MOS FOOD SERVICES, INC. Annual Report For the year ended March 31, 2000

Transcription

1 MOS FOOD SERVICES, INC. Annual Report For the year ended March 31, 2000 M THE S IS NLY NE

2 A uick Look at MOS Financial Highlights Thousands of yen (Except per share figures) Thousands of U.S. dollars (Except per share figures) Years ended March Net sales 71,554,497 71,071,736 71,325,355 66,815,630 64,154,601 $674,089 Net income 1,987,538 1,832,261 2,857,774 2,771,228 3,607,598 18,724 Net income per share Cash dividends per share, applicable to the year Total assets 63,524,677 63,204,916 64,182,396 60,772,655 58,239, ,443 Shareholders equity 43,992,717 44,520,150 45,101,793 43,924,697 41,971, ,439 Notes: All dollar figures in this report refer to U.S. currency and are translated for convenience only at the rate of to U.S.$1.00, the approximate rate of exchange on March 31, Per share data has been retroactively adjusted for subsequent stock splits. REFORMATION Headquarters was reorganized to focus more on issues at franchise stores. The Company created a fourdivision area sales system headed by directors to enhance relationships with store owners. STORE ENHANCEMENT B y relocating and rebuilding existing stores, we aim to boost customer traffic with more convenient operating hours and locations. REINFORCING CONTENTS Interview with the President 2 Review of Operations 6 Financial Review 9 Five-Year Summary 10 Consolidated Statements of Income 11 Consolidated Balance Sheets 12 Consolidated Statements of Shareholders Equity 14 Consolidated Statement of Cash Flows 15 Notes to Consolidated Financial Statements 16 Report of Independent Public Accountants 23 Corporate Data 24 Directors and Corporate Auditors 25 MOS FOOD SERVICES, INC. 12

3 Sales Growth 43,023 48,731 53,868 59,000 62,815 64,154 66,815 71,325 71,071 (Millions of yen) 71, FASTER SERVICE W e are creating a system to shorten the time it takes to prepare food after it is ordered, so our customers can always enjoy fresh and delicious entrees. IMPROVED MENU M OS aims to offer menus tailored to breakfast, lunch, teatime and dinner, and to provide supplementary menus according to store sales, floor space and location. APPEAL We intend to raise customer awareness of the high value of our products, which use the best ingredients for the health and well-being of our customers. SAME STORES Growth of MOS Burger Restaurants (Non-Consolidated) 1, ,103 1,049 1,193 1,136 1,277 1,213 1,330 1,264 1,387 1,318 1,426 1,358 1,481 1,413 1,525 1,450 (Shops) 1,561 1, Domestic MOS Burger: Franchised Domestic MOS Burger: Directly Operated

4 Interview with the President Subsidiaries made important contributions to consolidated results. However, we must address a number of issues that became clear during the fiscal year for the sake of future development. A variety of trials were conducted during fiscal 2000, ended March 31, What is your analysis of consolidated results? Consolidated net sales grew 0.7% to 71,554 million (US$674 million) compared with the previous fiscal year. Although cost of sales decreased 0.9% to 44,368 million (US$418 million), selling, general and administrative expenses increased 5.4% to 23,106 million (US$218 million). As a result, operating income fell 6.8% to 4,080 million (US$38 million). Net income rose 8.5% to 1,988 million (US$19 SOLID PRO million), and tax-effect accounting was introduced. Subsidiary NAKAU Co., LTD. grew enough to generate profits on increased sales, substantially contributing to consolidated results for the fiscal year under review. I think our consolidated performance for the fiscal year was acceptable. MOS Food Services, Inc. comprises six consolidated subsidiaries. Among these subsidiaries, Nakau, a Japanese-style fast-food chain serving donburi and udon, continued to grow in terms of restaurants and sales, and was listed on the over-the-counter exchange in December I believe there are two factors behind Nakau s success. One is the incorporation of an effective franchise system. Know-how in franchise systems, supplied by MOS Burger and based on past experience, was key to the development of stores that competitors could not follow. The second factor is drawing out the latent potential of Japanese-style food as a business. Considering the sensibilities of Japanese people for Japanese-style food, we once believed there were limits to a simple, mechanical fast-food restaurant. Using only the finest ingredients, Nakau makes elaborate efforts in its stores and menu. The fact that a broad range of customers frequent Nakau, from women to the elderly, is the driving force behind growth. MOS FOOD SERVICES, INC. 2

