Striving to Provide a Memorable Dining Experience

For 11 consecutive years, we’ve seen Japanese food-related exports increase. If we look at up to 2023, they reached JPY 1.45 trillion. This has been consolidated overseas by the growing popularity of Japanese restaurants, which grew from 55,000 in 2013 to more than 200,000 today. How do you account for this substantial rise in Japanese food exports? Why is now the time for washoku to shine internationally?

We believe there are three reasons, but first and foremost is the safety of Japanese food. People around the world trust Japanese cuisine and restaurants, with no concerns about it being harmful or unsafe. The second key factor is the registration of Japanese cuisine as a UNESCO Intangible Cultural Heritage in 2013. This was a big moment for all Japanese food-related companies. The third and simplest reason is that Japanese food simply tastes great. In addition to these three points, Japanese food is also healthy, but it can also be considered a beautiful-looking food.

Over the next 15 years, Japan anticipates significant demographic shifts characterized by both an aging and declining population. This will lead the country to face labor shortages as well as a shrinking domestic market. To be more specific, Japan anticipates a labor shortage of 11 million workers by 2040. What challenges does this create for your company, and how are you navigating them? Do you have an international strategy to help you compensate for the shrinking domestic market?

As you mentioned, there is going to be both a labor shortage and a smaller domestic market due to the population decline. This means we need to think about becoming more efficient. Our company can improve efficiency in both restaurant operations and merchandising. Take the central kitchen, for example. By increasing processing capabilities there, we can reduce the workload at each restaurant location, thereby decreasing the reliance on human labor.. Another strategy might be to introduce more IT systems into the restaurants. We have already adopted auto-reception systems and self-ordering systems.

Founded in 1963, Colowide is a leading food service company with a diverse portfolio of restaurant chains operating both domestically and internationally. Additionally, you have recently expanded into catering services. Can you talk about your competitive advantages in the food service industry that have enabled you to build such a wide and diverse portfolio of restaurants?

While the company was established in 1963, our restaurant business started in 1977. Our basic policy back then was to do everything ourselves by using a central kitchen and delivering it to our restaurants. Another key strategy was to be dominant in specific areas before expanding to new locations.

This strategy persisted until 1990, when the Japanese economic bubble burst. As consumer spending declined, we had to consolidate our restaurants and focus on a strategy change, zeroing in on each age bracket. People in their 20s, for example, would only spend JPY 2.500 per meal, whereas those in their 50s spent JPY 4,400. By targeting different age brackets, we were able to increase our portfolio. We referred to this as a "strategic multi-format dominance" strategy.

In the 1990s, we started to understand that our central kitchen was not sufficient, so we aimed to expand it to support more restaurants. At that time, it was said that the izakaya market was about JPY 1 trillion, while the  restaurant market was valued at JPY 12.5 trillion. Within the izakaya sector, there was limited growth potential; thus, we expanded into other types of restaurants.

When expanding in the restaurant sector, we didn’t focus on general-purpose restaurants that catered to  everyone. Instead, we wanted to have specialized restaurants such as steakhouses. We wanted places where people come with a specific purpose. This is where we began to follow an M&A strategy. Whereas izakayas once made up 100% of our business, now 90% of our business consists of regular restaurants, and only 10% accounts for izakayas.

With this strategy, we began to have more meat-oriented restaurants such as steak houses, yakiniku, and shabu shabu establishments. However, we quickly realized, that an outbreak of bovine spongiform encephalopathy (BSE) would pose a significant risk to our business. We wanted, therefore, to reduce the risk by not relying on the same types of ingredients for all of our restaurants. From this thinking, we expanded into fish, creating a more balanced portfolio.

Usually, if we expand into different types of restaurants, the costs will increase, leading to lower profits. However, with our model, this was not the case since we could use our central kitchen to support multiple restaurant concepts. Although the concepts of the restaurants are different, many ingredients are shared, such as vegetables, pork, fish, and beef. We were able to benefit from better yields of our purchases. Since we were able to fully utilize our central kitchen operation, we were able to optimize our ingredient usage. Take tuna, for example. When we purchase a whole tuna, only certain cuts can be used for sashimi, but since we operate izakayas too, we could create a menu using tuna’s head, which usually has a very low value itself. Since we are utilizing the entire ingredient, we believe this also reflects our contributions towards sustainability.

