The 3 Ways Japan Foods Holding Ltd Can Grow Its Business

Japan Foods Holding Ltd (SGX: 5OI) is one of the leading Japanese restaurant chains in Singapore. As of 30 September 2017, Japan Foods has 48 restaurants in Singapore under various brands, and 21 restaurants outside of Singapore in Malaysia, Vietnam, Hong Kong, and China. The company’s restaurant brands include Ajisen Ramen, Menya Musashi, and Osaka Ohsho.

In a previous article of mine, I looked at the historical performance of Japan Foods’ business in its last five fiscal years. It turned out that the company’s bottom-line had been impacted by higher operating expenses. In this article, I want to look into the future to understand the different ways that Japan Foods could grow its revenue and profitability.

First growth option: Increase same store sales

One way that Japan Foods can grow its top-line is through an increase in same store sales. There are slight differences in how different retail companies define same store sales, but in general, it can be understood as the change in revenue from a company’s store base that have been open for at least 12 months.

An increase in same store sales is quite possibly the most profitable growth avenue for Japan Foods since its costs are largely fixed in nature. As such, any increase in customer volume or menu prices in its existing stores will have little impact on the company’s fixed costs; what happens then is that a big portion of the additional revenue brought on by higher foot traffic and prices will flow to the bottom-line.

One of the initiatives that have been taken on by Japan Foods to grow its same store sales is a rejuvenation of its brands. For example, some of the company’s Ajisen Ramen stores have been upgraded to a new concept called Den by Ajisen Ramen, which offers diners more options.

Other ways that Japan Foods could grow its same store sales include new product introductions, loyalty cards, and discounts.

Second growth option: Grow the number of stores

Another way for Japan Foods to grow its business is to open new stores. This has been a method that the company has successfully employed to grow its revenue. For instance, in FY2014 (fiscal year ended 31 March 2014), the company generated revenue of S$62.8 million with a total restaurant count of 59; in FY2017, Japan Foods’ revenue and restaurant count had increased to S$65.5 million and 68, respectively.

One of the biggest opportunities that I see with Japan Foods is overseas expansion. Given that the company already has exposure to countries such as Malaysia, Vietnam, and China – as mentioned earlier – it would be logical for the company to continue growing in these markets.

Third growth option: Development of new concepts and restaurant brands

Japan Foods can also introduce new brands into the market. It is a strategy that the company has employed over the years (it has 17 brands under its portfolio as of 30 June 2017, as compared to 15 brands as of 30 September 2014).

Although there is no guarantee that every new brand introduced by Japan Foods will be successful, a willingness to test out new concepts should allow the company to stay at the forefront of consumer trends.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.