Yoshinoya D & C Company Ltd.

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Yoshinoya D & C Company Ltd.

4-3-17 Shinjuku
Shinjuku-ku
Tokyo,
Japan
Telephone: (81 03) 5269 5111
Fax: (81 03) 5269 5104
Web site:http://www.yoshinoya-dc.com

Public Company
Incorporated: 1899
Employees: 2,335
Sales: $1.09 billion (2006)
Stock Exchanges: Tokyo
Ticker Symbol: 9861
NAIC: 722110 Full-Service Restaurants

Yoshinoya D&C Company Ltd. is one of Japan’s leading fast-food companies, operating more than 1,000 restaurants in Japan, and another 300 restaurants in markets including the United States, China, and Taiwan. Yoshinoya’s flagship food product is its gyudon or “beef bowl,” a beef on rice dish that is extremely popular in Japan. The company’s insistence on using only U.S. beef for its product, however, led the company to suspend sales of its core product—akin to McDonald’s suspending sales of hamburgers—following a two-year ban on U.S. beef imports into Japan. Instead, Yoshinoya developed new recipes, substituting chicken and pork for the beef in its bowls. The company resumed limited sales of its beef bowls in December 2006. The company’s diversification, including stepping up the pace of its international expansion and the development of new restaurant formats, helped Yoshinoya weather this difficult period.

The company has targeted China for major growth, with plans to open as many as 500 restaurants there by 2010, as part of its joint venture with Hong Kong’s Hop Hing Food Group. The company also plans on expanding its presence in the United States, where it was operating more than 100 outlets by 2007, primarily West Coast shops. The company’s other restaurant formats include the Kyotaru takeout sushi chain; Shanghai Express, a Chinese-foods concept; Hitokuchi Chaya, which sells fresh-baked taiyaki cakes and takoyaki dumplings; and the curry shop Pot & Pot. Listed on the Tokyo Stock Exchange’s First Section, Yoshinoya D&C is led by chairman Shuji Abe.

FEEDING A TURN-OF-THE-CENTURY FISH MARKET

Yoshinoya D&C originated as a small, family-run restaurant opened in 1899 at the Nihonbashi fish market in Tokyo. Founded by Eikichi Matsuda, the restaurant’s specialty was its gyudon —roughly translated as “beef bowl”—featuring strips of beef on a bowl of rice. Matsuda’s recipe caught on with the market’s traditionally demanding public, and the restaurant quickly became a local favorite. Matsuda’s restaurant remained a fixture at the fish market even after the Great Kanto Earthquake of 1923 destroyed the Nihonbashi location, as Matsuda followed the market to its new location in Tsukiji, reopening in 1926.

The popularity of the Matsuda’s gyudon enabled the restaurant to survive the difficult post–World War II era. Under Matsuda’s son, Mizuho, who took over in the early 1950s, the family restaurant responded to the new demand for 24-hour service as the Japanese economy entered into a new boom period. Mizuho Matsuda also recognized that the popularity of its beef bowl recipe extended beyond the Tsukiji area, and in 1959 he opened a second restaurant, at Tokyo’s Central Wholesale Market. By then, Mizuho had formed a new company in order to guide the restaurant’s expansion, launching Yoshinoya in 1958.

By the late 1960s, as Japanese eating habits shifted toward a more American-style fast-food model, Matsuda began laying plans to develop the company into a full-fledged restaurant chain. Yoshinoya opened a new restaurant in 1968, in front of the Shinbashi railroad station. The new restaurant served as a testing ground for the company’s development of a franchise model. Among other features, the company introduced a more limited menu, built around the beef bowl as a centerpiece. By 1973, Yoshinoya was ready to begin recruiting franchisees to help it expand the chain nationwide. The first franchise opened that same year, in Odawara, in Kanagawa prefecture. By the end of that year, Yoshinoya boasted ten franchise shops.

The company’s reliance on a supply of Japanese beef, which was rare, expensive, and of an inconsistent flavor and quality, limited its initial growth. In order to improve its beef supply, the company established a subsidiary, Yoshinoya USA in Denver, Colorado, in 1973 to serve as the company’s beef procurement arm. The company’s relationship with U.S. beef processors was to have a wider impact, as the company worked with its suppliers to develop a special cut that remained highly consistent in weight. The company’s specifications, initially known in the U.S. meatpacking industry as “Yoshinoya specifications” later became more simply acknowledged as “Japanese specifications,” as the company’s competitors adopted the cut.

The company’s relationship with the United States, as well as the large Japanese population on the West Coast, encouraged it to export its recipe for the first time, establishing Yoshinoya West Inc. in 1977. That company slowly built up a chain of restaurants, primarily in California, but into parts of Oregon and Seattle, Washington, as well.

