Message from the Chairman

Sure Steps forward Amid Unsure Business Conditions

Fiscal 2022, the inaugural year of Medium-Term Management Plan 2022–2024, was a year of high uncertainty, bringing with it the spread of COVID-19, the Russian invasion of Ukraine, and other events. That being said, management conditions for the Royal Group made a turn for the better in the second half of the year, and I am happy to say that this is the first year in some time that we made a clear shift upward in performance. The COVID-19 pandemic hit all our businesses and hit them hard. We posted major losses for two years straight, making a v-shaped recovery in fiscal 2022 essential, and I believe that what we were able to achieve constitutes a definite step forward. However, we intend to make Groupwide efforts to formulate and implement fitting countermeasures to combat soaring prices—particularly for energy and food—and labor shortages.

Even before the COVID-19 pandemic, we were hard at work to diversify the Group’s businesses to minimize the impact of risks caused by the unique fluctuations that occur from business to business. But even with a well-functioning portfolio like we had at the time, we were unable to mount a proper response to the waves created by an event like the pandemic—the kind of event that shakes society to its core. As a result, all our businesses suffered greatly. To prevent this from happening again, our portfolio cannot revert backward; our portfolio needs to evolve and move forward. Put more specifically, we are working to evolve our portfolio according to the following three perspectives.

1. Evolution of the Portfolio Itself

I believe our businesses were so roundly affected by the pandemic because, despite being diverse, they all shared a fundamental risk in depending on “the flow of people.” Therefore, the first perspective we will adopt involves incorporating and increasing the ratio of businesses in our portfolio that do not depend on this flow. One concrete example of this perspective at work is the growth of Royal Deli, a non-facility-based business that sells frozen meals.

2. Evolution of the Businesses Within Our Portfolio

The second perspective involves an evolution of the individual businesses that make up our portfolio, thereby increasing its resilience. The Group’s businesses include several “stopover-type” facilities such as hotels, highway service areas (SAs), and airport restaurants. This is an issue, since a large percentage of these facilities run into problems when the flow of people is interrupted. To mitigate this issue, we need to transition these businesses from stopover-type businesses to businesses that fulfill a certain purpose. This perspective aligns with our value-added strategy for Royal Host and the renovation of the Richmond Hotel in Oshiage, Tokyo.

3. Organic Integration of Our Portfolio

The third perspective requires us to integrate the contents of our portfolio so that it operates as a single organic unit, increasing customer value. Until now, we have managed our portfolio with an emphasis on risk avoidance, but I believe that in the future it will be essential for us to utilize an integrated portfolio to increase value for customers.

The Group’s locations are frequented by a great many people. I believe that if we utilize the information obtained at these locations beyond the scope of individual businesses, we can raise customer satisfaction to even greater levels. One initiative we are taking in this regard is the development of a customer relationship management system, driven by our current efforts to unify customer IDs.

Shifting from a Time for Defense to a Time for Offense

I believe we need to treat soaring commodity prices and other present-day changes in the external environment as structural changes, as opposed to temporary ones, and take countermeasures accordingly. At the same time, there is only so much one company can do within its own walls, meaning companies need to adopt a broader point of view, which can include working together with others. As a result, we entered into a capital and business alliance with Sojitz Corporation in March 2021, and have since been conducting business with their support in a variety of areas. I believe that our partnership with Sojitz Corporation was particularly beneficial in helping us overcome higher raw materials costs and other obstacles, allowing us to achieve a profitable fiscal 2022. In January 2023, we established Royal Café Corporation with Sojitz Corporation as a joint venture company with the goal of operating and managing a café business. In addition, Royal Sojitz International Pte. Ltd., a joint venture based in Singapore established with Sojitz Corporation in August 2021, entered into a joint venture agreement with YOTEI PTE. LTD., operator of Singapore locations of Tendon Tenya, in an effort to establish a base for directly managed stores overseas. Until fiscal 2022, we focused on utilizing our alliance in a defensive manner due to the strong impact of the pandemic, but I look forward to showing what our alliance can achieve adopting an offensive approach moving ahead.

Employee Growth is Company Growth

We work in the service industry. In the service industry, value is generated through human capital, namely the people who serve customers directly—the employees. Therefore, investing in human capital is essential for sustainable company growth. However, I regret to say that prolonged deflation has led to us paying too much attention to the cost side of labor. For this reason, it is crucial we return to the original idea that elucidates the value of human resources; employee growth is company growth. In addition, as Japan’s population continues to decline, human resources are expected to dwindle over the long term, bringing into question the role that people will play in the workforce going forward. Therefore, we will make an active effort to make digital technology a part of our human resource investments. This will allow us to establish an environment that affords our employees more leeway when providing services and meeting the needs of customers.

The Royal Group’s Purpose, Realized through Food and Hospitality

In the past, several companies conveyed their policies as a “vision” but this has since shifted, and these policies are now framed as a company’s reason for being, or “purpose.” I take this as a reflection of companies basing their direction entirely on growth of scale. Capitalism was originally based on the idea that things are finite, but then the premise changed to the idea that one day things will be infinite. So, companies began promoting activities that would proliferate with no end in sight. When faced with environmental issues, dwindling resources, and difficulties in acquiring human resources, companies must once again grapple with the idea of finiteness and the sense of crisis that follows. This has forced companies to question their reason for being, which is why I believe “purpose” has become the word of choice. We at the Royal Group conduct business rooted in food and hospitality, and the COVID-19 pandemic presented a true challenge to our purpose. As the pandemic slips into the past, people are resuming their pre-pandemic lives, and the daily routine of meeting, talking, and sharing meals with people, in-person, is returning. If, in these moments, we can offer our customers delicious food served with hospitality, I believe our purpose will be made valid. Bearing this in mind, we will continue to meet the expectations of all our stakeholders while staying true to the value that only the Royal Group can provide.