SHINOZAKIYA,INC.

The Company follows a policy of not opening stores when no property meeting the conditions for existing or new business formats is available, and if suitable store locations cannot be secured, this may affect business performance. Although store locations are geographically diversified, difficulty in acquiring properties could constrain the growth strategy amid the Company's push for aggressive expansion of the retail business.

The foodstuffs handled by the Company are susceptible to changes in consumer preferences, and the pace of preference changes is particularly accelerating in the food sector. If product development fails to align with demand trends, this may affect business performance through a decline in sales.

The main raw materials for the Company's products are agricultural products such as soybeans, and petroleum products are used in packaging materials, creating a risk that raw material prices may rise due to hard-to-predict factors such as abnormal weather or surging crude oil prices. An increase in raw material costs would push up manufacturing costs, potentially affecting business performance and financial condition.

If a business partner or retail franchisee falls into financial distress, there is a risk that trade receivables or sales proceeds may become uncollectible. In addition, if the lessor of a directly-operated store falls into financial distress, recovery of security deposits and guarantee deposits may become difficult, which could affect the Company's financial position and operating results. The Company strives to protect its trade receivables, sales proceeds, and security/guarantee deposits, but complete avoidance is not guaranteed.

The Company sources 36.4% of its total annual purchases from Hagiwara Co., Ltd., and has outsourced all production at the Company's plants to this company. If any disruption occurs in purchasing from this company for any reason, such as changes in trading terms or unsuccessful contract renewal, it could have a material impact on store operations and business performance.

As business scale expands, strengthening and enhancing the internal control system becomes necessary, but it remains uncertain whether an appropriate and sufficient organizational response can be made to business expansion and personnel increases. If the development of the control system fails to keep pace with the speed of business expansion, this may affect business execution and expansion.

The Company's business is subject to regulation under the Food Sanitation Act, and if hygiene issues such as food poisoning occur, this could result in damage claims, losses and expenses from product recalls, and a decline in sales due to deterioration of brand image. The Company thoroughly implements hygiene management, including the appointment of food hygiene managers and regular pest control, but the risk cannot be completely eliminated.

The number of the Company's customers tends to be affected by weather and temperature, and abnormal weather such as extreme heat or severe cold may affect business performance. In addition, since the Company operates primarily in the Kanto region, natural disasters such as earthquakes and floods could cause direct damage as well as affect product supply through damage to business partners' factories, warehouses, or transportation means, potentially affecting business performance and financial condition.

The Company employs many part-time workers to carry out its operations, but future demographic changes may make it difficult to secure an appropriate workforce. In addition, if labor costs increase due to changes in various systems related to social insurance and working conditions, this may affect business performance.

The Company has built networks at its stores and offices and manages sales, financial, and personal data by computer, but if criminal acts, network failures, information leaks, or system destruction occur, this could disrupt business activities. The Company implements strict information management through IT controls and IT operation management regulations, but if these risks materialize, they may affect business performance and financial condition.