SRS Holdings: Defining Authentic Japanese Washoku

Japanese food’s popularity is soaring. There were 187,000 Japanese restaurants overseas in 2023, which is a figure that has tripled over the last decade, and this trend has continued, hitting nearly 200,000 in 2024. How do you account for the continued rise in popularity and record levels of Japanese restaurants overseas and the growth in popularity of washoku in recent years?

The first reason would be the elegance of Japanese food. For example, fast food in the Western world will be hamburgers or something like that. In contrast, Japanese fast food has lots of varieties, such as tempura, fish, beef, and so on. We also have a variety of ingredients, and we cook them in a variety of ways using various techniques. The arrangement is elegant as well. It may be true for French food as well, but I don’t think this kind of elegance is generally seen in Western food.

The second reason for Japanese popularity is the balance and the healthfulness of the food. As I just mentioned, we have a good balance of ingredients, such as fish, meat, and vegetables. I think those are the reasons why Japanese food is so popular in the world.

The Japanese government aims to increase these numbers exponentially to enhance Japanese culture. Restaurant companies like Ippudo Ramen, Marugame Udon, and Washoku Sato are expected to take charge in foreign markets. A notable example is Kura Sushi. They recently announced plans to expand internationally with over 400 restaurants by 2030, but Japan is not alone. The Thai government gives monetary subsidies to Thai restaurants overseas, Peru is focusing on its food’s cultural diversity, and there’s the advent of New Nordic food as well. Culinary democracy and international restaurant expansion are not for the fainthearted. How can the Japanese government better support national restaurant companies overseas, and why is Japanese restaurant expansion so crucial to your company and to the economy as a whole?

Looking back on my experience, when we go overseas, the biggest challenge we face is how to get the ingredients. If we go to the overseas markets, then we want to provide authentic Japanese food and authentic Japanese flavor. In that case, we face the challenge of acquiring ingredients and condiments. Suppose we were to carry them from Japan. In that case, it would be costly, and some ingredients cannot be taken, so the first request for the Japanese government is to reduce the barriers to export and provide support so that ingredient companies and restaurants can get together to expand into the overseas markets.

The second issue we face is human resources. It is difficult to develop human resources globally, and especially when launching an overseas business, it would be best to use Japanese experts to a certain degree because of this difficulty. If we get support from the Japanese government in order to develop human resources, especially those that can work globally, that would be helpful for us as well. Labor costs are also high when experts are sent from Japan to other countries, so if the Japanese government can provide us with some tax incentive in order to develop human resources that can do well globally, that will be helpful as well.

If we could get those kinds of support from the Japanese government, more companies will be more aggressive in terms of it going into the overseas market.

Another request is about the population decline in Japan, which will shrink the local market. There are many countries around the world where the population is growing, unlike Japan. We could bring a Japanese food culture to those countries, and I want Japanese food in those countries to be more familiar and something that is usual and familiar to them. That would expand the market for Japan’s food industry, and our revenue and profit would rise as well if we could do that. In Japan, there weren’t French or Italian restaurants in the past, but nowadays, they are common. For example, Saizeriya is a casual Italian food chain that everybody in Japan knows about. I think we can do something like that with Japanese food in order to succeed globally, and people in overseas countries can enjoy our food like that casually. That can then provide more motivation to Japan’s food service industry, and we can contribute even more to society.

I mentioned hamburgers as an example of Western fast food. When I was in elementary school, hamburgers didn’t really exist in Japan. Maybe we could only get it at the US military base, but now McDonald’s is the number one restaurant chain in Japan. In those 45 years, hamburgers have become something common to all Japanese. Some young people may even think that hamburgers are from Japan. What we need to do is something like that. Japanese food can be something like McDonald’s, a global staple, and it could be something that anyone could eat at a reasonable price, like McDonald’s. If that happens, then we can take Japanese food overseas as a culture as well. That will allow us to get a big market share in the food industry overseas, too.

In the past, or so far, Japanese food has been high-end food in overseas countries, but this market is very limited. I believe it is important to provide Japanese food such as ramen, tempura, and other Japanese foods at a reasonable price, and I think that the reason the number of Japanese restaurants has tripled overseas is because of more modestly priced restaurants. I think that’s why Japanese food has gained so much popularity nowadays, and Japanese food needs to take root all over the world as a culture. In order to do that, we need to provide authentic Japanese food at a reasonable price.

You mentioned the two big global challenges that a company faces are sourcing of ingredients and condiments and human resources. You have restaurants around Asia, and you also have one in the US and one in Canada. You leave restaurant management to your partner, but more than just a franchise model, you provide sourcing, consulting, and menu development, and you send staff to Japan two times for a three-week period to train them locally. Why did you choose to have this model, and what are the advantages you realized thanks to using it in your overseas restaurants?

