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Benihana of Tokyo

Synopsis
 Benihana is a restaurant chain founded in 1964, by Hiroaki (Rocky) Aoki.
 Consisting of 15 restaurants in US by 1972.
 Gross Sales of the entire chain is about $12 million.
 Offers a limited menu and targets Business person, Tourist visitors and White Collar.
 Targets high traffic area and spends heavily on advertisements and promotion.
 Targets rapid growth by collaborating with various hotel chains and opening quick service stations.
Initial analysis:
Americans enjoy eating in exotic surrounding but they are deeply mistrustful of exotic food. Also people very
much enjoy watching their food being prepared.
The biggest problem in this industry in US was scarcity of skilled labor.
Food storage and wastage contribute significantly to the overhead of any typical.
Benihana Concept
Benihana’s concept is based on an authentic Japanese atmosphere. The use of American food
favorites (chicken, steak, etc.) combined with the “Hibachi” method of presentation makes this
restaurant very different from others.
Benihana enhances the experience of their customers by treating the chef as a showman and having a
different production line to service. The front stage is the largest part of the operations with the chef cooking
and serving the dishes together with the waiter, whereas the kitchen preparation is a very small part of their
process.
What are they really selling?
1. High quality food
2. Food’s freshness
3. The cooking process
It gives the customer a unique experience where they interact with the cook and waiter rather than just waiter
like in most restaurants. It helps to improve customer intimacy and adds a positive experience.

Key focus Elements for Benihana include:


 Optimum space utilization
 Hibachi Table arrangement
 Waste management
 Historical authenticity
 Location advantage

Basic Features include:


Limited Menu
 Offers only three simple Middle American entrees: steak, chicken & shrimp
 Keeps cost of food and wastage to bare minimum
 Minimal inventory
Minimize flow time
 Keeps turnover rates high, thus high utilization and throughput
 Reduces wait time for customers
High Space Utilization
 High proportion for productive dining space
 Only 22% of the total space of a unit is back of the house
 It is approximately 3900 front space and 1100 square feet for back space
Entertainment: Chef’s dexterity and hand movements while preparing the food are for entertaining the
customers
Site Selection: Benihana chooses their sites in high traffic places like central business districts with easy access
to residential areas because of their high focus on lunch and dinner time business.
Training: All chefs were highly trained. All were young and certified.
Simple management structure: Benihana has a very simple management structure that includes a Manager,
an assistant manager and 2-3 front men.

Competitive advantage
 The “Hibachi Table” concept
 Historical authenticity for the building material
 Use of space for kitchen is only 22%
 Presenting dynamic cooking show to the customers
 High number of recommendations and word of mouth publicity (67%)
 Benihana model difficult to replicate.

Issue
 High Cost: insistency on using materials from Japanese House, Use all native Japanese staff in the
store, Cost of developing a Chef is very expensive and time taking.
 Long queuing time
 High advertising cost in comparison to other food service providers.
 Very limited variation in menu, only 3 items available
 Their current customers are of middle age and up to 75% repeat customer. For sustainable business
they need to make a new customer base of younger generation.
Expansion:
 They are planning to expand in Us as well as in other countries also such as Mexico, UK and Canada
etc.
 Organic expansion is difficult as a typical Benihana restaurant requires a specific kind of interior which
was imported from Japan, requires carpenters of specific Japanese style of skill set and a desired
location of high public traffic.
 High initial cost of minimum $300,000, and they are reluctant to take debt.
 Franchising was not successful because of
o the lack of restaurant business experience of the investors,
o cultural difference
o Difficult to control the business in franchising model
o Obligation towards the Japanese staff, could not be honored by the franchisee investors.
 They are also planning to expand into other business.
Q. Calculate the wages of chefs in Chicago unit of Benihana?

