting companies,

including those challenges which cannot simply be dealt with through the

business knowhow acquired in Japan, such as the overseas securing of real

estate, marketing, and labor management, and the large amount of investment

required to open new stores. In Asian countries, with the expansion of the

middle income tier and the diversification of the food culture, local companies

may be found that are interested in the Japanese food service business. It is

hoped that Japanese food service companies will forge partnerships with local

companies to establish many stores swiftly, provide Japanese food to more

people overseas, and contribute to the development of the food culture in all the

countries.

Shinya Endo

Distribution & Consumer-related Team

Industry Research Division

Mizuho Corporate Bank, Ltd.


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