Led by its sushi restaurants, the Japanese food sector is seen by private equity firms as ripe for investment and consolidation, as it is very fragmented, and several deals took place last year.

Permira bought Sushiro in 2012 from Japanese private equity firm Unison Capital for about JPY 80 billion (USD 733.9 million, EUR 689.9 million). Unison Capital had previously taken the company private, de-listing it from the second section of the Tokyo Stock Exchange in 2007. In its IPO, the company’s shareholders parted with a little over 21.1 million shares at JPY 3,600 (USD 33.06, EUR 31.05) per share. The company is now listed under ticker 3563 on the first section of the Tokyo Stock Exchange.

Since Permira purchased the company, it has expanded the number of Sushiro stores from 335 to 450. It has also opened seven restaurants in South Korea and established a joint venture in the U.S. market. Operating profits have nearly tripled because of improved sourcing and purchasing of tuna, typically the most important item in a sushi restaurant. Revenues have increased by 80 percent.

Sushiro uses RFID technology to keep track of how long a dish has been circulating on the conveyor, and sushi that has timed-out is automatically pulled. This, along with the stores usually being filled to capacity at dinner times, ensures that the offerings never sit too long.

Most kaiten sushi shops in Japan operate on a fixed cost plan: one plate for JPY 100 (USD 0.92, EUR 0.86) (plus tax), with a few special items costing more. They have family-friendly booth seating and free parking. To differentiate itself, Kappa Sushi has introduced a second conveyor belt above the main one. This is for special orders.

In addition to the circulating dishes, diners can use a touch-screen to select items. At Sushiro, the special order is placed on a color-coded dish and a chime and message notifies the diner when the dish is about to arrive, but at Kappa Sushi, a mock bullet train arrives at high speed, stopping at the appropriate table. The diner takes the dish and pushes a button on the touch screed to send the train back to the kitchen. It is easy to imagine small children ordering additional items just to see the train arrive.

For older diners, Kappa Sushi has high-quality powdered green tea – tea is free at both chains – and pickled eggplant that is less salty than is typical, and that is used as a sushi topping. Both items are also available for sale at the cashier.

These good points, however, have not been enough to compete with Sushiro. Same store sales last year declined from the previous two years, typically reaching – depending on the month – between about 92 and 95 percent of the sales of the previous year.

Sushiro looks as if it will command the leading spot in sushi for some time to come. But whether it is a good investment is another matter, as the chain has accumulated substantial debt from its rapid expansion. The company’s debt-to-equity ratio is 212.29 (meaning debt more than double shareholder equity) as opposed to an industry average of 64.32.