It’s a difficult question to answer. First, there is no one who can do this locally at first. There are manuals because we are a chain, and there are fixed operations that they have to follow, so in the beginning, we have to teach them locally, or they cannot do it. That is the first stage we are in. In order to provide our original menu from Japan overseas, we need to deploy experts from Japan to ingrain the menus and processes. However, in order to expand our business, I believe Japanese experts should be in charge of educating local people, or things will not go well. That’s been my experience as well, so the first step we will take is to send our instructor from Japan to develop leaders locally. We have to have local people doing consulting or being advisors or supervisors to local staff as well.

The challenges facing Japan’s food sector and restaurant sector come in different forms. The population issue is one that you rightly mentioned, and this is a problem that’s felt keenly in the restaurant industry. As a case in point, in 2023, 51% of restaurants and businesses reported a lack of full-time employees. This has been exacerbated by the industry’s notable high turnover rate, which is around 79.6% over the past decade. This leads to production and employee bottlenecks, which are a barrier to future expansion. How is your company tackling this challenge?

In order to grow our business in Japan, these are the bottlenecks, and this declining population is the biggest one that we face. You also mentioned the high turnover rate in the food services industry as well. We have had numerous discussions about why the turnover rate is so high in this industry at our company as well. There are multiple reasons for this high turnover rate. The first could be a low salary. The second could be a poor working environment. The third could be that the work that must be done is sometimes too hard for people of an older age. I think those are the reasons there is a high turnover rate.

To tackle these issues, we have tried to improve the working environment over the past ten years. We also reduced the long working hours, and we set up a system where people can take seven consecutive holidays as well. There are regular full-time employees at our companies, but the part-time workers are also crucial in this business, so we have made a lot of effort to turn these part-time workers into full-time regular employees. Our compensation system is based on the principle of equal pay for equal work. The work that part-time employees provide us is very crucial, so that’s why we have focused a lot of effort on them. So, we do have an issue of a labor shortage, but  we can't make it without cooperation of part-time workers.

Another point that I want to mention about how we are tackling the labor shortage is about using robotics. You may see these robots delivering food to customers in Japanese chain restaurants, including Washoku Sato. Of course, robots can reduce labor costs and partially address the labor shortage, but that is not the biggest impact that these robots can have. For example, they can carry heavy objects, which reduces the burden on human workers, so the impact that we are seeing from the usage of robots in restaurants is the mitigation of the burden on workers. That’s why we have put a lot of effort into establishing the use of robots.

I also want to mention that the major Japanese restaurant companies don’t have such a big market share compared to the large companies in the US, and in addition to the human resources concerns, we are also facing rising construction costs. In order to solve these problems, we can expect to acquire new profitable businesses, stores, human resources, and new geographic markets through M&A. I think M&A could be a strategy for success regarding the declining population as well.

The COVID-19 pandemic had seismic changes to society. One example was the way consumers order from restaurants, with a shift towards ordering online and takeout. The Japan Food Service Association had a recent survey that showed 62% of people have ordered food online or made or gotten food deliveries since 2020. This shows that consumers are willing to pay more for the convenience of online ordering, for takeaway, and for collection. How is your company reacting to this shift in consumer preferences, and what strategies have you implemented to take advantage of this?

There are two parts to my answer. Since the COVID-19 pandemic, many people have been eating out because they could not do that during the pandemic. It may be a pent-up demand or an urge to eat out and enjoy delicious meals with other people, or they don’t want to cook at home anymore. They also learned that they can enjoy meals at home by ordering online by telephone during the pandemic. We have been focusing on providing something that can only be achieved by eating out, conveying how fun it is to do so. For example, if they order something hot, we provide it hot and fresh, which is something that can only be enjoyed when they eat in the restaurant. We want to add value to eating out and provide joy that customers cannot get by eating at home. For example, service, cleanliness of the restaurant, atmosphere, and a fun experience while sharing meals together and chatting are things they can only achieve through eating out. So that’s the first part.

The second part is about ready-to-eat meals, such as takeout or delivery services, which occupy a space between home cooking and eating out. We may face another pandemic again, so we need to enhance delivery and takeout services. The sushi section of our business continued to provide us with a certain level of profit even during the pandemic, and I believe that the reason for that sustained profit during the pandemic was that sushi was provided at the same price in the stores, at the restaurant, or by takeout. It’s like pizza. They can get the same thing at the same price, whether it’s eating in the restaurant or taking it out. I believe sushi provided similar value to consumers, so they continued to choose it. Our Nigiri Chojiro business was impacted by the pandemic, but the impact was minimal, so I think sushi is good food for takeout, and we are trying to enhance our takeout and delivery services.

If another pandemic happens someday, we are ready for it with these two strategies based on what we learned from COVID-19.