Yet strict quotas on U.S. beef imports in Japan placed limits on Yoshinoya’s potential growth at home. Although Yoshinoya grew strongly through the 1970s, building up a franchise base of 100 stores by 1997, and more than 200 by 1978, it had run into supply problems. During the 1970s, the company made the decision to adapt its recipe to its supply line. As a result, the company began using shipments of lower-quality freeze-dried beef, which, routed from the United States through Taiwan, were not subject to import quotas. The company also adapted its sauce in an attempt to cut costs, developing a powder-based sauce, less expensive to produce and deliver to its franchise network than its traditional liquid gravy.

These decisions proved disastrous for the company, as consumers turned away from the group’s recipe. To make matters worse, the company attempted to compensate for the lower customer traffic by raising its prices, from ¥200 per bowl at the beginning of the 1970s to ¥350 at the decade’s end.

RECIPE FOR RENEWED GROWTH IN THE 1990S

By 1980, the company paid the price for these decisions, and with its losses mounting, Yoshinoya was forced to file for bankruptcy protection that year. The company spent the next three years developing a restructuring plan, aided by the injection of new capital through the sale of a majority stake to retail giant Saison Group in 1983. Saison and Yoshinoya had been partners for some ten years, following Yoshinoya’s participation in Saison subsidiary D&C Co., the company overseeing the introduction of the Dunkin’ Donuts franchise in Japan. Indeed, Yoshinoya itself became one of the first Dunkin’ Donut franchisees in Japan in 1971.

COMPANY PERSPECTIVES

With a history dating back to 1899, Yoshinoya D&C Co., Ltd., boasts more than 100 years of tradition. The Company specializes in gyudon operation and operates a national chain while pursuing the development of other restaurant businesses in Japan. Yoshinoya D&C operates in a global market New York, California, Beijing, Shanghai, Taiwan, Shenzhen, Hong Kong, the Philippines, Singapore, Malaysia, and Australia. Yoshinoya D&C continually works to achieve further growth and evolution as it strives to become a company that is truly admired worldwide.

As part of its restructuring, Yoshinoya, which had been forced to shut down a number of its franchises, rebuilt its network to more than 200 shops, providing a better critical mass for its raw materials purchases. The company adopted a new policy of purchasing and using only quality ingredients, including using only fresh beef and liquid sauce. The company began sourcing its beef supply from Japanese beef, as well as U.S. beef. Yoshinoya also turned to in-house production to source some of its own ingredients. In 1986, the company opened a factory in Otonemachi, Saitama prefecture, near Tokyo, to produce pickles and other ingredients and to serve as a centralized distribution center for its network.

Although its recovery was originally expected to last into the end of the decade, Yoshinoya’s revitalized operations—and the return of its customers—enabled the company to pay off its debts of ¥10 billion and emerge from bankruptcy by 1987. By 1990, Saison group was ready to recoup some of its investment, as Yoshinoya’s stock was listed on the over-the-counter market.

In the meantime, the continued limits on U.S. beef imports caused Yoshinoya to look elsewhere for growth of its beef bowl chain. The company turned to the Taiwan market, which closely resembled the Japanese market both in its growth and its fast-food eating habits. In 1988, the company formed the joint venture Taiwan Yoshinoya in order to introduce the company’s restaurant format there. Joining with a local partner offered the company a better understanding of the market, both in terms of choosing locations and adapting its own menus to local preferences. The first Yoshinoya shop in Taiwan opened in 1988. Its success ultimately led the company to build a network of nearly 50 restaurants throughout the island. The success of the Taiwan joint venture led the company to form a new partnership with Hong Kong’s Hop Hing Food group in order to launch its expansion into Hong Kong in 1991 and then into Beijing in 1992.

By then, Yoshinoya had become Yoshinoya D&C after the Saison group pushed through the merger of the two companies in 1988. The merger proved an uneasy one, as the fast-moving Yoshinoya group was hampered by the sluggish D&C operation, as Dunkin’ Donuts failed to whet the appetite of Japanese consumers. By 1998, the company decided to call it quits, shutting down its Dunkin’ Donuts franchise.

Part of this decision came from the extraordinary growth of Yoshinoya’s main operation during this period. The end of quotas on U.S. beef imports in 1991 enabled the company to readjust its recipe to feature exclusively U.S. beef which, in addition to being much less expensive than domestic beef from Japan or from other import competitors, including Australia, China, and Mexico, was also the most familiar to Japanese tastebuds. With access to a far larger supply of beef, Yoshinoya was itself able to supply a much larger restaurant network.

KEY DATES

1899:: Opening of gyudon (beef bowl) restaurant by Eikichi Matsuda in the Tokyo fish market.
1958:: Company is incorporated as Yoshinoya Co. by Matsuda’s son Mizuho.
1973:: Launch of the Yoshinoya franchise network; a U.S. subsidiary is formed and a restaurant network is later launched there.
1980:: Yoshinoya files for bankruptcy protection.
1987:: Company emerges from bankruptcy protection then merges with D&C Co.; the Taiwan franchise partnership is launched.
1990:: Stock is listed on the over-the-counter market.
1995:: Lifting of U.S. beef import quotas enables company to expand its chain to 500 restaurants; first diversified restaurant operation is established with acquisition of Comocco Food Company.
2006:: Lifting of three-year ban on U.S. beef imports allows Yoshinoya to resume beef bowl sales in Japan.

