Katokichi Company Ltd.

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Katokichi Company Ltd.

5-18-37 Sakamoto-cho
Kanonji, Japan
Telephone: (81) 0875 56 1100
Fax: (81) 0875 56 1109
Web site: http://www.katokichi.co.jp

Public Company
Incorporated: 1956 as Katokichi Suisan Co., Ltd.
Employees: 3,590
Sales: ¥339.8 billion $2.82 billion (2005)
Stock Exchanges: Tokyo
Ticker Symbol: 2873
NAIC: 311412 Frozen Specialty Food Manufacturing; 311330 Confectionery Manufacturing from Purchased Chocolate; 311511 Fluid Milk Manufacturing; 311712 Fresh and Frozen Seafood Processing

Katokichi Co., Ltd., is one of Japan's leading processed foods companies. The company holds the number two spot for processed and frozen seafood, and also ranks number two in the pre-cooked and frozen rice segments. Founded as a frozen shrimp producer in the late 1950s, Katokichi has since expanded its range to include a large variety of foods and beverages, including noodles, curries, pouch-style and other ready-to-eat foods, bottled mineral water, and other consumer-sector products. The company is also a major producer of sushi ingredients for the consumer retail market. Katokichi is also a major supplier to the food service market, with a product list including fried, breaded and frozen seafood and vegetables, rice, noodles, eggs and egg products, poultry and beef products, sushi ingredients, and pre-cooked dishes, among others. Katokichi has maintained a production presence in mainland China since the early 1990s; the company also operates production subsidiaries in Thailand and Indonesia.

While food production accounts for the majority of the company's revenues, Katokichi has diversified into the restaurant sector, operating nearly 450 bars, including 32 English-style pubs. The company also operates a number of hotels, including Hotel Reoma no Mori, the Kanonji Grand Hotel, and the Marugame Grand Hotel. The company's also operates several entertainment and leisure venues such as the Kume Country Club and the Yubara Country Club, and the New Reoma World amusement park. Katokichi is listed on the Tokyo Stock Exchange and is led by founder and chairman Yoshikazu Kato. In 2005, the company posted revenues of ¥339.8 billion, or $2.82 billion.

FROZEN FISH FOR THE FIFTIES

Katokichi was founded by Yoshikazu Kato in 1956 in order to produce and distribute frozen fish in Japan's Kanonji City region. Kato was just 20 years old at the time, yet had already worked for some five years as a fisherman. In that capacity, Kato formed a number of business principles, and especially an understanding of the need to change and adapt to the continuing market changes. Kato's summed up his business philosophy this way: "Continually be aware of risk, and view change as a challenge." Backed by this philosophy, Kato transformed his company from a small frozen seafood producer to one of Japan's top processed food companies.

Katokichi Suisan Co. was formally launched at the beginning of 1957. The company's first product was frozen shrimp. From the start, the export market formed a major part of the company's business. By 1962, Katokichi had recognized the opportunity to expand into the processed foods category, launching exports of frozen fried shrimp. The growing company, which shorted its name to Katokichi Co. in 1964, moved to new quarters in Kanonji in 1966. This moved enabled the company to expand its range of production, adding frozen vegetables to its seafood line.

In the early 1970s, Katokichi's spirit of adapting to the changing market enabled it to recognize the growing demand for prepared and processed foods amid the rapid industrialization and growing financial clout of the Japanese economy. In 1971, the company opened a new factory, in Yamamoto, dedicated to the production of processed foods including pork dumplings and breaded fish and meat products. The success of these lines led the company to move its headquarters once again in 1976. The company remained committed to its Kanonji roots, however.

Katokichi grew externally in 1980, through a merger with Omiya Kensetsu Kogyo Company, which was also headquartered in Kanonji. By the end of that year, the company had also completed a restructuring, adding a new subsidiary, Katokichi Shokuhin. By then, too, the company had two new factories, in Zentsuji and Tadotsu.

