Japan’s top noodle shop operator to speed up global expansion

May 17, 2019 10:46
Noodle shops are labor-intensive while Japan is suffering from a labor shortage with jobless rate hitting a low of 2.4 percent. Photo: Toridoll

Toridoll, Japan’s largest noodle shop operator, spent an estimatedHK$2.1 billion (US$267.5 million)  to acquire Tam Chai Yunnan Mixianand Tam Jai Samgor Mixian two years ago. That has helped Toridoll snap up 70 percent of the rice noodles market in the city.

However, the Kobe-based company posted a 94 percent slide in net profit for the fiscal year ending in March, triggering a 20 percent plunge in its share price on Wednesday.

Does that mean the acquisition strategy is failing?

In fact, Toridoll reported a 24.5 percent gain in revenue to 145 billion yen (US$1.32 million) in the fiscal year, the fast growth rate in seven years.

That was mainly driven by a 190 percent jump in overseas revenue, largely contributed by the two Hong Kong noodle chains acquired.

The Hong Kong market posted revenue of 22.05 billion yen during the period, up more than five times from the previous year. Toridoll now owns 106 Tam Chai and Tam Jai Samgor outlets and 11 Marugame Seimen shops in the city.

There are two main reasons behind the disappointing bottom-line figures.

First, Marugame Seimen outlets reported a 0.5 percent dip in revenue to 89.9 billion yen, while net profit slumped 11 percent to 12.4 billion yen. The company attributed that to weak domestic consumption and market saturation.

Toridoll already operates over 1,000 Japanese noodle shops across Japan, leaving limited scope for further expansion.

Noodle shops are labor-intensive while Japan is suffering from a labor shortage with jobless rate hitting a low of 2.4 percent.

Operators have to raise hourly wages to attract employees. Higher labor cost has eroded the Toridoll’s profit margin.

Second, Toridoll booked an impairment loss of 3.63 billion yen during the period as the company was reevaluating domestic and overseas shops according to International Financial Reporting Standards.

Toridoll has massive intangible goodwill assets after the takeover of Tam Chai and Tam Jai Samgor, which have very limited fixed assets. This could be the main source of impairment charges.

Though acquisition has not boosted profitability so far, as the earnings report shows that Japan’s domestic market continues to struggle with saturation and labor shortage, overseas expansion would still be the way to go.

Toridoll is reportedly quite happy with the takeovers, and the company is planning to increase the Chinese noodle brands' presence in the Greater Bay Area and Southeast Asia.

Toridoll is also said to be looking for other acquisition targets to further diversify away from Japan.

This article appeared in the Hong Kong Economic Journal on May 16

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist