The ramen restaurant chain is winning devoted fans—and earning millions—by opening up noodle shops across mainland China
In Japan, there aren't a lot of growth opportunities for businesses that specialize in ramen. The noodles, typically served in a hot broth and topped with sliced pork, seaweed, or chopped green onion, are sold at some 16,000 restaurants around the country. Not only is there plenty of competition, but with Japan's population getting older there are fewer young people for the companies in the $3.5 billion ramen industry to target.
For Ajisen, a moderately successful family-owned ramen chain from Kumamato in western Japan, the growth market is in China. There, a new generation of Chinese diners is spurring remarkable growth for Ajisen (China) Holdings. The Hong Kong-based holder of the Japanese brand's Chinese franchise, Ajisen (China) can't seem to open ramen shops fast enough to meet surging demand. Last year, Ajisen (China) posted earnings of $16.3 million, compared with $6.6 million a year earlier. Sales, which were just $18 million in 2003, rose by a third, to $81.6 million. What's more, following a successful listing on the Hong Kong stock exchange that raised $210 million in March, its stock price has increased 42%, valuing the company at $1.4 billion.
"The potential for the company is so great," says Alan Zheng, Ajisen's Shanghai-based chief financial officer. A year ago, the company had 120 restaurants in China, and by the end of this year it will have 200. And the growth will continue, he promises. "For the coming year, we feel confident that we will do better than 320," he says.
More Opportunities for Growth
That performance has helped the company, which ranks as the No. 5 fast-food outlet, to the top spot in BusinessWeek's Asia Hot Growth survey for 2007. "Ajisen has succeeded in building a brand in China. They're regarded as the representatives of Japanese ramen and Japanese fast food in general," says Naoki Izuo, a researcher at Yano Research Institute in Tokyo.
Indeed, with 192 Chinese shops today, Ajisen (which means "a thousand tastes" in Japanese) already has more restaurants in China and Hong Kong than in Japan. And while Japan's $3.5 billion ramen industry is large, there are few opportunities for growth compared with China, where spending on eating out is increasing at over 15% a year, according to China Investment Consulting. Ajisen, which got its start as a noodle maker and now operates noodle factories in Shanghai, Shenzhen, and Hong Kong to supply its restaurants, is flush with cash following the initial public offering.
Since the company's three factories are almost fully utilized, Zheng says Ajisen plans to open a $13.7 million noodle factory in Shanghai next year that will be big enough to supply noodles for 500 restaurants. He says two additional factories are on the drawing board for 2009. "We are talking to local governments to buy another two pieces of land," he says. When all the new factories are online, "we'll be able to support another 1,100 restaurants."
A Difference in Taste
For all that, Ajisen's rapid expansion into China isn't an overnight success. In 1994, Takaharu Shigemitsu, who developed Ajisen's noodle recipe in the 1960s and founded Shigemitsu Industry to mass-produce Ajisen's Kumoamoto Noodles, plotted an expansion into Taiwan and opened 20 restaurants.
But the restaurants slumped, partly because local franchise holders changed the recipe, believing Taiwanese wouldn't like the salty taste of Japanese ramen. "We didn't have experience or knowledge of overseas operations and couldn't provide the same quality as in Japan," says Shigemitsu's son Katsuaki who replaced his father as chief of Shigemitsu Industry in 1997 and also sits on the board of Ajisen (China) Holdings.
The turning point came when two Hong Kong residents approached Shigemitsu. Cheng Wai Tao, an entrepreneur with experience in the food business, had enjoyed Ajisen's noodles while spending a year in Tokyo and reckoned the business could prosper in China. Separately, Wai Poon, today Ajisen's CEO, had visited the company's Kumamoto headquarters as a member of a business exchange mission in 1995 and had a similar idea. Having got on well with the elder Shigemitsu, the trio decided to go into business. A first restaurant in Hong Kong's Causeway Bay followed a year later, in 1996, just as interest in Japanese cuisine began rising in China.
Anti-Japanese Feeling Overcome
The experience of Cheng, who left Ajisen after its listing in March, and Poon paid off, and Ajisen soon spread from Hong Kong to Beijing, Shanghai, and other regions of China. One reason: They've changed the menu. While the restaurants in Japan offer little more than ramen and dumplings, Ajisen restaurants in China are more varied, offering yakitori (skewered grilled chicken), tofu, and, to the younger Shigemitsu's surprise, grilled fish. "Serving dishes like grilled fish at a ramen shop was unthinkable to me, but it turned out to be quite a popular dish in China," he says.
One big problem Ajisen has overcome: anti-Japanese feeling among many Chinese. In 2004 demonstrations broke out in several Chinese cities as people protested against Japanese textbooks for downplaying the Japanese army's role in atrocities such as the Rape of Nanjing during World War II. "A whole bunch of people went to our restaurants and threw eggs and stones at our window," says Zheng.
But, he adds: "We explained we are not a Japanese company. We are a Hong Kong company managed by Chinese people." The demonstrations ended within a few days, and Zheng says that ultimately they helped Ajisen. Before then, "not many people knew about Ajisen noodles," he says. Agreeing with the saying that there's no such thing as bad publicity, he adds: "From that time, a lot of people knew."
Tashiro is a reporter in BusinessWeek's Tokyo bureau, and Einhorn is a reporter in BusinessWeek's Hong Kong bureau.