5 Looking at the numbers, satisfactory results were produced during the fiscal year. Including the subsidiaries you ve just mentioned, what is your evaluation of the year? Does this mean a sweeping review of the MOS franchise system? As I said earlier, I believe our subsidiaries were unrelenting in their efforts. During the fiscal year, MOS Burger aggressively engaged in new business development, introduced more than ten new menu items, reviewed the average cost ratio of franchise stores, and relocated existing stores. However, growth at existing stores did not develop as anticipated, leading to negative figures. Results were not produced from the introduction of various new products and combination menus. The challenge is how to overcome the major issue of negative growth at existing stores. This is a difficult problem that cannot be solved overnight. I believe existing stores must be radically rebuilt. That is right. In the short time frame of one year, we were unable to profoundly change the makeup of existing franchise stores, even on the surface. Our past success had taken on mythic proportions. At times, this resulted in actions that were not necessarily in tune with market trends. We must remedy this situation as soon as possible. With what kind of ideas, how much financing and what aspirations will all owners of MOS Burger restaurants seriously work at developing the business? Furthermore, what problems are faced by each store? These questions are limitless in variety and cannot be resolved in one fell swoop. That is one of the difficulties of the franchise business. GRESS BY... How do you propose to improve all 1,561 restaurants? Hard times were not necessarily limited to MOS Burger. Do you correlate these conditions with the severe economic situation in Japan? Ibelieve the first prerequisite is reforming headquarters. I want to create a headquarters able to clearly indicate problems at franchise stores and guide efforts to solve those problems. For starters, we reorganized in January 2000, placing the marketing division in a four-division area system. A director was appointed as head of each marketing division in an effort to deepen understanding between headquarters and owners. This has resulted in rapid decision-making and stronger responses to individual stores and areas. During the current term, we have made it obligatory for franchise stores to submit financial statements to headquarters. Following financial analysis, the Franchise Management Advisory Office provides consulting as necessary. These initiatives will lead to strengthening the entire chain of stores. No. There are any number of corporations growing in this operating environment. Unfortunately, customer complaints tend to escalate annually in line with increases in the number of MOS Burger restaurants. This has no direct connection to the economic recession. The level of quality at our stores is on the decline. Until now, headquarters had requested franchise stores to improve their attentiveness. Complaints would not arise if customers were truly pleased with the services provided. However, the attentiveness of people is not easily changed. There are few people MOS FOOD SERVICES, INC. 3

6 Are there any other reasons behind performance besides the declining level of quality at existing stores? who take immediate action to change their awareness. We created the MOS Human Academy at headquarters, which will create manuals for every operation at stores. With the establishment of an operation check system, store management will be recorded and improved. This manual will be mastered by part-time workers while checking their attentiveness and behavior in detail. We will increase individual capabilities and raise awareness while growing. In this way, we will make steady progress step by step, not by immediately reaching for the end goal. We will establish a qualifications system for the headquarters supervisor who advises stores and for store managers who are responsible for the store, and nurture a mentality and desire to improve to the next level. There is no reason other than the decline in customer traffic for existing store performance. Four factors behind fewer customers are as follows: 1) Competition has intensified between convenience stores and other restaurant industries. 2) The level of store management capabilities at other stores has improved. 3) We were late in relocating stores. 4) We have not clearly explained to customers our product value and prices. MOS Burger products boast a strong foundation from the perspective of...tackling deliciousness. Prices, however, are high. Stores are not open during convenient hours. And restaurants are not located nearby. There are frequent cases where these reasons sap customer motivation to visit stores. I believe headquarters must quickly rein in the decrease in customer traffic and strengthen existing stores. In particular, what will you start improving? First, we need to shorten the time it takes to serve products. MOS Burger prepares food after it is ordered so customers can always eat it fresh. As such, shortening the time it takes to serve products is a major issue. To overcome this challenge, we must establish a total system that integrates stores and cooking equipment as well as staff. In December 1999, we opened two experimental MOS Standard restaurants, and are currently running tests. We will introduce new cooking equipment in directly-operated stores, including three completely renovated restaurants, and conduct more experiments. We will then promote the introduction of measures that have shown results. We will also establish criteria and standards for staff to provide speedy service and bolster education and training programs. MOS Burger will increase its team of instructors from headquarters and strengthen store operations, while providing supervisors and management guidance from the Franchise Management Advisory Office. MOS FOOD SERVICES, INC. 4