The rollout of the larger Yoshinoya restaurant chain was more or less completed in just over a decade, boosting the group’s domestic restaurants to more than 1,000 by the dawn of the twenty-first century. Yoshinoya itself took more control of its franchise network, acquiring majority control of a number of its major franchise operators. The company formed a joint venture with financial partner Iwakura Shoji in 1993, launching Hokkaido Yoshinoya, building up a network of 21 restaurants in that prefecture. The following year, the company acquired restaurant operator Daito Sangyo, with 12 restaurants in the Okinawa prefecture. Similarly, in 2005, the company took over the franchise operations of Seiyo Food Systems Kyushu Inc., which was a major operator of Yoshinoya restaurants in the Chugoku and Kyushu regions. These partnerships and acquisitions played an important role in the group’s growth; by 1995, the number of Yoshinoya restaurants had topped 500. Just ten years later, the company’s domestic restaurant chain had more than doubled. The company’s growth led it to a full listing on the Tokyo Stock Exchange in 2000.

SURVIVING THE BEEF BAN IN THE NEW CENTURY

Yoshinoya was hit hard, however, by the developing crisis in the global beef industry. The appearance of the first case of so-called mad cow disease in the United States, which was becoming notorious for the suspect nature of its sanitary conditions, prompted the Japanese government to enact a ban on all U.S. beef imports in 2003. Remembering its last ill-fated attempt to alter the ingredients of its famous beef bowl, Yoshinoya adopted an extreme response, announcing that it would simply end sales of its flagship dish until imports resumed. In place of the beef bowl, Yoshinoya rushed to develop new recipes, including chicken- and pork-based bowls.

Yoshinoya’s survival, however, was supported by a diversification strategy that had been enacted in the mid-1990s. At that time, the company began expanding its range of restaurant formats, starting with the 1996 acquisition of Commoco Food Company, later renamed as Peter Pan Comoco, operator of the Hitokuchi Chaya baked good chain. In 1999, the company acquired struggling Kyotara Corp. and its chains of takeout sushi and seafood restaurants. The company acquired the Chinese food chain Shanghai Express in 2002, then added the Hanamaru noodle restaurant group in 2004.

Yet gyudon remained the company’s core recipe. Into the middle of the first decade of the 2000s, Yoshinoya stepped up international expansion of its flagship chain. The company entered Singapore in 1997, followed by the Philippines in 2001. By 2002, the company had launched a second mainland China partnership, targeting specifically the Shanghai market. In that year Yoshinoya also opened its first restaurant outside of the U.S. West Coast, targeting the New York City market, and boosting its number of restaurants in that market past 100. This was followed by the creation of a new subsidiary, Yoshinoya America, to oversee growth of its U.S. operations. Similarly, the company launched a subsidiary in Australia, which opened its first restaurant in 2004, followed by the launch of operations in Malaysia later the same year. Meantime, the company’s Beijing-based joint venture announced its own plans to expand its restaurant chain to as many as 500 restaurants by 2010.

These efforts enabled Yoshinoya to continue to post strong revenue gains through 2005. Nonetheless, the company’s profitability suffered as the U.S. beef ban entered its third year. At last, however, the Japanese government announced its decision to lift much of the ban. This allowed the company to launch its first limited sales of its beef bowl by September. While supply shortages continued to hamper the company, it nonetheless was able to resume wider gyudon sales by December 2006. The effect on the company’s revenues were dramatic; by the beginning of 2007, the company posted revenue gains of more than 119 percent. Yoshinoya D&C had become one of Japan’s largest and most diversified and restaurant groups, building its empire on a recipe that had been a Japanese favorite for more than 100 years.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Hanamaru, Inc.; Hokkaido Yoshinoya Co. Ltd.; Kyotaru Ltd.; Kyushu Yoshinoya Co. Ltd.; Okinawa Yoshinoya Co. Ltd.; Peterpan Comoco Co. Ltd.; Pot&Pot Co. Ltd.; Shanghai Express Co. Ltd.; Shanghai Yoshinoya Fast Foods Co. Ltd.; Shenzhen Yoshiyoya Fast Foods Co. Ltd; Taiwan Yoshinoya, Ltd.; Yoshinoya America Inc.; Yoshinoya Australia Pty Ltd.

PRINCIPAL COMPETITORS

Daiei Inc.; Seven and I Holdings Company Ltd.; Ito-Yokado Company Ltd.; Suntory Ltd.; Central Japan Railway Co.; Yamazaki Baking Company Ltd.; Odakyu Electric Railway Company Ltd.; Sapporo Holdings Ltd.; Namco Bandai Holdings Inc.; McDonald’s Holdings Co. (Japan) Ltd.; Okuwa Company Ltd.; Cawachi Ltd.; Nissin Healthcare Food Service.