- I had the opportunity to spend a whole week with a Japanese executive chef.
- Through his work and careful explanation, the chef shared insights on thriving in the food industry.
- The chef’s approach largely incorporated the concept of intrinsic value, a core concept used in value investing.
How I encountered the chef
Some of you who have reached out to me through email probably know that I’m involved in a Philippine-based seafood business on a consultative basis. This occasionally presents me with interesting opportunities, one of which came about last week. I had the luxury of spending the entire week with a well known Japanese executive chef.
Needless to say, it was a fascinating week. I can’t dive too deep into details, as that would disclose some of the projects we are working on, and that’s no bueno. Nonetheless, as I observed the differences in techniques the chef used for restaurant cooking vs. large volume production cooking, I couldn’t help but think about how the concept of intrinsic value is at the core of his approach.
A little bit about the chef. He spent time doing a lot of high end chef things. Things like being head chef at a 5 star hotel, cooking for the emperor of Japan, and winning a chef competition on TV. More recently, he’s been traveling all over Asia and Oceania visiting food processors and restaurants. It’s hard to fit what he does into a single job title. If I had to reduce it down to 3 job titles, it would be: consultant, product development, and broker.
Our week consisted of meetings and food experiments during the day, then chatting about anything and everything over drinks in the evenings. Here, I was with a top class chef who spent decades polishing his craft. I couldn’t help but wonder why he stopped cooking at the front lines, so I asked. And he answered.
“Cooking fine foods for wealthy people is good. Now, I get more pleasure figuring out how to make chef quality food more affordable; something affordable enough for teenagers to save up their allowance to buy, and tasty enough so they enjoy eating it.”
– Chef (in Japanese)
I absolutely love what he is trying to accomplish. Long ago, there was a 3 week period where I ate only cereal and hot dogs, just to make ends meet. I would’ve cried if I got my hands on a nice tempura rice meal for under $5 back then.
(Don’t worry, the situation wasn’t actually dire, I just refused to ask my family for help at the time.)
Pursuing affordable, chef quality food
The seafood company I’m involved with deals with a few major franchise names, some of which you’ve heard of. Hence, the pursuit of affordable, chef quality food is more about moving expensive chef expertise to product development rather than keeping them in restaurants. The delicate art of cuisine takes a turn.
There are two basic assumptions the chef works under when developing products:
- Only available kitchen equipment is what the franchise locations already have.
- Only available talent is high school kids with no cooking experience.
Our chef’s products are easy to handle and require no additional kitchen equipment. From freezer to consumer’s table takes less than 5 minutes. This, of course, comes with tradeoffs; the product won’t be 100% chef quality. Our chef knows this. In fact, he has repeatedly told me he is aiming for 85% chef quality at 60% of chef price.
What an arbitrage. I know value thinking is widely applicable and commonly observed in life, but watching it in practice at the highest skill level is absolutely fascinating.
“Some chefs do well by perfecting a special soup recipe. I’m not interested in that. We’re not trying to make a perfect product. Our goal is 85% chef quality at 60% of the price.”
– Chef (in Japanese)
Now imagine your favorite fast food franchise serving a sushi roll at the drive thru window for less than $5. The chef has that figured out.
It’s everywhere in Japan
I still remember my first American “convenience” experience. It was the summer of 2007 in Dallas, Texas. Like anybody who’s moved thousands of miles away from home, I was mildly homesick. In search for a more familiar meal, I walked into 7-Eleven. To my dismay, there were no Konbini Bentos – a rice meal with 2 or 3 sides of meat, veggies, etc widely available at every convenience store in Japan for around 500 yen (about $4.50 USD).
Source: 7-Eleven Japan
Minor heart attack and depression ensued.
That evening, I settled for something with somewhat of a resemblance to sushi: A California roll from Sprouts. I could no longer get good tasting, moderately healthy meals for less than $5 at the convenience store. Thankfully, the US has convenient, affordable, and moderately healthy meals at other places, just not at convenience stores.
It wasn’t until last week that I truly appreciated the effort that goes into affordable, gourmet meals so commonly available in Japan. The chef was meticulous. He went so far as to showing me various battering, breading, and storing techniques that would keep the cooking oil clean when frying products. Not only was he keeping the oil clean, he didn’t sacrifice taste. Even better, he ended up saving on restaurant-level labor compared to traditional methods!
Consumer behavior, food, and trends
Some of you may already know that I avoid investing in retail. This is mostly because I don’t understand what drives consumer behavior.
For food in the US, it was cupcakes, then frozen yogurt. Now it’s smoothies. Maybe we’ll have edible fidget spinners next.
The point is, retail always seemed unpredictable to me. Unpredictable in a way that artsy people with a knack for trends would have a feel for (or drive) what the next fidget spinner would be while I remained oblivious. This was particularly true for me with food. Then I watched the chef muscle some science, functionality, and process into what I had always categorized as “artsy stuff that I don’t understand”.
In contrast, industrials always made more sense to me, probably because the focus on functionality tends to be higher than what we typically see in retail. Whether it’s fidget spinners, Crocs, or GoPro action cameras, we will always have fads. These products will always need to be shipped and ships will always need repairs. For a company like Daihatsu Diesel (TYO: 6023), which manufactures and services combustion engines for ships, what matters isn’t what the next fad is, but how efficiently the next fad (or its raw materials) can be transported.
Through my time with the chef, I started seeing things differently.
Think about traditionally expensive Japanese foods. Sushi, Tempura, Sashimi. These tend to either require fresh products and/or chef expertise. Both are expensive. What our chef does is figure out how to maintain a certain level of freshness and/or ways to process foods that require no chef expertise at the restaurant level – all without sacrificing much in quality. He is creating new ways to make existing products. Same taste, better price. Better taste, same price. Or Better taste, better price.
So, what’s that got to do with fads?
Well, we can either try to set trends or figure out different ways to ride the trend. For me, the most sensible, comprehensible approach is the latter. If the next big thing is chef made fried pudding balls for $2, we’ll figure out how to trade the chef for a high school kiddo and sell 85% chef quality fried pudding balls for $1.20.
Watching the relationship between intrinsic value and price, so often referred to in value investing, applied to the food world at the highest level was fascinating. I still don’t understand consumer behavior. However, I have a better feel for what sort of strategies might work in a retail environment, despite my lack of understanding for consumer behavior. It’s already helped me understand one company in a different industry, which I considered to be more artsy. In any case, I thought I’d share my experience. I hope it is useful to you.
P.S. I’ll be meeting with the chef in S. Korea and again in China later this month! Hopefully I’ll gain some more insight to share 🙂
Author: Kenkyo Investing
Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.