Japan cut-price sushi chains wrestle with scandal and a weaker yen

Shares in one of Japan’s “Big Four” chains of cut-price sushi collapsed on Monday, as investors digested a scandal involving a jailed chief executive, industrial espionage, the weak yen and the price of fish.

Investors said the unexpected arrest last week and the resignation on Monday of Koki Tanabe, the president of Kappa Sushi operator Kappa Create, could shatter the fragile equilibrium between the country’s family-friendly conveyor-belt sushi shops. Among Japan’s most highly competitive restaurant companies, they sell individual plates of tuna, squid or prawn for ¥100 ($0.70).

Tanabe, who used to be a director at arch-rival Hama Sushi, was arrested last week on suspicion of violating Japan’s competition law after his former employer accused him of stealing data relating to fish pricing.

After the market closed on Monday, Kappa said Tanabe offered to step down following his arrest and the board accepted his decision. “We would like to express our deepest apologies for any inconvenience and concern this may have caused,” the company said.

Competition between the four biggest chains, of which Kappa was a pioneer but has since dropped to fourth place, is intense. Profits heavily depend on securing the best prices for seafood and fish. That battle, said people involved in the industry, has intensified spectacularly since March this year as the yen has fallen to a 24-year low and the cost of imports has soared.

Kappa and third-largest Hama are the two remaining large sushi chains maintaining the industry’s ¥100 plates after the yen and higher fuel prices forced rivals to raise prices this month.

Police arrested Tanabe on Friday for allegedly violating the unfair competition prevention law, according to Kappa. He joined Kappa Create from Hama in 2020 and became the president the following year. Tanabe could not be reached for comment. But he has said the information he obtained was not “a big deal”, according to local media citing police sources.

On Monday, Kappa said Tokyo police had sent the case to prosecutors.

In a separate statement, Hama parent Zensho, without naming Tanabe, said it found out that “the former director of Hama Sushi” had illegally obtained information on product cost related to the group’s purchases of seafood. The company had already filed a criminal complaint with the Tokyo police against Tanabe last year, prompting the police to raid the Kappa headquarters in Yokohama, adjacent to Tokyo.

“We will continue to fully co-operate with the investigation by the police and prosecutors, believing that the full details of this case should be clarified and severe penalties should be applied to the wrongdoers in order to protect fair business transactions,” added Zensho. Kappa said it would also fully co-operate with the investigation.

Information on rivals’ purchasing prices for fish and other seafood could be useful for Kappa to lower the cost of procuring seafood when negotiating with suppliers. But echoing Tanabe’s reported comments, an investor in the industry said fish prices change frequently and the data could quickly become out of date.

One person who worked closely with the management of another of the Big Four sushi chains said that Hama seemed motivated by “a pure desire to cause trouble to a rival” as the value of old pricing data was “approximately zero”.

The battle over data follows years of turmoil at Kappa, which has struggled to develop a long-term strategy because of frequent changes in ownership and leadership over the past eight years.

Since 2011, the discount sushi market has grown 60 per cent with sales of ¥740bn in 2021, boosted by takeaway sales during the pandemic, according to a report by research firm Teikoku Databank.

But it was inevitable that the industry could face “significant cost increases”, said the report, warning that ¥100 sushi plates may soon disappear.

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