YAMAZAWA CO.,LTD.

The supermarket industry faces intensifying cross-industry competition from major mass retailers, drugstores, home centers, convenience stores, online delivery services, and others, compounded by market saturation and overstore conditions. Competitors are also expanding in scale through capital alliances and mergers, which may affect the Group's business performance and financial position. The Group is responding with a community-based differentiation strategy centered on dominant-area management.

In the multi-store expansion of supermarkets and drugstores, site selection, negotiations with landowners, tenant recruitment, and legal procedures require considerable time, which may lead to changes or revisions to development plans. Furthermore, construction delays due to disasters, accidents, or labor shortages, as well as sharp increases in construction costs, may lead to the suspension of plans, affecting various stakeholders as well as business performance and financial position. In addition, new store openings and changes to sales floor area are subject to regulation under the Large-Scale Retail Store Location Act.

If a major earthquake, typhoon, torrential rain, or other natural disaster or unexpected accident occurs at the head office, distribution centers, or store locations, physical damage to the distribution network could impede business operations, and damage to fixed assets and inventory could hinder business continuity. This also covers events affecting procurement and distribution networks, both domestic and overseas, such as riots, terrorism, novel influenza, and COVID-19. These factors could have a material impact on business performance and financial position.

Given the wide range of products handled, including fresh food, processed food, perishable daily foods, daily necessities, and pharmaceuticals, the occurrence of food poisoning, foreign object contamination, contamination by harmful substances, or radioactive contamination may affect business performance and financial position. There is also a risk that demand may decline due to consumer concerns over food safety arising from force majeure factors such as BSE or avian influenza. As countermeasures, the Group has strengthened its quality control and product labeling organizations, ensured traceability, and thoroughly implemented the 5S methodology (Sort, Set in order, Shine, Standardize, Sustain).

Securing and developing excellent human resources for growth is an important issue. If intensifying competition for talent prevents sufficient recruitment, or if training does not proceed as planned, business operations may be hindered through revisions to store opening plans or a decline in merchandising capability. In addition, an increase in the personnel expense burden may affect business performance and financial position. The Group addresses this through securing new graduates, mid-career hires, and part-time employees, as well as through enhanced in-house training systems and promotion/pay-raise programs.

The enactment or amendment of various laws and regulations, including those related to labor and environmental improvement, may result in response costs that affect business performance and financial position. The Group conducts its business activities with due attention to various laws and regulations, but responding to changes in the regulatory environment entails ongoing cost burdens.

The Group holds a large volume of personal information through point card membership data, gift delivery services, customer service centers, and other channels. In the event of a leak or unauthorized use of such information, the resulting loss of public trust may affect business performance and financial position. The Group is committed to proper handling and management based on the Personal Information Protection Act and its internal control systems.

The Group's diverse operations, including merchandise procurement and sales, rely on communication networks and computer systems. If natural disasters, system failures, network failures, virus infections, software/hardware defects, cyberattacks, or similar events occur, operations may be disrupted, affecting business performance and financial position. While the Group makes every effort to ensure proper system operation and management, responding to unforeseen events remains a challenge.

If the fair value of held assets declines significantly due to intensifying competition or changes in the surrounding environment, or if certain stores experience deteriorating profitability, impairment losses may occur, affecting business performance and financial position. In addition, if the fair value or substantial value of held securities declines, or if the performance of investee companies deteriorates, valuation losses on securities may occur. The Group holds business assets subject to impairment accounting, requiring continuous monitoring.

The subsidiary Yamazawa Yakuhin Co., Ltd. operates drugstores and dispensing pharmacies. In the event of a serious dispensing error, the Group could face litigation or administrative sanctions, affecting business performance and financial position. The Group works to prevent dispensing errors by improving pharmacy staff skills and pharmaceutical knowledge and by maintaining a thorough management system, but the risk of medical accidents could also affect the credibility of the Group as a whole.