Market-savvy dining model proves a hit

Could you begin by giving us a quick history of Skylark? How did the company grow to represent so many prestigious chains?

It is only about 20 years ago that we started to see people in Japan finally begin to realize the fun and the excitement of eating out. Today the amount of spending per household for eating out in Japan is actually the highest in the world. Japanese people love eating out, that is a fact.

Since the company established its first store in 1970, Skylark has been focused on growing as a company chain store system, rather than as an individual mom-and-pop type of expansion – that is one of our key characteristics. The Japanese market is still full of individual markets and mom-and-pop type shops. The founders of these individually owned shops were born in the baby-boomer generation, meaning that these owners today are aging and that restaurants are beginning to close. As these individually owned stores are beginning to close, more and more chain stores are starting to consolidate in the food industry. From the beginning Skylark has aimed to expand into thousands of levels of store outlets, and that’s when we brought in the various business systems.

There is certainly no shortage of both domestic and international companies operating in the food service industry in Japan. How does Skylark differentiate itself from the competition?

One of the biggest strengths of our industry is that we have 10 food manufacturing plants, which provide us with a central kitchen to supply our foods all over Japan. We are the only restaurant chain that has 10 manufacturing sites. We have 10 central kitchens across Japan, and each central kitchen can manufacture for 20 separate brands at the same time. With a vertically integrated supply chain, we also manage our own logistics.

We are the only company that works this way, and such a system really gives us the flexibility to expand. Regardless of what type of location is available in Japan, regardless of what changes occur in the consumer market, we can develop and launch a new brand anywhere and anytime. We are quick and nimble to react when needed. Usually one central kitchen would specialize in making one type of food, like Western, Japanese, Italian, and so forth. But we at Skylark can do any kind of food in one central kitchen, which is a great advantage in the food service industry. Depending on how the market changes, we are able to quickly react to the demand of the market – that’s one of the benefits of having a very strong central kitchen system, and one of the strengths of our company.

Our key differentiation is to be able to provide a variety of quality food in a variety of restaurant concepts at very affordable prices.

What kind of changes have you witnessed in the market in regard to consumer tastes and habits, and how has Skylark been adapting to these changes? To what degree do you see your unique consolidation of brands and know-how as important to success in the food service industry?

Consumers’ demand has been changing, due to a number of factors, as well as Abenomics; in fact the whole country’s economy has been changing. Within the past four years, we have developed four new brands. We have different types of food categories: Italian, yakiniku, shabu-shabu, Western, Japanese, Chinese, and we provide all of them at the lowest price point in the industry. We are serving the largest segment of the Japanese domestic market, so depending on how this market changes, and how the consumers and their tastes change, we can develop new products and new brands to fit their needs, and we can convert an old existing brand into a new brand in the Skylark group. All the stores also offer a table service restaurant style, and in all our restaurants, we are trying to allocate as much seating space as possible so we can sell more.

Having a central kitchen allows us to lower our operational and manufacturing costs, and have lower rent and lower labor cost. In addition, Japan’s excellent roads and transport infrastructure allow us to smoothly deliver from our central kitchen to a total of 3,000 different stores every single day. At midnight, all our stores need to place their orders for the food that they need for the next day: at 4am the central kitchen begins to manufacture, and within that same day, we will deliver all the manufactured goods done for that day to all our different stores. This allows us to deliver fresh ingredients daily in a chilled manner. We do not stock up on inventory, we manufacture on demand. Thus, the many revisions are very quick for us to do, and we can do them many times throughout the year, and that’s become a very strong strength for us.

Another strength that I would like to mention is that we have a wholesale intermediate system, which means that any restaurant can acquire any type of food ingredients that they want to, which enables us to offer many types of different cuisines. We have about 3,000 restaurants, which are located in roadside areas: for those restaurants that are not located in the central district but in rural or remote areas, it is more difficult to deliver unless there is a regional company that comes into play. Skylark owns its own trucks that deliver to restaurants every single day, and that is truly another strength of Skylark – to be able to go to remote roadside areas to cover all of these stores. If any other company wanted to enter the market in these areas, it would be very difficult for them to compete, as there is an entry barrier which is very high.

As Japanese tastes continue to mature, where do you currently see the most opportunity in Japan’s food service industry?

I feel that the Japanese consumers, or the people in Japan in general, are able to have access to the most diverse categories of food. Japanese people have become more mature when it comes to eating out and to the restaurant industry. So now that Japanese people have become more mature to eating out and to different types of food cuisine, I think they have a clearer picture of what they want to eat; therefore to have a brand that is specific to their cuisine needs, that is where we are directing our growth.

