Benihana (BNHNA)

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Michael Mitchell

Geoffrey Jordan

Benihana (Nasdaq: BNHNA) is a nationwide casual & upscale restaurant chain with a Pan-Asian menu. Benihana's primary revenue source is its namesake Benihana teppanyaki restaurants, known for chefs that prepare meals on a grill directly in front of customers. Benihana operates 97 restaurants nationwide, including 63 Benihana teppanyaki restaurants, nine Haru sushi restaurants, and 25 RA Sushi Bar restaurants.^[1] In addition, 22 franchised Benihana teppanyaki restaurants are operating in the U.S., Latin America and the Caribbean.^[1] Benihana's restaurants create the largest chain of Japanese restaurants in the nation and one of the most geographically extensive restaurant chains in the U.S.^[2].

Benihana, like many other restaurants, is vulnerable to a weakened economy, which reduces the amount of consumer disposable income and leads consumers to eat out less frequently. Operating margins for the restaurant industry are also susceptible to fluctuations in prices of commodities, which include beef and seafood as well as other items necessary to operate such as electricity or other energy supplies. Despite a weak economy, Benihana's total restaurant sales increased 5.2% to $77.4 million in the fourth quarter of fiscal 2010 compared to the year-ago period.^[1]

Company Overview

Benihana is one of the largest Asian restaurant chains in the United States by revenue and restaurant locations^[3]. Benihana's core restaurants continue to be its "Benihana" teppanyaki-style Japanese restaurants, which account for approximately 68% of the company's revenue. Benihana also operates two other Japanese food concepts, RA Sushi restaurants and an upscale Japanese fusion and sushi restaurant, Haru^[4].

Business and Financial Metrics

Fourth Quarter 2010 Results^[1]

Benihana's total restaurant sales increased 5.2% to $77.4 million during the fourth quarter of 2010. Income from operations of $2.9 million compared to $1.7 million in the year-ago quarter. Net income of $1.4 million, or $0.09 in diluted earnings per share, compared to net income of $0.9 million, or $0.06 in diluted earnings per share in the year-ago quarter.

For the fiscal year 2010, total restaurant sales increased 2.6% to $311.8 million, the eighteenth consecutive year with a total sales increase. Income from operations (excluding impairment charges) of $4.6 million compared to $11.6 million in 2009. Benihana opened one new Benihana teppanyaki restaurant in Orlando, Florida, during the year and closed two Benihana teppanyaki restaurants in Washington, DC and Tucson, AZ. The company opened three new RA Sushi restaurants in Atlanta, GA, Leawood, KS and Houston, TX.

Business Segments

Benihana (68% of 2009 revenue)^[5]

Benihana restaurants offer casual Japanese dining in an entertaining atmosphere. Chefs prepare steak, chicken and seafood on a teppanyaki grill, or flat iron grill, placed at the center of the customers' table.

• Benihana's 60 restaurants are usually located in freestanding buildings, designed in Japanese architecture^[6].
• Benihana offers both lunch and dinner, serving typical teppanyaki foods of grilled meats and vegetables, but offers sushi as well.
• Beverage sales, both alcoholic and non-alcholic, account for approximately 17% of revenue for Benihana restaurants^[7].
• The average comparable per person dine-in guest check amount was $28.39 in fiscal year 2009 compared to $28.02 in fiscal year 2008.^[5]
• Total comparable restaurant sales for Benihana restaurants opened longer than one year decreased 7.7% in 2009 due primarily to a decrease of 9.3% in dine-in guest counts^[5]

RA Sushi (20% of 2009 revenue)

Benihana's RA Sushi offers sushi and Pacific rim dishes in an upbeat, trendy atmosphere. RA caters to a younger demographic than its other restaurants and is usually located in areas with a nightlife component like malls or shopping centers in order to reach their target consumers more easily^[8].