7 Was the waiting time shortened by introducing combination menu items? Was a review of menu items conducted? Last year, MOS Burger aired commercials featuring a popular female singer. What are the plans for this year? Yes, it was. In September 1999 we started serving MOS Lunch Combinations (M.L.C.), and I believe we were able to shorten waiting times, make it easier to buy and provide discounts for customers. During the current fiscal year, MOS Burger is examining new combination menu items that meet customer expectations in product volume and pricing. In addition, a few of our stores have begun offering a breakfast menu. I would like to augment the product lineup to match customer lifestyles with a menu tailored to breakfast, lunch, teatime and dinner. Yes. At present, we have too many items available. To increase operational efficiency, however, I believe we should offer the best menu by store in consideration of the store s scope of sales, floor space and location, and provide optional menus to complement the main menu. This year, we will aggressively disclose information through news reports and conduct publicity with higher reliability instead of advertising. In July 1997, MOS Burger announced its New Value Proclamation campaign. Based on the keywords Healthiness and Deliciousness, the proclamation marked a significant switch of foods used at all THE ISSUES restaurants to mineral vegetables with low agrochemicals and additives, as well as natural beef imported from Tasmania, Australia. We implemented these initiatives as our natural duty in the restaurant industry. Because we thought this was common sense, we did not follow up with an aggressive public relations campaign. I want our customers to understand the merits of MOS Burger products and why they are not priced at the bottom of the fast-food scale. How would you describe progress in the current fiscal year? Iwould like to fully deploy the strengths of MOS Burger and thoroughly implement the initiatives I mentioned previously in the management of each store and area. The objective is to increase customer traffic and expand sales at existing stores. We will make an all-out effort to show the high appraisal we receive from our customers in results. We thank our shareholders for their continued support. Atsushi Sakurada President MOS FOOD SERVICES, INC. 5

8 Review of Operations New Products MOS Rice Burger Tsukune The MOS Rice Burger Tsukune is made of minced roasted chicken and long onions to bring out the full flavor Fried Shrimp Cutlet Burger of tsukune, lightly seasoned with Our Fried Shrimp Cutlet garlic to whet the appetite. Topped M.L.C. Burger is prepared with with kidney bean stalks for color, The MOS Lunch Combination (M.L.C.) is a combina- an original tartar sauce on a sump- bursting with vivid colors and fresh, crispy cabbage and the MOS Rice Burger Tsukune is tion plate comprising one tuous shrimp cutlet. The shrimp flavors. The rice bun features five item from our selection of hamburgers, rice burgers or hot dogs, in addition to french fries, onion rings, coleslaw salad and a beverage. Served only during lunchtime, the M.L.C. plate has become popular among customers since its introduction as MOS s first combination menu item. The M.L.C. plate is made of only the healthiest ingredients in line with MOS Burger s basic philosophy about food. cutlet is made of egg whites and whole peeled shrimp, and our original tartar sauce is made of delicious seafood mixed with eggs, onions and parsley with a dash of herbs and spices. Originally offered for a limited time between the end of 1999 and April 2000, a flood of customer requests for the Fried Shrimp Cutlet Burger prompted its extension to July grains (rice, barley and three types of millet) that provide more minerals than normal white rice, including vitamin B, vegetable fiber, iron and calcium. Other rice burgers include the MOS Rice Burger Gomoku Kinpira, prepared with burdock, carrots, bamboo shoots, konnyaku, yamakurage and special sauce; and the MOS Rice Burger Yakiniku, made with plenty of grilled beef and WHAT S NEW The M.L.C. plate is a new lunchtime menu offering from MOS Burger. Our new burger full of delicious whole shrimp is highly recommended. MOS FOOD SERVICES, INC. 6