Unlike our competition, we have a global procurement team with strong supplier relationship. As a result, we are always exploring how to bring innovative ingredients and recipes from around the world.

There have been multiple mentions of a need for Skylark to deploy a greater degree of diversification. What plans do you have for creating a wide array of options to ensure customers’ needs can always be met?

First of all, I think that we will see different types of restaurants emerge: restaurants that are for gathering, restaurants that are more for entertainment, and restaurants that are just to fill up the stomach. Looking at the data and spending and eating habits of individuals in Japan for the last 20 years, we see that younger generations spend a higher rate of money on eating out. If you look at the data by generation, you’ll see the rate of money spent on eating out tends to stay the same even if they get old. For example, an individual at 20 spending about 10% of his/her income eating out, at 40 that person will still be spending almost the same rate of 10% for eating out. So, although the age of people changes, the amount that they are spending is not.

Every year, the mom-and-pop type shops are closing at a significant rate. Against that backdrop, Skylark’s ownership or chain share is definitely going up. Amongst the traditional food stores, only the most efficient and productive ones will be able to survive. The stores that are cooking and preparing everything themselves need a higher cheque to survive. With the Japanese yen being on an depreciating trend right now, food import costs have become more expensive, labor costs have become expensive, and there is less labor available as well. Looking at that, productivity becomes very critical. Those who have good productivity are going to keep on winning the market share.

As a company, we believe that Skylark has the potential to be that. In the restaurant industry, it is very rare to receive meal value for only $7, however this is something we offer, which for the Japanese people is the reasonable price point.

Looking at the overall food service segment, there will be more of a profiling for the restaurants that are more for gathering and entertainment, versus the fill up the stomach fast-food type of restaurants, and also the restaurants where the average receipt has to be high to be sustainable.

I know Skylark has expanded into Taiwan. What role will the international space play going forward for skylark?

Our Taiwan business has been growing very steadily. The Taiwan restaurant market has been maturing, there is a lot of mid-point pricing for restaurants, and so I think there is a lot of potential for growth in the country.

Going forward, we are going to be looking into doing research for expanding into Vietnam, Indonesia and Thailand. These Southeast Asian countries’ food markets are very much fast food oriented and therefore Japanese companies going into Southeast Asian countries tend to present a more premium type of Japanese restaurant. This is however not the space that Skylark is looking into – in these markets of Vietnam, Indonesia and Thailand, Skylark wants to open Japanese family types of restaurant, and tweak these into a version that is suited to those countries to match the local culture and the needs of the local people. Those are my views for the international expansion. If you look at the menu, we have Western type of food: noodles, Japanese, steak, there’s anything you like on the menu. That’s a typical Japanese family restaurant. So when we do a Thai version, we will change that so that it suits the needs of the Thai people.

Going forward, we would like to look into accelerating our international expansion in Asia, when the opportunity arises. It took us some time to devise this international expansion strategy, because when it comes to the fast food segment, we can’t beat the local people already running it, and if we try to go into the high-end market, we can’t grow into a massive business. That is why we want to approach the mid-point market that has the thickest customer base, and when the market is beginning to mature, that’s the time we want to launch the business.

To what extent do you see Skylark as an ambassador for Japan? What does Skylark’s food say to the world about Japan?

It would be great if we could take on a role as cultural ambassador for Japan. One thing that we could do as a cultural ambassador would be to take this family business model into these Southeast Asian countries. That would be one business aspect. Another aspect would be that in these Asian countries, there’s this hotpot dish, normally found in Chinese cuisine, but we have a Japanese style called shabu-shabu, which we brought into Taiwan – that has become very popular, people love it. It’s a similar dish, but a different way to enjoy this cuisine. We like to think of this as cultural diplomacy, and that’s the way we would like to bring the Japanese element into the market.

The philosophy of Skylark is to serve to the largest segment of the market, which is the middle class. We do not have a super high-class type of restaurant, nor do we have a fast-food type of restaurant either. We go for the thick middle-class table service. That is what we are good at, and the philosophy that we would like to maintain if we go overseas.

What would you like to communicate in summary about your company to the outside world and the US market?

We have learned from US chain stores in general, so that they have become kind of like a textbook for us. We have been able to grow with that learning. When people have a chance to come to Japan, we would love for them to visit. They will be surprised by the quality that we offer compared to the price that we propose.