The biggest wave of listings in history: Why are FamilyMart, Merchants, and Jhujian all listed together? Dismantling "Two Big Chess Games" from Japan's Skylark

In 2024, Taiwan's catering industry will experience the hottest listing wave in history. Merchants F&B, Jhujian, Q Burger, FamilyMart, KINGZA International, Casual Restaurants, etc. are all listed on the market. In recent years, it has become a trend for the service industry to actively tap into the capital market, whether it is aviation, catering, sports or retail.

This wave has also swept through neighboring Japan, and the development of Japan's service industry is even ahead of Taiwanese companies. What are the reasons that prompt businesses to rush into the arms of the capital market? This time, we take the Japanese catering industry as an example to explore the motivations for companies to go public and how to use the power of the capital market to strengthen their own fitness and competitiveness.

Why are the catering industry trying to go public? Analysis of the launch trend of Japanese catering brands: small and medium-sized catering industries are the most active

Observing the listing trend of Japan's catering industry, we can find that in addition to large catering companies, there are also many small and medium-sized businesses that choose to go public.

Taking brands that are familiar to Taiwanese people as examples:

• Komeda's Coffee listed in 2016, turnover of approximately NT$4.6 billion 
• Torikizoku listed in 2014, turnover of approximately NT$4 billion
• Osaka Ohsho listed in 2011, turnover of approximately NT$4.9 billion
• Katsuya listed in 2007, turnover of approximately NT$4.5 billion

Is 5 billion a lot? In fact, with a turnover of NT$5 billion, it ranks approximately 70th behind Japan's catering industry. In the ten years from 2006 to 2016, a total of 29 catering companies in Japan were listed on the market, of which 19 had a turnover of less than NT$5 billion, accounting for 65%. It can be seen that Japanese small and medium-sized restaurant operators seem to be more actively embracing the capital market.

The Japanese yakiniku Izakaya brand Torikizoku currently plans to open its third store in Taiwan. The restaurant is expected to be located on Guangfu North Road, opposite the Taipei Dome.

Reform is necessary to increase added value! Listing is conducive to raising funds and meets the needs of different product life cycles.

So, what exactly motivates Japanese small and medium-sized catering companies to go public?

I believe everyone is familiar with the concept of Product Life Cycle, which refers to the entire process from the beginning of a new product entering the market to the end of its departure from the market. Interestingly, the development process of catering companies before and after they go public is similar to the product life cycle. Regardless of whether it is in a growth period or a recession period, the ultimate goal of an enterprise is to "increase added value", and leveraging the power of the capital market has become an important means for enterprises to achieve their goals.

The restaurant industry may seem stable, but its financial vulnerability in the face of a major economic disaster cannot be underestimated. Take the Japanese catering giant Skylark Group, which owns Skylark, Grazie, Aiya, Syabuyo, Steak Gusto and Musashi No Mori Coffee, as an example. Before the outbreak of the epidemic in 2019, its own funds were as high as NT$28.7 billion. , but it dropped sharply to NT$24.6 billion just one year later, evaporating 14%, equivalent to NT$4.1 billion. In addition, Japan's Skylark estimated in 2019 that due to interest-bearing borrowings, etc., the interest to be paid that year would be as high as NT$800 million.

These capital changes have a huge impact on the catering industry. How to make full use of the characteristics of the capital market is an important proposition for Japanese catering companies. Compared with traditional loans, the capital market has the advantages of no need to pay interest and scale leverage, and has become an important way for the catering industry to raise funds. Path has also become an important milestone in the development of enterprises.

Gusto, a restaurant under the Skylark Group, is the predecessor of the Japanese Skylark restaurant. The last Skylark in Japan closed in 2009. As for the Skylark restaurant in Taiwan, it has been in operation since 1996.

The next step in entering the capital market: investment, mergers and acquisitions

After catering companies successfully enter the capital market, how can they use funds to increase their added value? Taking Japan's Skylark as an example, its main strategies focus on "investment" and "mergers and acquisitions." Both of these measures require huge capital investment. In comparison, although human resources policies (retention, talent search, etc.) also require funds, the scale of funds required is far smaller than the first two.

Through investment and mergers and acquisitions, catering companies can expand their scale, enhance their brand influence, expand into new markets, and even introduce new technologies and strengthen their supply chains, thereby increasing the added value of their products and services and enhancing their ability to withstand risks.

1. Investment: To increase added value, renovating stores is almost a must-do strategy

In 2021, as the epidemic slows down, Japan's Skylark announced plans to raise nearly NT$10 billion through public offerings to improve production efficiency, IT investment, domestic and overseas exhibition stores, and most importantly - business format adjustment and old store renovation . Skylark expects to invest approximately NT$2 billion in renovating its stores.

For catering operators, in addition to improving the quality of meals through cooking technology, store modification is also a relatively low-risk strategy to increase added value. As long as the decoration project is carried out according to the drawings, there is no need to worry about the risks caused by unstable catering quality or differences in staff skills, which can effectively ensure the consistency of customer experience.

However, hardware modification requires huge funds, and financing through the capital market has become an effective solution for catering operators to solve their financial needs. The NT$10 billion planned to be raised by Skylark Japan will be used for more than 15 of its brands of different sizes. It is expected that the funds will be distributed evenly, so that all of its brands will have the opportunity to benefit.

2. Mergers and acquisitions: complement product lines and consumption scenarios, and establish operating advantages in multiple formats

A completely different concept from evenly distributing the amount of money to its brands is the "mergers and acquisitions" method of concentrating money.

In September 2024, Japan's Skylark announced the acquisition of the Kyushu udon brand "Sukesan Udon" (資さんうどん) for approximately NT$5.1 billion. NT$5.1 billion is not a small number. The source of funds for this merger may also be partially raised from the capital market to balance interest expenses and financing costs.

The epidemic has changed consumers' lifestyles and consumption habits. Most of Skylark's brands are restaurant-type, and the product unit prices are relatively high. It is not easy to reach more daily, low-unit-price consumption scenarios. The acquisition of Sukesan Udon, which has a low unit price and is more suitable for daily dining situations, will help Skylark expand different customer groups and meet diversified consumer needs, further enhance the group's overall added value in the consumer life circle, and consolidate its market position.

It will go on the market and it will go off the market! Flexibly adjust strategies and enter and exit the capital market is the norm

Judging from the case of Japan's Skylark, companies do not remain unchanged after going public.

After going public in 1984, Skylark chose to delist in 2006. Because Skylark was facing a performance decline at the time and needed large-scale reforms, the pace of reform was bound to slow down if it wanted to gain the consent of many shareholders and stakeholders. Therefore, after being delisted, Skylark and its streamlined shareholder structure can accelerate decision-making and make the results of the reform appear faster.

After the reform was successful, the strategy was effective, and the operation was on a profitable track, Skylark judged that the time had come for large-scale investment expansion and needed to use funds again to facilitate its re-listing in 2014. It flexibly used the capital market to raise funds and has developed to this day.

It can be seen that, just like the product life cycle, corporate development also has different stages and will enter and exit the capital market in different ways. Taiwan has recently seen a wave of IPOs in the service industry. It is expected that these companies can use funds to provide more diversified added value and bring richer and more diverse choices to consumers.