Gyu-Kaku is one of your Japanese-style restaurants that has significantly expanded its global footprint over the years, with multiple locations across the United States. You also have locations all across Asia, including China and Singapore. The menu is catered to each locality, ensuring a unique dining experience in each region. Why do you think Gyu-Kaku has been so successful internationally, and how do you tailor your menus to reflect and cater to local culinary preferences?

The menu items are basically the same, but the  sauces and side dishes are localized  to suit the local preferences.

Gyu-Kaku Japanese BBQ

Is there a particular region you are targeting for the expansion of this restaurant brand?

We are looking at three major areas: North America, Asia, and the Middle East.

If we look at Ootoya, we understand that you have branches that you manage directly as well as over 100 franchise stores spread around North America, Singapore, Hong Kong, Taiwan, and other countries. What was the motivation behind adding a franchise model to your business portfolio? Are you looking to franchise any of your other restaurant brands?

Currently, we have approximately 400 restaurants overseas in total, and among those, 250 are operated as franchises, accounting for about 60%. In high-risk countries, such as China, we operate the restaurants as franchises. We have no restaurants in Russia yet, but if we were to enter that market, it would be through a franchise.

For the domestic market, we already have an established supply chain, making it profitable for us to operate franchises, as we can benefit from distribution profits. However considering the overseas market, we have only 400 restaurants globally, so we don’t have an established supply chain yet. This is something we are going to start working on in 2025 so that we can increase profitability from franchise businesses.

Currently, our directly managed overseas stores generate approximately JPY 30 billion in annual revenue, while the total revenue, including franchise stores, amounts to approximately JPY 80 billion. We aim to increase this overseas business revenue from JPY 30 billion to JPY 150 billion by 2030, representing a fivefold increase in sales. Our company would have to engage in M&As to achieve this goal, and also by expanding our franchise network, there will be more opportunities to generate additional profit from distribution itself.

Shogayaki with the aroma of aged black ginger, aromatic fried chicken, chicken and vegetables in black vinegar sauce

According to the Japan National Tourism Organization, there has been a significant rise in inbound tourism numbers. In total, Japan is expected to reach a record high of 35 million international visitors by the end of 2024 due to a variety of factors, including the weakened JPY and the easing of travel restrictions post-COVID. What is your company doing to capitalize on the surge of inbound tourism, and what strategies are you implementing to attract foreigners to your restaurants?

The current number of foreign visitors to our restaurants is about 50 million  per year. One strategy we’ve been working on is partnering with travel agencies. They are able to bring foreign customers to our restaurants by including a visit as part of guided tours. Another strategy is to show our advertisements on overseas food related websites. We are trying to rank number one among certain rankings, such as on Google for yakiniku restaurants. These efforts help attract more customers to our restaurants.

Recently, we have seen a lot of inbound tourists from other Asian countries like Thailand, China, and Taiwan, so if we expand into those countries, these visitors can come back to our restaurants when they return to their home countries.

If you had to recommend one of your restaurant chains to an inbound tourist, what would it be and why?

I recommend Gyu-Kaku because there is very little difference between locations. This is because, on the restaurant side, all of the cooking is done by the customers themselves. Since customers cook and eat their own meals,  the quality remains consistent.

If we look at your M&A activities over recent years, a majority of your acquisitions are Japanese cuisine-related brands. One of your brands isn’t necessarily Japanese cuisine-related, and that is WOLFGANG PUCK. Are you looking to incorporate any more foreign restaurant types under your umbrella?

Yes, we are. Since the JPY is very weak, it is a very bad time to purchase foreign companies right now. But we will still attempt to do so.

Partnerships obviously play a key part in your business, whether that is your relationship with suppliers or travel agencies. Are you looking to expand your partnership network domestically or internationally? If so, which partnerships will be most valuable for your international expansion?

We are looking to form joint ventures with wealthy companies because we expect them to keep pace with our speed and growth.

What are the main pillars of your Colowide Vision 2030?

The core target of Vision 2030 is to achieve JPY 500 billion in sales. That will center around our M&A strategy, and by dividing that JPY 500 billion, we hope to achieve JPY 250 billion domestically. Overseas should account for JPY 150 billion. We have the remaining JPY of 100 billion, which we want to achieve through our catering service business. Last year, we only achieved JPY 700 million within this catering segment, but this year, we are projecting JPY 14 billion, which is twenty times more than in just a one-year span.

If you had to describe your company in just a few short sentences, what would they be?

I want our company to be recognized as a company that operates restaurants providing customers with delicious food, all served with the best hospitality.

For more information, please visit their website at: https://www.colowide.co.jp/en_us/