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Sushiro Global's focus on product may prove myopic

Sushi restaurant's relisting paves the way for investors, but will they bite?

Sushiro Global Holdings President Koichi Mizutome rings a bell during a ceremony to mark the company's relisting on the first section of the Tokyo Stock Exchange on March 30.

OSAKA -- During the past eight years since Sushiro Global Holdings was delisted after being acquired by an investment fund, the conveyor-belt style sushi chain has touted the freshness of its fish as a competitive edge.  

However, after returning to the Tokyo Stock Exchange's first section on March 30, the Osaka-based company's share price has been anemic, hovering below its opening price of 3,600 yen a share. 

One reason why investors are wary is because the company's largest shareholder might sell all or a portion of its shares. The British private equity company Permira owns 33% of Sushiro Global's shares. 

Permira sold more than a 60% stake in the initial public offering. As the lockup period during which a large shareholder cannot trade its shareholdings runs through Sept. 25, "The possibility that the fund will sell off more shares within a year is low," said Yoshinori Ogawa, senior strategist at Okasan Securities.

However, with a potential Permira sell-off looming, the regulation "has partly contributed to investors refraining from investing in Sushiro Global shares in the future," Ogawa added. 

Permira is known for investing in famous luxury fashion brands such as Germany's Hugo Boss and Italy's Valentino.

Shares of Sushiro Global's predecessor Akindo Sushiro were delisted from the stock exchange when it was brought under the umbrella of Japanese private equity company Unison Capital in 2009. Permira bought Akindo Sushiro in 2012 from Unison Capital for about 80 billion yen ($733 million). Permira owned a 98% stake in the company in late March before the relisting.

Beyond the product

However, there is another reason for the limp share price, and one that is more likely to be true: Investors may be feeling the limit of Sushiro Global's competitive edge. 

During the eight years between listings, Sushiro Global set about improving the quality of its product.

"We have worked to enhance the image of conveyor belt-style sushi, which is usually priced at 100 yen a plate, moving away from perceptions of it being cheap and dingy," said Koichi Mizutome, president of the company. 

Among the company's efforts is the dispatch of employees to a local fishery company handling Chilean sea urchins and Scandinavian salmon to learn how to best handle the marine life to maintain freshness. 

Compared to the typical 100-yen price, Sushiro Global offers them for 180 yen a plate. To justify the added premium, the company embarked on a TV marketing blitz to promote the freshness of its products. 

Simply comparing the earning power for the year ended September 2008, shortly before delisting, to that for the year ended September 2016, which was calculated under international accounting standards, Sushiro Global's sales had risen 2.3-fold to 147.7 billion yen.

The company's operating profit margin jumped from 4.5% to 5.1% over the eight years, showing boosted earning power through greater efficiency. In that period, the number of restaurants doubled to 466. 

Although the share relisting came on the back of such high performance, the company's market capitalization has remained on a par with its rival Kura Corp's, at around 97 billion yen. This indicates market players are paying attention to factors other than the freshness of fish. 

Seiichiro Samejima of Ichiyoshi Research Institute said the taste and quality of sushi offered by conveyor belt-style operators are "almost the same," but Sushiro Global is "falling behind its rivals in the creation of new menus and investments in its restaurants."

At the time of relisting, the company did not raise funds by issuing new shares.

The company will spend 20 billion yen it has in reserve and through other resources mostly on speeding up restaurant openings through the year ending September 2019.

The biggest difference with its rivals is the lack of aggressive investment plans for existing outlets. It will be difficult for Sushiro Global to gain ground in the increasingly competitive industry if the company focuses mainly on the quality of its product.  

Conveyor belt-style sushi restaurants are unique to Japan. With its relisting, Sushiro Global is attracting investor interest in this business model. But an unnerving trend is unfolding for the company. According to an investor relations official at Kura, "Inquiries from overseas investors who first learned about this business because of the listing are surging." 

The services offered in this industry tend to be similar. Whether Sushiro Global can pull ahead of rivals depends on increasing customer satisfaction and popularity. Otherwise, the company's relisting could end up benefiting only its rivals. 

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