November 23, 2017 12:00 pm JST

Big Japanese fast-food chain bites the bullet on price hikes

Beef-bowl purveyor Sukiya tries to pass on higher costs without upsetting regulars

The Sukiya beef-bowl chain is under pressure from rising labor and ingredient costs.

TOKYO -- Japan's go-to meal for thrifty diners is about to get pricier.

Some items on the menu at Sukiya, the country's biggest gyudon beef-bowl chain, will soon cost more, operator Zensho Holdings said Wednesday, finally succumbing to the pressure of rising wages and ingredients costs after fighting an intense price war. 

Gyudon, a bowl of rice topped with beef and onion simmered in a mildly sweet sauce, is to Japanese consumers what a McDonald's cheeseburger is to their American counterparts. Occupying the low end of the lunch price range, gyudon eateries are found everywhere in Japan. Customers know exactly what is on the menu and what to order.

Gyudon chains also built up a following among investors during the low point of Japan's battle against deflation for their appeal to price-conscious consumers. They have painful memories of previous price hikes driving customers away. So Sukiya is treading carefully in the latest round of increases, keeping the price on a regular-size bowl unchanged.

Starting Nov. 29, a large bowl of the salaryman's staple will cost just 10 yen (9 cents) more -- 480 yen -- as will such toppings as kimchi and cheese. But the price on an extra-large bowl will jump 50 yen to 630 yen. This 8.6% hike may put off loyal customers. 

Major rival Yoshinoya Holdings, still hurting from a 80 yen increase on regular-size bowls in 2014, says it has no plans for price hikes this time. Sukiya followed suit back then with higher prices in 2015, but its effort to make up for the hikes with 20% more beef and onion paid off, drawing customers back.

This time Sukiya is simply passing higher costs on to customers. But ingredients and wages are expected to keep rising. Store openings are slowing as well. If the chain cannot absorb the cost increase, it may have no choice but to charge more for regular-size bowls as well. 

Prices are going up for two key ingredients -- beef from the U.S. and domestically grown rice. In addition, Sukiya has taken on more part-timers after its practice of having just one worker per store during late-night hours triggered a backlash in 2014, becoming the overwork scandal of the day. Now the company is feeling the pinch of higher labor costs. It will try to mitigate the impact of the price hikes in part by playing up its use of Japanese-grown rice.

Unlike previous price changes led by commodity inflation, this round of hikes stems from the need to offer higher pay to retain staff amid a labor shortage -- a challenge facing other service-sector companies. Zensho's case could become a bellwether for the fast-food industry.

Zensho Holdings Co., Ltd.

Japan

Market(Ticker): TKS(7550)
Sector:
Industry:
Consumer Services
Restaurants
Market cap(USD): 2,623.96M
Shares: 149.64M

Yoshinoya Holdings Co., Ltd.

Japan

Market(Ticker): TKS(9861)
Sector:
Industry:
Consumer Services
Restaurants
Market cap(USD): 1,127.33M
Shares: 65.12M

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