• Sales for the RA Sushi restaurants increased $16.3 million in fiscal year 2009 compared to fiscal year 2008. The increase is attributable to sales from new restaurants of $19.7 million offset by decreases in sales from restaurants opened longer than one year of $3.4 million.^[5]
• Total comparable restaurant sales for RA Sushi restaurants opened longer than one year decreased 7.5% due primarily to a decrease of 5.4% in dine-in guest counts as well as a decrease of 2.2% in the average per person dine-in guest check.^[5]
• The average comparable per person dine-in guest check amount was $21.05 in fiscal year 2009 compared to $21.54 in fiscal year 2008. The decrease in dine in guest check amount in fiscal year 2009, as compared to fiscal year 2008, was primarily due to a lower-priced extended happy hour menu implemented in the current fiscal year.^[5]
• RA emphasizes its social atmosphere, as beverages accounts for approximately 33% of RA's sales^[9].

Haru (12% of 2009 revenue)

Benihana's Haru concept offers high quality Japanese fusion dishes, including sushi and sashimi, crab dumplings, and tempura. Haru operates exclusively in urban settings, with seven locations in New York City, one in Boston and one location in Philadelphia^[10].

• Sales for the Haru restaurants increased $1.1 million in fiscal year 2009 compared to fiscal year 2008. The increase is attributable to sales from new restaurants of $4.8 million offset by decreases in sales from restaurants opened longer than one year of $3.7 million.
• Total comparable restaurant sales for Haru restaurants opened longer than one year decreased 10.6% during 2009.
• Dine-in sales, which comprised 66.9% percent of restaurant sales, decreased 9.1%

due primarily to a 13.1% decrease in dine-in guest counts offset by a 4.0% increase in the average per person dine-in guest check.

• The average comparable per person dine-in guest check amount was $31.65 in fiscal year 2009 compared to $30.43 in fiscal year 2008.
• Take-out sales, which comprised 33.1% of restaurant sales, decreased 11.6%.

Key Trends and Forces

Weak Economy Slows Restaurant Traffic and Sales

The subprime lending crisis drastically weakened the U.S. economy, meaning American consumers had less disposable income. Benihana's relatively high prices further hurt sales in a weak economy because customers steadily gravitate towards cheaper alternatives, like P.F.Chang's China Bistro (PFCB), where the average check per person is approximately $20^[11], compared to $27.63 at Benihana restaurants.

Additionally, increases in oil prices have also negatively impacted restaurant traffic since traveling to restaurants is also now more expensive. As previously mentioned, Benihana restaurants suffered a 5.5% decrease in dine-in guest counts, while RA and Haru's dine-in guest counts decreased by 3.0% and 3.6% respectively during its fiscal 2008^[12].

Rising Food Wholesale Prices Raise Restaurant Operating Expenses

In response to rising seafood and beef prices, Benihana's operating expenses increased by 10.2% during 2008, which totaled approximately $279 million and outpaced the company's 8.1% increase in revenue^[13]. In order to offset increases in food prices, most notably beef, chicken and seafood, Benihana raised its teppanyaki menu prices by 7% and its RA and Haru menu prices by 3% in fiscal 2008^[14]. In order to reduce its vulnerability to increasing commodity prices, Benihana routinely enters into non-cancellable supply agreements for the purchase of many beef and seafood items at fixed prices for up to twelve months^[15].

Rising Popularity of Asian Cuisine and Convenience Trends Spurs Growth

Americans buy a meal or a snack from casual, upscale, and fast food restaurants an average of 5.8 times a week, spending about $1,100 on food away from home each year^[16]. The emerging popularity of exotic cuisines and prominence of off-premise (takeout, delivery and curbside pick-up) options at many restaurants nationwide are contributing to this growth. Benihana plans to capitalize on this increase in demand through significant expansion for its restaurants, particularly its Benihana teppanyaki and RA Sushi concepts. Also, Benihana's Haru restaurants offer high quality Japanese fusion and sushi dishes with delivery or take-out options, a significant advantage in its convenience-oriented urban settings^[17].

Competition

The casual and upscale restaurant industry is comprised mainly of small, locally owned restaurants with only one or two locations^[18]. Benihana also competes with several large national chains, including P.F.Chang's China Bistro (PFCB), Kona Grill (KONA) and BUCA (BUCA).

• P.F.Chang's China Bistro (PFCB) is Benihana's closest form of direct competition. P.F. Chang's earned approximately $308 million in revenue^[19]. The company owns and operates three restaurant concepts of Asian cuisine. First, it operates over 170 locations of P.F. Chang's China Bistro, that offers upscale Pan-Asian dishes^[20]. The company also operates 144 locations of its much cheaper, quick casual Pei Wei restaurants^[21]. Pei Wei restaurants serve a broad range of Asian foods including Orange Peel Beef and Pei Wei Pad Thai at a much cheaper price range. Take-away sales account for approximately 38% of Pei Wei's revenues^[22]. Lastly, the company operates one Taneko sushi restaurant^[23].

