Company history

Royal begins with a young man who reasoned that if he could get himself into a kitchen he would never starve. Egashira Kyoichi trained as a cook in the wreckage of post-war Fukuoka, then within a year switched to supplying the US Army base at Kasugabaru — sundries, bread, photo developing — a trade incorporated in April 1950 as Kilroy Special Trading. In 1955 the tax authorities came for him with an assessment of nearly $277,778 (¥100m). It was while absorbing that blow that he read a biography of the American restaurant-chain founder Howard Johnson, and took from it the ambition that governed the rest of his life: to turn the food trade — in Japan a business of low repute — into an industry.

His way in was the airport. In October 1951, on the day Japan Airlines began domestic service, Royal started loading in-flight meals and running a café at Itazuke (today Fukuoka) airport; Egashira said he had put up two million yen to help the cash-short airline open its Fukuoka branch and taken the catering rights in return. A bakery followed that December, a full French restaurant in Nakasu in 1953 — Marilyn Monroe, honeymooning and touring US bases, walked in three months after it opened — and in 1956 Royal Co., Ltd. was incorporated with ¥1 million of capital. Within a decade the company was running five different formats and had developed cake-freezing technology. Long before he had a word for it, Egashira was simply trying everything food could be made to do.

The word arrived in 1962, when Royal opened in a new building in central Fukuoka and, unable to serve affordable food at downtown rents, moved all preparation off-site into what it called a central kitchen. The revolt was severe: about half the cooks left rather than have cooking treated as a process. Egashira did not give way, and pushed on the other two constraints as well — hiring university graduates from around 1965 while the trade laughed at him, sending staff to study restaurant management in San Francisco, and courting the Industrial Bank of Japan until, after three months of investigators living in Fukuoka, it lent $1.7M (¥600m) to a company with sales of about ¥2 billion. The loan built the Royal Center plant in 1969; the 1969-vintage central kitchen then made the 1970 Osaka Expo contract workable, 600km from home, and Royal took ¥1.15 billion of sales and ¥150 million of profit out of it.

Roadside came next. The first Royal Host opened in Kitakyushu in 1971, aimed at car-owning families; the first highway-service-area restaurant followed in 1973. By 1976 the group turned over ¥15.07 billion and ranked sixth in Japanese food service. But the model was capital-heavy by design — Royal spent about $547,945 (¥160m) per store to make a store feel like a Royal, against roughly $85,616 (¥25m) at Skylark, which was racing it on unit count. The choice to be chosen on quality accumulated on the balance sheet as fixed cost, and it shaped the next twenty years.

Egashira had set up a listing office in 1972, when the idea that a restaurant company could go public was still treated as a fantasy. He argued from the American sequence — bakers listed first, then retailers, then food service — that Japan would follow ten years behind, and he was right: Fukuoka Stock Exchange in August 1978, Osaka in 1979, the Tokyo Stock Exchange second section in August 1981 and the first section in June 1983. The proceeds went into plant and people. A Tokyo head office opened in 1982 with nearly half its floor space given to a training centre, most of it for cooks — a company with a central kitchen still putting cook training first — and a second food factory opened near Tokyo in 1983.

In April 1994 Egashira handed the presidency to Inada, a 26-year veteran, with two instructions: run the company for its shareholders, and do not draw up store-expansion plans. Inada held to it. With 351 restaurants in 1998 he put the ceiling at around 550 while rivals talked of a thousand, on the reasoning that past a certain size head office simply loses control. When the post-bubble market turned to discounting, he refused: to sell a ¥750 hamburg steak for ¥380, he said, you have to drop some quality or cut some service. Royal would compete instead through bulk purchasing and the atmosphere of its restaurants, and in 1995 declared itself a hospitality company rather than a restaurant company. The doctrine did not show up in the numbers — earnings fell four years running to 1998.

The group kept widening around the weak core: contract catering with Sumitomo Corporation from 1990, the Sizzler franchise in 1991, the first Richmond hotel in 1995. Airports, expressways, staff canteens, hotels — more places to trade, none of them enough to offset Royal Host. The hardest case was the oldest. In March 2000 Royal bought a loss-making in-flight caterer from All Nippon Airways rather than exit Kansai airport, where a JAL-affiliated operator held most of the volume and only scale could reach break-even. Nikkei Business reported the industry read plainly: nobody could lower Royal’s flag at Kansai out of deference to the founder, for whom in-flight catering was where it all began. Chairman Enomoto admitted to the same magazine that he knew closing it was the right answer. In the year to December 2001 Royal posted ¥105.9 billion of sales and a net loss of $51.8M (¥6bn) — its fiftieth year, spent at the bottom.