Deflation in beef rice over?

Following the recent BoJ’s announcements of nuttiness, the three major rice-bowl chains in Japan announced inflation-busting price offers.

Matsuya (http://www.matsuyafoods.co.jp/) had a promotion for one week and Sukiya (http://www.sukiya.jp/) has already ended its promotion too, but Yoshinoya, the name synonymous with beef on rice, is still going – 280 yen for a bowl (100 yen discount):

Here is some actual Yoshinoya beef on rice from my own research, although it is the slightly better version, not the ultra-cheap dish, full of stringy fat, which it is known for:

Yoshinoya beef on rice

And here are the stats on the three big players:

Yoshinoya stats Matsuya stats Zensho stats

Just taking a quick look at the numbers, there appears to be no sensible investment case here. They have the advantage of being extremely resilient – demand for rice beef is not likely to go away ever. But the valuations are not implying bargains. Margins overall are thin, Matsya and Yoshinoya have lumpy income, and the companies are selling to price-conscious consumers and are in vicious competition with themselves and a myriad of low-end food providers. The offering slightly differs between the three, but one consumer might change between them on the drop of a hat.

The way I see it, if the economy does badly, they will do ok, but their valuations are still too high; if the economy does well, consumers will buy less low-end food, so they will do poorly.

Another way to look at it: If we get continued deflation they will do ok; if we get cost-push inflation only then they are going to get screwed; if we get demand pull inflation (nobody is expecting this) then they will do well; and if we get stagflation, they will do badly.

Perhaps a case could be made for Zensho, which has a wider range of stores than its main chain Sukiya, but at 22.8x next year’s earnings, you have to think how high will their earnings go, given that food inflation will hit them before they can raise prices. If you believe that inflation will get embedded in the national psyche quickly, then I can see your justification, but the view locally is that you do not change 20 years of accumulated behavior with the wave of a magic wand.