Interview with CEO

1st Section of Tokyo Stock Exchange (Stock Code 4653 / Service)

Change Leaders- Daiohs Shinichi Ohkubo / President and CEO
Maintaining high growth specializing in continuous business withcompanies and offices and aiming at global sales of 50 billion yen byrepetition and differentiation
Daiohs started the first OCS (office coffee service) business in Japan, and now they has been
providing continuous services such as coffee, water, tea servers and clean care to 200,000
domestic and foreign companies. The company became the third-largest office coffee service
provider in the U.S. They have achieved high growth with a seemingly simple business modelthat they contract with unspecified number of business offices and provide a service on aregular visit. I asked President Ohkubo, the founder, about their future growth strategies.

Success in OCS business in the U.S.
Continuing to achieve a high growth rate of 10 % each year
President Ohkubo established Daiohs in 1969. At the same year, the company joined a franchise chain of clean
care products business that provides entrance mats and cleaning mops. Daiohs achieved first place innationwide sales among chain franchises by operating for offices and developing business partners, not forhomes which is a traditional way. Subsequently, they started OCS business in 1976 that leases office coffee
machines to a company for no charge and a staff regularly visits and delivers coffee grounds and maintains
machines. At that time, soluble coffee was popular in Japan; however President Ohkubo thought that US style
OCS would be popular in Japan someday from his experience of overseas training.
In 1988, the company started the OCS business in the U.S., and now they have extended to 22 states. They
have expanded the market and became the largest in the West Coast and the third-largest in the U.S. The sales
for the fiscal year ended March 31, 2017 is 26,057 million yen, of which 15,028 million yen is the sales in theU.S.
“About three years ago, sales in U.S. businesses surpassed that in Japan. The U.S. business has been growing
steadily at around 10 % every year on average for the past 10 years. In the future, we plan to reach sales of 250
million dollars (about 25 billion yen) annually by 2024 aiming for expansion to all states in the U.S. I think that thepotential of our OCS business is greater in the U.S. than in Japan.” said Mr. Ohkubo.
Companies in U.S. are noticeably understaffed, and there is a tendency to compete for personnel by enhancing
and improving welfare services such as coffee services. In this June, the company acquired Blue Tiger Coffee
Inc. which has a service that enhances the sense of premium to traditional OCS, and made it a subsidiary. "BlueTiger targets only companies which provide generous welfare to employees such as those in Silicon Valley.
Their coffee unit price is more than 10 times higher than what we offer, and they also provide tea, snacks, fruits
and salads. They are currently operating separately from our traditional OCS, but the needs for these services
will increase in the future. Since it is getting competitive every year to get personnel in Japan as well, we willadopt U.S. know-how in the future and will aggressively offer proposals to Japanese companies. "Original sales promotion system for promoting customer's continuous contractIn Japan, the company provides various businesses in addition to OCS such as bottled water service, a tea
server which can provide several kinds of tea, coffee and water and clean care service that is operating as thecompany’s own business independent from a franchise chain. The average unit price per customer is about
10,000 yen per month, and many companies and business offices have three to five year-contract. The numberof new customers hit a record high of more than 200,000 worldwide in this June.

"Dedicated client representative system" is one of the systems that enablethem to have contracts with a large number of companies and businessoffices and continue to increase sales. The company has two sections tocontinue contracts with customers. One is a section to visit customers
regularly and provides services, and the other is a section (CDR) to care forcustomer satisfaction. The section that carries out customer care isarea-based, and the person in charge carries out proposal activities acrossall the business of the company.
“It is difficult for a staff regularly visiting customers and delivering products tocommunicate with a person responsible for making a decision in a company.
Therefore, area-charged customer care staffs are supposed to meet with aperson heads up management department and offer a proposal. For
example, if a company contracting our coffee service has a contract withanother company's mat rental service; we will recommend having a contract
with Daiohs for a mat rental service as well for their total benefits.
Starting this year, we also launched nationwide development of facilities
services including clean care and so on, so we think that we can still growdomestically." said Mr. Ohkubo.
In the section for developing new customers, sales staffs areallocated each area and required to develop customers further in their ownarea. They have created detailed original databases such as a customer
distribution in one area, which companies are using products from othercompetitors and who is responsible. Sales staffs are operating businessbasically based on the databases.

Accumulating business that has necessity to continue

Profile (Shinichi Ohkubo)

He was born in Asakusa, Tokyo, in 1941. After
graduating from Chuo University, he joined
Yomiuri Advertisement Company. After leaving
the company, he went to overseas for corporate
training in distribution research in the U.S.,
Germany, Sweden, the Netherlands,Switzerland, etc. After returning to Japan, hejoined the management of his father’s rice shopand founded Daiohs Inc. in 1969. Later, heestablished the new business utilizing ricedelivery system and further became a franchiseeof clean care business. Then he started the first
office coffee service business in Japan andexpanded its business areas such as water
service, tea service, recycled toner, clean careservice and coveralls. He has been expanding
his business to the U.S. and Asia and showing
solid growth as a total office service company

The company has adopted “an integrated manufacturing and sales system”
in which they roast coffee and produce pure water used for the beverage
services, and wash cleaning supplies such as mats, mops for facilities
services in its own factories. Since the cost can bekept low, price competitiveness isalso high under this system.
They also have been working on new products to differentiate them from othercompanies' products. They have developed a new water server which is the first one
in the world. Previously, it was necessary to place a heavy water bottle at the top of
the server. But since the new water server is structured to pump up water, the burden
is reduced by just placing the bottle at the bottom of the server.
A new type of tea server which is a water server with a function of making tea is also
popular. Previously, a tea server was expensive, over 500,000 yen per one machine.
Even if you rent it, it was more than 15,000 yen a month, so only large companies
could afford it.
The company has been proposing a plan for a new type tea server that can lease at
8,000 yen per month at minimum (tax excluded) with materials for 500 cups.
Customers are pleased to be able to choose a type of drinks and also with acceptableprices for small and medium enterprises.
"Our company is not a coffee company or a water company. It is a company thatNo need to lift up thecomprehensively covered customers by accumulating necessary businesses. Thiswater bottle
continuous business makes the number of customers reached 200,000. We willcontinue to achieve high growth in the future, and in 2024, seven years later, we are aiming at group sales of 50
billion yen including Japan, the U.S. and Asia in total.” said Mr. Ohkubo.