Katokichi went public in 1984, listing its stock on the Osaka Stock Exchange's secondary section. Two years later, the company added its listing to the Tokyo Stock Exchange as well. The company grew again the following year, launching its first diversification effort by adding a hotel management wing. Also in 1987, Katokichi's strong growth led to the shift of the company's share listing to the main boards of both the Tokyo and Osaka exchanges. The company also expanded into restaurant operations, with such holdings as the Murasaki and Hiikiya restaurant groups, both operators of traditional Izakaya-style restaurants. Other later holdings added to the company's growing leisure and entertainment portfolio included golf courses, including the Kume and the Yubara country clubs, and the New Reoma World amusement park.

RICE REVOLUTION IN THE NINETIES

The company stepped up its investments in the late 1980s. Importantly, the company entered the market for prepared noodles—one of the fastest-growing Japanese food categories—with the opening of a new frozen noodle factory in Naka Tado in 1988. In that year also, Katokichi extended its hotel management interests into the general real estate development market, adding a new subsidiary, Eiwa General Lease Company.

Katokichi added a new production facility in 1991, in Ayakamai, in the Kagawa Prefecture. However, the company had already recognized an opportunity for international expansion. In 1987, the company entered Hong Kong, launching subsidiary K and T Foods, which built a food processing factory, and also received a license to operate in the restaurant sector. The company then formed a joint venture with Café de Coral Group, the largest fast-food restaurant operator in the Hong Kong market, to open a fast-food restaurant featuring authentic Japanese cuisine in 1989. That year, Katokichi also began doing business in Thailand, where it set up a joint venture with Nichimen Corp. to produce processed frozen foods, and especially tiger shrimp.

The opening of the Chinese economy in the early 1990s provided the company with its next international expansion opportunity. In 1993, Katokichi founded the joint venture Weidongri Comprehensive Foodstuff Co. LTd., in Shandong. The move into China not only provided the company with lower operating costs, it also placed it closer to the rapidly developing Chinese market for shrimp and other fish and seafood products. Katokichi quickly expanded its Chinese operations beyond seafood, however. By the end of the 1990s, the company had opened more than ten subsidiaries and affiliated companies in China producing a wide variety of food items, ranging from fresh and processed seafoods to dumplings, crab pastes and sushi toppings, to fried chicken. Into the mid-2000s, the company continued to shift its most labor-intensive food production operations to the Chinese mainland, where labor costs were approximately one-twentieth the cost of the same resources in Japan.

COMPANY PERSPECTIVES

Our company's basic philosophy is to "serve society through the company's prosperity." By the company growing, responding to the needs of the era and the people, we are able to accomplish our mission in society. We think that this is, in fact, the real value of a business enterprise.

An important moment in Katokichi's development came in the mid-1990s when the Japanese government began taking steps to liberalize the all-important Japanese rice market. As the country's staple food—and a major agricultural crop—Japanese rice had enjoyed heavy protection from the government, especially in the form of tight restrictions on imports. These restrictions, however, created an artificial market for domestic rice, confronting consumers with high rice prices. A disastrous harvest in the early 1990s, however, forced the government to allow emergency imports of rice. This opened the breach for the legislation governing the rice market.

Katokichi recognized the opportunity to enter the market with a high-quality domestic rice sold at low prices. The company established its own rice factory in Niigata Uonuma, a region noted for its high-quality rice, in 1994, and by the following year had begun marketing its frozen, pre-cooked domestic rice at a significant discount compared to its competitors. The passage of the new Staple Foods Law at the end of 1995, which, among other provisions, required the government to stockpile rice as a hedge against future shortages, further boosted the domestic rice market, providing a ready customer for Katokichi.

In response, the company moved to deepen its rice operations, adding a new polishing factory in 1996. In that year, also, Katokichi built another new plant in Niigata Uonuma, for the production of long shelf-life rice in sterilized packaging. At the same time, Katokichi developed a highly efficient production system. These and other investments in the rice sector quickly paid off for the company, as it grew rapidly into the country's number two rice supplier by the early 2000s. Katokichi's rice operations were also quite profitable, despite the company's discount price formula, and by the early 2000s the company's gross profits on its rice operations outpaced the industry average.