Many companies talk about the importance of partnerships, to find new locations, to help drive sales, to open new markets, or to help drive product development. Are you currently looking for any new domestic or international partners?

There are no new definite partnerships or partners that we have made a decision about, but in order to grow our business globally, we would like to have a partner who knows about that country or about that market and knows the local restaurant industry. If we could have that kind of partner, that would provide a shortcut to success overseas. In terms of domestic partners, we are not really thinking about that, but if we were to find a partner in Japan, then that would be to enhance or expand our group through M & A.

SRS group is focused on more than just the domestic market. As mentioned earlier, your group also has a strong presence overseas, with joint ventures in Thailand and Indonesia. SRS group is also in Taiwan, and you have restaurants in the Philippines, US, and Canada. Are you planning to continue your international expansion, and if so, which markets do you consider to have the best potential?

The overseas market is crucial to our future growth. As I mentioned before, our dream is to make Japanese food culture take root all over the world. We may not be able to do that alone, but that is our dream at the moment.

Right now, our business overseas is small in terms of overall group contribution, so I’m not satisfied with that. However, we have gone through a lot of trial and error in each country, and we have learned a lot from this. We want to expand our share in the overseas markets in the future, so using what we have learned from the past will be crucial. The first market that we want to focus on is ASEAN because of the growing population there. Another market that we’d like to focus on is the US. It may be a challenge or dream at the moment, but chain businesses like ours started in the US so that market is something that we want to explore as well. I don’t think there are any Japanese companies that have had success with Japanese food so far, although several Japanese companies are trying to expand in the US at the moment. We want to be successful in the US as a Japanese business providing comprehensive Japanese food, which would expand our market and make our dream come true.

Another point I want to add is that in order to expand overseas, Japanese restaurants need to do something about halal because there are many Muslim people in the world. Halal measures have been a bottleneck for us because some Japanese condiments, such as shoyu and mirin, have a certain level of alcohol at a certain point, so we cannot use those condiments because they are not halal. In Japan, there are some food companies such as Kikkoman who are trying to produce halal shoyu and other halal products without changing the flavor, and that will be crucial for Japanese food to expand overseas.

You have a midterm management plan, which runs until the financial year 2025. Within this plan, there are six priority themes, including restaurant profitability, responding to a smart society, and continuing store expansion. You’ve also set a target to achieve sales of JPY 74 billion and an ordinary profit of JPY 3 billion. What are the core strategies that you’re implementing to achieve these goals?

The first priority theme is to improve the profitability of existing restaurants, and we are on track to achieve that goal this year. What’s been lagging behind is the opening of new stores, so we need to move faster in that regard. Other things are generally on track. Something that could happen that differs from what we had expected is the surprisingly weak yen. Yen depreciation accelerated after we created this medium-term management plan, and the purchase costs from overseas are beginning to go up now. We need to take some actions to tackle this challenge, such as increasing productivity and so on.

Your motto is to contribute to society through food. You’re the official sponsor of KidZania Koshien, which is a food education activity that teaches children the joy and importance of cooking and eating. Children can gain experience as apprentice sushi chefs, learning not only how to make sushi but also about ingredients and Japanese food culture. How important are outreach activities for your company, and what benefits do they bring to your business and society?

We are trying to be a chain that has roots in our communities. In order to achieve that, we need to be loved by our communities, and we need to become an organization that is indispensable to them, or we will not survive. We provide those experiences to the children through sponsoring these outreach activities, and the children are so happy with these activities. I often go there and watch them myself, and what I notice is that parents are happy seeing their children being happy doing these activities. They understand how difficult cooking is, and the children can also learn this as well as learn about Japanese food, so these experiences make families happy. We are also a sponsor for our local sports team, and we provide support activities to revitalize communities. It’s very important for us to do these outreach activities, and we want to continue to do whatever we can in that regard.

In terms of the benefits, people can know about our restaurants through those activities. Another point I want to mention is that whatever children eat when they are small remains a part of their diet for their entire life. For example, McDonald’s has a menu called Happy Set where children can get toys, and people still remember the taste even when they become adults, and they sometimes want to eat at McDonald’s because of that. I often say that we don’t have to make money from children, but they are important future consumers.

You became president in 2017. Please imagine that we come back to interview you again on the last day as president, whenever that might be. What objectives or ambitions would you like to have achieved by then?

I don’t have a concrete target, but I am always thinking about how we can increase the number of customers at our group’s restaurants. Customers will never come to the restaurant if they don’t like it. My business is very interesting because people enjoy our restaurants. That’s the only reason they come. That’s the reason the number of customers is our goal. If we can double the number, I will be very happy. That is not only for Japan but each country as well. I used to live in San Francisco, and I want to enjoy my restaurants there one day. That is my goal.

For more information, visit their website at: https://srs-holdings.co.jp/