• Kona Grill (KONA) operates 18 restaurants across 12 states and earned about $72 million in revenue, up significantly from the approximate $50 million^[24]. Kona Grill offers a wide array of American and Pan-Asian dishes with unique twists created by over 40 signature sauces that Kona Grill makes from scratch^[25].

• BUCA (BUCA) owns and operates 89 restaurants nationwide that serve family-style portions of Italian cuisine to share^[26]. The company started initiatives to expand its sales by offering lunch options and take-out and catering services. Buca's take-out services, Buca-To-Go, represent approximately 10.3% of company revenues^[27]. Buca earned approximately $245 million in revenues^[28].

References

1. ↑ ^{1.0 1.1 1.2 1.3} Benihana Inc. Reports Fiscal Fourth Quarter & Full Year 2010 Results
2. ↑ Benihana 2008 10-K, Item 1, pg. 1
3. ↑ Benihana 2007 Annual Report, pg.1
4. ↑ Benihana 2007 Annual Report, pg. 4
5. ↑ ^{5.0 5.1 5.2 5.3 5.4 5.5} Benihana 2009 Annual Report, pp. 8-9
6. ↑ Benihana 2008 10-K, Item 1, pg. 1
7. ↑ Benihana 2008 10-K, Item 1, pg. 2
8. ↑ Benihana 2008 10-K, Item 1, pg. 2
9. ↑ Benihana 2008 10-K, Item 1, pg. 2
10. ↑ Benihana 2008 10-K, Item 1, pg. 2
11. ↑ P.F. Chang's 2007 Annual Report, pg. 4
12. ↑ Benihana 2008 10-K, Item 2, pg. 5
13. ↑ Benihana 2008 10-K, Item 2, pg. 5
14. ↑ Benihana 2008 10-K, Item 2, pg. 8
15. ↑ Benihana 2008 10-K, Item 2, pg. 3
16. ↑ National Restaurant Assocation 2008 Restaurant Industry Forecast
17. ↑ Benihana 2008 10-K, Item 1, pg. 2
18. ↑ Benihana 2008 10-K, Item 1, pg. 6
19. ↑ P.F. Chang's China Bistro Reuters Company Profile
20. ↑ P.F. Chang's China Bistro Reuters Company Profile
21. ↑ P.F. Chang's China Bistro Reuters Company Profile
22. ↑ P.F. Chang's China Bistro Reuters Company Profile
23. ↑ P.F. Chang's China Bistro Reuters Company Profile
24. ↑ Kona Grill, Inc. Reuters Company Profile
25. ↑ Kona Grill, Inc. Reuters Company Profile
26. ↑ Buca, Inc. Reuters Company Profile
27. ↑ Buca, Inc. Reuters Company Profile
28. ↑ Buca, Inc. Google Finance Page
29. ↑ P.F. Chang's 2007 Annual Report, Item 7, pg. 24
30. ↑ P.F. Chang's 2007 Annual Report, Item 2, pg. 13
31. ↑ P.F. Chang's 2007 Annual Report, Item 1, pg. 4
32. ↑ P.F. Chang's 2007 Annual Report, Item 7, pg.20
33. ↑ Kona Grill 2007 Annual Report, Item 6, pg. 21
34. ↑ Kona Grill 2007 Annual Report, Item 1, pg. 2
35. ↑ Kona Grill 2007 Annual Report, Item 7, pg. 24
36. ↑ Kona Grill 2007 Annual Report, Item 7, pg. 22
37. ↑ Kona Grill 2007 Annual Report, Item 6, pg. 21
38. ↑ Buca, Inc. 2007 10-K, Item 1, pg. 7
39. ↑ Buca, Inc. 2007 10-K, Item 1, pg. 3
40. ↑ Buca, Inc. 2007 10-K, Item 7, pg. 16
41. ↑ Buca, Inc. 2007 10-K, Item 1, pg. 4
42. ↑ Buca, Inc. Q4 2007 Press Release