EYES ON EXPORTS IN THE NEW CENTURY

True to the founder's vision, Katokichi remained on the lookout for new industry trends. In 1997, the company acquired a stake in Green Foods Company, one of Japan's pioneering producers of so-called healthy foods—the nation's fastest growing food segment at the turn of the century. Katokichi also continued to expand its production capacity, buying up frozen foods specialist KS Frozen Foods Co. in 2000.

Katokichi's continued expansion of its Chinese operations enabled it to develop a new strategy targeting the export market. The company's focus fell especially on the United States, but also on the European market. In support of this strategy, the company began construction of a new Shandong Province plant, completed in 2002, and acquired Qingdao Aska Food Co., also based in Shandong, a producer of eel and shrimp for sushi. Following that acquisition, the company launched a ¥250 million upgrade of the Qindao plant.

Katokichi's international focus also included expansion of food sales in the Chinese market. At the end of 2002, the company formed a partnership with Long Fong Foods Co., a leading producer and distributor of frozen foods in China. The partnership enabled Katokichi to distribute its own chicken and seafood products through Long Fong's distribution network. The move was part of the company's target to distribute as much as 50 percent of its China-based production to the Chinese market by the late 2000s, compared to just 10 percent in 2002.

KEY DATES

1956:: 20-year-old fisherman Yoshikazu Kato establishes Katokichi Suisan Co., Ltd., a frozen fish processing company in Kanonji, Japan, and begins producing frozen fish products.
1961:: Katokichi launches production of frozen fried shrimp.
1971:: The company adds a new factory in Yamamoto and diversifies its product line.
1984:: Katokichi lists stock on the Osaka and Tokyo (1986) stock exchanges.
1987:: First international operation begins with a food production subsidiary in Hong Kong.
1989:: Katokichi forms a shrimp production joint venture in Thailand.
1993:: A joint venture operation is established in Shandong Province, China.
1997:: The company enters the healthy foods market with the acquisition of Green Food Company.
2002:: Katokichi acquires Qingdoa Aska Foods as part of its plan to expand export operations to the United States and Europe.
2004:: The company acquires Japanese instant noodle producer Kanebo Ltd.
2006:: The company celebrates its 50th anniversary.

Katokichi also attempted to expand its restaurant operations onto the mainland, forming a partnership with Ringer Hut Co., which operated a string of noodle restaurants. After opening two loss-making test restaurants in 2002, the partners agreed to terminate their partnership in 2003.

Despite this setback, Katokichi's overall operations remained in exemplary health, contrasting sharply with much of the rest of the Japanese food sector, which had been hit hard by a deepening recession at the turn of the century. Its competitors' difficulties opened new opportunities for Katokichi. In 2004, for example, the company became the leading candidate to take over struggling Kanebo Ltd. That acquisition added a crucial new category to Katokichi's operations, instant noodles, one of the largest food categories in Japan. By 2006, Katokichi's 50-year record of "viewing change as challenge" had enabled the company to become one of Japan's food industry leaders.

PRINCIPAL SUBSIDIARIES

Meicheng Brother Co., Ltd. (China); P.T. Khome Foods (Indonesia); P.T. Sekar Katokichi (Indonesia); Qingdao Aska Food Co., Ltd. (China); Qingdao Katokichi Foods Co., Ltd. (China); Seafresh Katokichi Co., Ltd.; Thailand Seafresh Katokichi Co., Ltd.; Weidongri Comprehensive Foodstuffs Co., Ltd. (China); Weifang Kaijia Foodstuffs Co., Ltd. (China); Yantai Xinxing Foods Co., Ltd. (China); Zhoushan Katoka Foods Co., Ltd. (China).

PRINCIPAL COMPETITORS

Maruha Corporation; Nichirei Corporation; QP Corp.; Air Water Inc.; Toyo Suisan Kaisha Ltd.; Taiyo Nippon Sanso Corp.; Snow Brand Milk Products Company Ltd.; Kyokuyo Company Ltd.