Putting Your Money Where Your Mouth Is

Back to Contents of Issue: October 2001


Forget dot-coms -- an increasing number of IPOs come from the restaurant industry.
by Tom Sato
UNDER NORMAL CIRCUMSTANCES, WHEN an economy turns for the worst, the number of IPOs declines. However, the most recent economic downturn, which started in the fall of 2000, has only slightly dented the number of IPOs. For the January to June 2001 period, there were 62 IPOs. During this same period last year, there were 71 -- a decrease of only 12.6 percent. This falls in line with a Tokyo IPO survey in which Japanese underwriters and larger securities firms predicted that the number of IPOs in 2001 would be the same or slightly less than the year before.

What is significant is the types of companies going public. With dot-com fever widely considered a dead deal, what is responsible for the steady number of IPOs? The answer is something that's a fundamental part of everyone's daily life: food.

On August 8, 2000, a small yakiniku (barbecue) chain with just nine restaurants went public on Osaka's Section Two. Since then, a steady stream of discount restaurant chains, from izakaya (Japanese "bar and grill" types) to sushi restaurants, have gone public. One of the most aggressive IPOs was Reins International, which went public on Jasdaq last December with an opening day price increase of 42 percent. Reins runs the popular Gyukaku yakiniku chain in greater Tokyo.

Restaurant chains are doing extremely well under today's deflationary economy. The cost of opening new restaurants is cheaper than ever, as real estate developers -- in increasingly dire financial straits since the bubble burst -- have been slashing rents. In an interesting twist, it seems the favorite sites for opening restaurants at the moment are office spaces that were once occupied by banks.

Most import regulations surrounding imported foodstuffs are now gone, and wholesale prices of beef and fish have never been lower. Many discount restaurants are taking advantage of the lower wholesale costs and passing along the savings to customers. A popular gyudon (beef bowl) restaurant, Yoshinoya, cut the price of its main dish by 30 percent during the month of August in an attempt to draw in price-conscious workers whose paychecks are shrinking.

McDonalds Japan, whose July 26 IPO raised a whopping (sorry, Burger King) JPY112.6 billion, has also struck gold by cutting its prices. The hamburger chain, the biggest in Japan, cut the weekday price of burgers to just JPY65 -- about 50 cents, even cheaper than in the US. This has pulled in more cash-strapped salarymen, who were accustomed to paying more than JPY1,000 for lunch.

Underwriters are taking note of the restaurant industry and now widely see restaurants as viable IPO candidates. The consensus on the stock market is that as long as these chains can continue to build more restaurants, the deflationary economy will work in their favor.
Another favorite theme for restaurant IPOs is sushi bars -- not the expensive kind found in Akasaka or Ginza, but discount places where sushi are circulated on automatic conveyer belts. Each plate of sushi typically costs JPY100 to JPY300. Both the Heiroku and Kura Corporation sushi chains had highly successful IPOs in the second quarter of this year, with opening price increases of 46 and 18 percent, respectively.
In a busy country like Japan where eating so often takes place outside of the home, private restaurant chains abound -- and the smart ones seem to be doing well. We anticipate that the restaurant IPO trend will continue for some time to come. @

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