9 fresh sunny lettuce. Rice burgers are enjoyed by a broad age group of customers, and are among the menu items that represent MOS Burger originality. Northern Croquette Focaccia/ Curry Chicken Focaccia Focaccia is Italian bread shaped like the original pizza. The Northern Croquette Focaccia is a brand-new menu item. Savor the simple flavor of potatoes with the unique taste of focaccia wrapped around a fresh croquette and cabbage. We use hokkaikogane, a variety of potato raised with minimal agrochemicals and chemical additives. MOS Burger has concentrated on every fine detail of this menu item, from the production of ingredients to product development. Consequently, sales are limited to the Kanto and Hokkaido regions, and volume is restricted as well. The Curry Chicken Focaccia is prepared by placing finely sliced cabbage on a chicken cutlet, heaping it with special vegetable curry sauce and enveloping it in focaccia. This new menu item is also offered for a limited time. White Sesame Mousse is a new combination of Japanese white sesame and Western cocoa. Mango Pudding is a sophisticated balance of coconut sauce and mango pudding. Rare Cheese with Amanatsu Sauce draws out the refreshing taste of amanatsu (a variety of orange) sauce and rare cheese made from soy milk. Strawberry Sauce Yogurt Mousse is made from delicate yogurt mousse accentuated by sweet and tart strawberry sauce. These new menu items have become great hits among customers for their seasonal tastes. Responding to the diversified needs of customers, we aim to expand demand during teatime with these products. Desserts MOS Burger is briskly introducing dessert menu items that boldly use traditional Japanese ingredients said to be good for the body, and seasonal fruits. New deserts launched this spring and summer comprise White Sesame Mousse, Mango Pudding, Rare Cheese with Amanatsu Sauce and Strawberry Sauce Yogurt Mousse. WITH MOS? Try this rice burger with its unique garlic flavor. You cannot get this original MOS Burger menu item anywhere else! Enjoy a moment to yourself after eating with these new seasonal desserts. MOS FOOD SERVICES, INC. 7

10 Restaurants New Concept AEN AEN is a seasonal foods restaurant that was opened in Jiyugaoka, Tokyo, through our subsidiary Shikina, Inc. in June The restaurant name AEN suggests the mineral zinc (aen in Japanese) for its role in skin metabolism, bone growth and normal sense of taste. Centering on seasonal vegetable dishes, AEN serves food created from select ingredients in a bright Japanese-style setting based on the theme of earth. Vegetables used at AEN are grown in open fields for a well-balanced source of minerals. AEN creates a dining atmosphere reflecting the MOS Burger principles of food and health and natural farm-grown foods. Fresh seasonal ingredients are delivered from all over Japan and prepared at the chef s professional discretion. Maximizing the quality of the ingredients in every dish, AEN satisfies customer appetites for healthy gourmet food. MOTHER LEAF Apart of MOS s efforts in new business development, MOTHER LEAF is a tea store opened under the guidance of Mr. Takeshi Isobuchi, a tea researcher. Following the March 1999 launch of the first store in Ginza, Chuo Ward, we opened the second store in Shimokitazawa, Setagaya Ward, and the third store in Hikarigaoka, Nerima Ward, all in Tokyo. MOTHER LEAF is a completely new store concept that offers aromatic teas prepared with carefully selected tea leaves from Sri Lanka, as well as a selection of snacks that go well with tea, including American waffles. The store interior reflects an ethnic atmosphere with Thai silk for a relaxing teatime experience. The tea leaves are fresh from the field and processed within twenty-four hours of harvesting. Five varieties of tea leaves, only from Sri Lanka, are used including uba and denbura. The menu will satisfy demanding tea lovers with such items as milk tea made from no-brand black tea and milk made especially for tea. MOS Standard To establish a new MOS Burger store concept as a standard for the 21st century that satisfies diverse customer needs, MOS Burger opened two experimental restaurants in December 1999; one in Kita Ward, Tokyo, and the other in Urawa, Saitama Prefecture. The key concept behind the experimental restaurants is Happy Hamburger House. Experiments are underway to study every facet of existing stores. The restaurants feature a new sign design, an open interior layout, an expressive kitchen and register counter area and a natural feeling. uality checks of store operations are conducted through experiments with cooking equipment. In addition, we are promoting the introduction of time-based and seasonal menus, provision of menu items according to store, more side menus, sales of merchandise and the use of ceramic plates and glasses. MOS Burger is also advancing a review of staff service and communication tailored by region. With a detailed analysis of experiment results, the Company will conduct further tests to establish a new standard. MOS FOOD SERVICES, INC. 8