Chicago unit Chefs Wages


Expence (in $)
Annual revenue 1300000

labor cost 10% 130000


Manpower at Salary (in
restaurant level $)
Manager (1) 15000 15000
Asst manager (1) 12000 12000
front man(2-3) 9000 27000
total 54000
Remaining 76000
Chefs (6-8) Not given
Waitress(6-8) Not given
Bar tender (2-3) Not given
Bus staff & dish washers (6-12) Not given
Balance manpower 25
Assumption: chefs are getting double of others 8 no of chef
Ratio (chef : other) 8:17
salary ratio 16:17
salary of chefs 36848.48
Wage of each chef 4606.06
Q. Calculate the profit after tax of Chicago unit of Benihana?

Profit After tax of Chicago unit


Revenue 100% 1300000
COGS 30% 390000
Gross profit 910000
Operating cost
Labor 10% 130000
Advertising 10% 130000
management salary 6% 78000
Rent* 5% 65000
Laundry, replacement, supplies, menu,
music, utilities 8% 104000
Employ meal 2% 26000
Miscellaneous 2% 26000
Administrative expenses 2% 26000
Repair 2% 26000
Insurance 1% 13000
Taxes (real estate) 1.50% 19500
total operating cost 643500

EBIDTA 266500
Desperation 4% 52000
EBIT 214500

Interest 1% 13000
EBT (earnings before tax) 201500

Taxes (assume 30%) 30.00% 60450

PAT (profit after tax) 10.9% 141050

Q. How do the Benihana Achieve the cost efficiencies?


Key focus Elements for Benihana include:
 Optimum space utilization (Back house space: others required 30% space & Benihana requires only
22%)
 Hibachi Table arrangement
 Waste management
 Historical authenticity
 Location advantage
To further reduce the cost Benihana works on following factors also

Limited Menu
 Offers only three simple Middle American entrees: steak, chicken & shrimp
 Keeps cost of food and wastage to bare minimum
 Minimal inventory
Minimize flow time
 Keeps turnover rates high, thus high utilization and throughput
 Reduces wait time for customers
High Space Utilization
 High proportion for productive dining space
 Only 22% of the total space of a unit is back of the house
 It is approximately 3900 front space and 1100 square feet for back space

Cost Structure Comparison of a Typical Restaurant and Benihana


Expenses in %
Cost Head
Typical Restaurant Benihana
Food cost 38-40% 30%
Beverage cost 25-30% 20%
Labor cost 34-42% 10-12%
Management salaries 2-6% 4%
Rent 4.5-9% 5-7%
Marketing 0.75-2% 10%
Cost savings 21.25-50%

Recommendations :
To address management concerns, consider to improve current operating model as well as to further
implement cost reduction in several areas

 Raw materials do not need to be come from Japan. It is a good thing to have a Japanese decoration in the
restaurant, but Benihana does not need to import the ornament from original Japanese house because it
is costly.
 Minimizing the amount of time customers need to wait in line
 Reducing flow time of the process:
o Hire more chef
o Make one chef one table system
o Add more table
o Rearrange lounge area in busy night
o Reallocate advertising budget for other things, like hiring more chef and add more table.
Expansion
• Explore potential areas for further expansions, e.g. suburb areas
• Can go for joint ventures instead of franchisee (e.g. with international hotel chain)
• Take funds from financial institutions. Cash flows were not an issue for Benihana at that time
• Expanding to international market mostly South East Asia market. Focus on mid to upper class segment
• Develop several brands with different value proposition e.g. Benihana Signature, Benihana Oriental Express,
and Benihana of Tokyo Cost

Cost
• Reduce site cost by expanding to the suburb areas
• Economize advertisement cost
• Use local building material for giving shape of Japanese architecture
• Use local available manpower for carpentry work
• Purchase in bulk for decoration material to get more discount

Operations Efficiency
• Go for quick-service operation to cater younger segment
• Can go for add-on business of selling traditional Japanese stuff in a dedicated area of restaurant
• Introduce variations in menu, e.g. sushi-on-the-go, robatayaki, or even udon
• Introduce attractive schemes for females and older generation
• Introduce a complimentary membership card to offer special offer package to its loyal customers
• Build local training center to train local staff