EAT&HOLDINGS Co.,Ltd

Both the restaurant and food product businesses are extremely dependent on the "Osaka Ohsho" brand, and if the brand value is impaired due to quality issues, reputational damage, intensified competition, or other factors, this could have a significant impact on the Group's overall business performance. Reputational damage from posts on social media and the internet carries the risk of spreading regardless of the truthfulness of the content, which could lead to a decline in brand image and social credibility. The Company strives to maintain quality in taste, price, and service, but the possibility of problems occurring beyond the reach of franchise store management cannot be ruled out.

If food poisoning, foreign object contamination, quality problems, or similar incidents occur, the Company may be subject to administrative dispositions such as business suspension or license revocation under the Food Sanitation Act, in addition to product recalls and damages, which could have a material impact on business performance. In the frozen food industry, lessons learned from past food safety incidents have led to demands for enhanced inspection systems and traceability, and the Group has obtained ISO22000 certification and implements hygiene management based on HACCP. However, in the event of unexpected occurrences or industry-wide reputational damage, there is a risk that product image could decline even without a direct problem.

Supply-demand fluctuations caused by exchange rate volatility, unfavorable weather, epidemics such as avian influenza or classical swine fever, and international conflicts pose a risk of causing sharp increases in food ingredient prices. Combined with rising energy costs such as electricity and gas as a proportion of manufacturing costs, cost of sales has increased substantially from ¥15,743 million in the 44th fiscal year to ¥21,767 million in the 48th fiscal year. The Company addresses this by securing multiple suppliers and contract farms, negotiating prices with energy suppliers, and pursuing energy conservation, but if significant price increases continue, profitability could be further squeezed.

Both the restaurant market and the frozen food market are mature and highly competitive, and the Company faces not only competition from other mass-market Chinese restaurants and frozen food manufacturers but also multifaceted competition from Japanese/Western restaurants, fast food, convenience stores, and delivery operators. Competition over high value-added offerings versus low prices is particularly intensifying, raising concerns about margin deterioration due to increased quality improvement costs and pressure to lower selling prices. Amid a trend of relatively shrinking restaurant usage as consumers become more selective in their spending, the Company strives to improve customer satisfaction and acquire new customers and increase repeat visit rates, but deterioration in the competitive environment could affect business performance.

The three-year medium-term management plan "Sustainable Growth 2024," formulated in April 2022, has experienced delays in achieving its targets, and in April 2024 the final year was extended to FY2026 (ending February 2027). Since the plan is based on information and analysis available at the time of formulation and contains uncertain elements, expected results may not be realized due to deterioration in the business environment or other factors. Operating profit over the past five fiscal years has improved from ¥261 million (44th fiscal year) to ¥1,090 million (48th fiscal year), but ordinary profit, which peaked at ¥1,476 million in the 45th fiscal year, has declined to ¥987 million in the 48th fiscal year, leaving uncertainty regarding achievement of the plan.

Franchise stores receive periodic guidance visits from supervisors (SVs), but there is a risk that complaints or negative feedback occurring beyond the reach of such guidance could damage the brand image. If franchisees freeze store openings or terminate contracts due to dissatisfaction with the franchise headquarters' functions or for personal reasons, store opening plans may fail to be achieved, potentially hindering business expansion. The number of franchise stores at the end of the 48th fiscal year was 359 (a declining trend from 381 stores in the 44th fiscal year), making the maintenance and expansion of the franchise network a challenge.

If the Company is unable to secure and develop the human resources necessary to pursue proactive business expansion as planned, business development, including strengthening of internal management systems, could be constrained. Many part-time workers are employed at factories and directly-operated stores, and if the scope of mandatory social insurance coverage is further expanded, the resulting increase in insurance premium burden could affect business performance. The Company's policy is to formulate personnel plans based on the medium-term management plan and to introduce personnel systems that utilize diverse employment formats and enable early skill development.

The food product and restaurant businesses are subject to a wide range of laws and regulations, including the Food Sanitation Act, the Food Recycling Act, the Act against Unjustifiable Premiums and Misleading Representations, the JAS Act, the Product Liability Act, the Antimonopoly Act, and the Act on Promotion of Small and Medium Retail Business, and violations could result in dispositions such as business suspension, license revocation, product disposal, recall processing, or damages. In the franchise business, lawsuits may also be filed due to differences in legal interpretation with franchisees. The Company addresses this through the introduction of HACCP and ISO22000, regular hygiene inspections, and the establishment of a legal compliance system, but additional expenses such as capital investment may also be incurred in response to tightening regulations.

If human or physical damage occurs due to natural disasters such as earthquakes, tsunamis, or typhoons, or if normal business activities are disrupted due to the interruption of electricity, gas, water, or transportation networks, business performance could be affected. Business activities are dependent on computer systems and networks, and there is a risk that system troubles caused by natural disasters or other events could impact business performance. The Company has implemented measures such as strengthening security, establishing a data backup system, and enhancing hardware, but these measures cannot completely eliminate the risk.

The Group holds and handles personal information as defined under the Act on the Protection of Personal Information, and if customer information or similar data is leaked, this could lead to damages claims and a decline in credibility, thereby affecting business performance. The Group also conducts direct transactions with general consumers through internet mail order and similar channels, resulting in a broad scope of personal information held. While the Company has established a management system and exercises great care in handling such information, responding to external threats such as cyberattacks remains an ongoing challenge.