Kura Sushi Proving That Americans Eat More Than Pizza, Burgers And Tacos

Food & Drink

American tastes have embraced the eating of sushi, mostly raw fish with rice or vegetables. One restaurant chain epitomizing that acceptance and growth is Kura Sushi
SUSHI
USA (NASDAQ
NDAQ
: KRUS), which launched in Japan in 1977 and is based in Irvine, Calif. in the U.S.

Its revenue at its fourth quarter earnings climbed to $141.1 million in sales for 2022, more than doubling its $64.9 million income for fiscal year 2021. Moreover, comparable restaurant sales spiked 81.9%.

And its growth has been propelled the old-fashioned way by the parent company owning all of its 43 locations in 15 states in the U.S., not by franchising them, often the quickest and fastest way to access capital. It added eight new stores in 2022.

In fact, by the end of its fiscal year in August 2023, it expects to grow to about 50 units, which would be 25% annual growth.

Kura Sushi, a national chain of sushi eateries, sees minimal national competition, has a strong balance sheet, and envisions plenty of opportunity to grow, without needing to rely on franchising.

It’s been located predominantly out west and in California, mostly in suburbia, but has been starting to expand in the east and in Philadelphia, Watertown, Mass, near Boston, Fort Lee and Jersey City, N.J.. It plans on entering New York City, via an outlet in Flushing, Queens, a bustling, mostly Asian-American neighborhood, later in 2023.

Its sales dipped in 2020 and 2021 when many of its Californian outposts were hit with indoor dining restrictions during the pandemic but have bounced back when consumers started craving dining out again. CEO Hajime “Jimmy” Uba attributed its rise in sales to “a relative return to normalcy.”

After the pandemic started to subside, he said that it became “quite aggressive with signing locations, that got us involved in many leases, that would have been inaccessible.” The supply has fundamentally changed because so many mom-and-pop sushi shops shuttered during the pandemic.

Uba said it has concentrated on company-owned growth, rather than the usual route of franchising, because its profit margin was 21% last year. “Since we don’t see any meaningful competition, we don’t want to give up our excellent margins to franchisees,” he said.

Moreover, he points out, its franchisees would require an “operating knowledge for running Japanese restaurants” and that would be very difficult to find and to scale.

Asked about franchising in the future, he replied, “We might consider it for other countries” but not in the U.S. where it can take advantage of many opportunities in what he calls “white-spaces” or locations with few sushi eateries.

Though Americans predominantly gravitate to pizza, burgers and tacos for their restaurant chains, Ben Porten, Kura Sushi’s senior vice-president of Investor Relations and Business Development, described sushi as “comparatively healthy, relative to burgers and pizza. We’re not frying fish or putting it into cream sauces.” He added that it relies on healthy ingredients, no artificial flavoring, preservatives or seasoning.

Porten said that the pandemic led to the closing of a plethora of mom and pop sushi eateries, which didn’t have the “balance sheets to survive.” And that has given Kura Sushi the edge to open more eateries to fill in the void.

It prides itself on employing technology that improves customer service. For example, it employs a two-layer conveyer system that circulates a sushi belt through the restaurant. Drinks are delivered tableside by a delivery robot.

Uba said “technology is integral to our concept, the uniqueness of our dining experience and ability to scale as a chain.” He explained that there aren’t enough executive Japanese chefs to go around and chefs learning to prepare sushi and rice require two years of training at a minimum and often more than that.

Though chefs still prepare the food and play a critical role, Uba noted that robots help streamline the prep process like washing the rice.

Yelp responses were mostly positive. Kat from Los Angeles dined on popcorn shrimp rolls, crispy salmon roll and ice cream and was pleased with the food and service. And a Kura manager responds to every Yelp customer, saying thank you for the positive review or explaining how it aims to do better to improve.

Asked the three keys to the future success of Kura Sushi USA, Uba replied: 1) Liquidity. It closed the quarter with $26 million on its balance sheet with access to a $45 million revolving loan and no debt, with an “ample runway” of growth ahead of it, 2) Choosing high-quality sites, 3) Maintaining a strong management pipeline.

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