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Business

Price hike to test Ringer Hut's charm power

Will diners swallow eighth price increase in as many years?

TOKYO -- Ringer Hut, a leading Japanese noodle chain, has been successful in luring diners even while raising prices once a year. But whether customers will keep coming back this time around is unclear.

The company, known for its Nagasaki-style champon dishes, increased prices on almost all its offerings by roughly 4% on average at its stores in western Japan last month. The signature dish now sells for 583 yen ($5.27) including tax, up from 561 yen, in these locations.

The uptick marked the eighth price increase in eight years. In 2009, the company began using only Japanese-grown vegetables amid plunging confidence in imports. With food safety increasingly on the minds of Japanese consumers, the company has been successful in explaining the rationale behind the hikes.

The Tokyo-based chain's strategy has seemingly paid off because customers keep coming back. Same-store customer traffic tends to slide immediately after a price hike, as it did in August 2016 -- falling 5.3% on the year -- after prices on about half the menu were raised by about 4% at locations in eastern Japan. But customers soon started returning, lifting the number into positive territory in October. Customer traffic increased in the month after the price hike in 2015 as well.

Customers apparently tolerated the price hikes because the reason behind the moves was clear. Promoting domestically grown vegetables as a selling point, Ringer Hut won the hearts of women and health-conscious people, broadening its customer base. When it introduced higher prices last year, it added Japanese-harvested kikurage, or wood ear mushrooms, as a new ingredient, making the dishes heartier.

Loyal following

Having loyal fans is key. "Ringer Hut noodles are tasty and packed with veggies," said a 20-something woman at a store near Tokyo's Shimbashi Station, saying she eats there once or twice a week.

"Ringer Hut boasts a good number of regulars, so the latest price hike is unlikely to depress customer traffic or same-store sales substantially," said Seiichiro Samejima, chief analyst at the Ichiyoshi Research Institute. The company's stock has been hovering around 2,500 yen, up about 10% this year. The stock is trading at roughly 37 times earnings, exceeding the 33 level for McDonald's Holdings (Japan).

Still, Ringer Hut shares failed to get the kind of boost yakitori chain Torikizoku saw after it announced a price hike.

One source of concern is that the price hike this time around did not come with a strong new selling point. The company simply said the increase was to address higher ingredient and logistics costs. Consumers are well aware that the restaurant industry is suffering from a dire labor shortage and shipping and other costs are rising. Still, whether this is sufficient to persuade diners to spend more is uncertain.

The appeal of healthy food may be lessening as well. Peers such as Hiday Hidaka, another noodle chain, and Mos Food Services, the company behind the Mos Burger fast-food chain, are all scrambling to add healthy choices to their lineups, as are convenience stores.

Same-store traffic at Ringer Hut locations edged down 0.1% in August, apparently due in part to bad weather. Whether the figure will rebound this month is yet to be seen.

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