Sales and costs (percentages are relative to gross sales, unless stated otherwise) Gross sales Food sales Beverage sales Food cost, % of food sales Beverage cost, % of beverage sales Gross profit Labor, benefits Advertising Rent Other (supplies, misc., utilities, admin, maint, Insurance, royalties)
Typical restaurant 100% 70-80% 20-30% 38-48% 25-30% 55-65% 35-40% 0.75-2% 4.5-9% 10-20% 3-14% 2.5-5% 0.5-9% 0.25-4.5% 0.25-4.5% – –
Typical Benihana restaurant 100% 70% 30% 30% 20% 73% 10% 10% 5% 10-15% (no royalties) 35.5% 2.3% 33.2% 16.6% 16.6% – –
Pre-tax profit (before depreciation) Depreciation Pre-tax profit Tax (assume 50% tax rate) After tax profit Cash flow (add back the depreciation) Payback (years) *12.5% Assumed
Areas of advantage for Benihana (BH) include: • Food and beverage costs – Savings on food costs are facilitated by the limited menu that BH offers, which reduces required inventory and inventory perishing (waste). The limited menu also reduces errors in preparation, and reduces food costs as BH is able to bulk order fewer items, rather than paying a premium for a large number of specialty items. Offering a limited menu also lowers variability in terms of customer orders. Labor & Benefits – Teppanyaki style of cooking reduces need for auxiliary wait staff as chefs deliver food directly to customers. Front of house staff responsibilities are reduced, number of non-tipped employees are reduced, both working to lower salary requirements. Chefs are not required to be excellent at cooking, but good at performing. This may reduce their salary requirements. From the Case: “A large part of the compensation was intangible, based on job security and a total commitment of Benihana to the well-being of its employees.”
2. How big a factor is batching in Benihana’s profitability, and how big a factor is the bar in Benihana’s profitability? Calculate how much the bar adds to the restaurant’s profitability, and how much batching adds.
Nightly Profit Reg Bar Reg Batch No Bar No Batch No Bar Reg Batch Reg Bar No Batch $121.80 ($495.71) ($55.66) ($201.58)
Total Revenue $3,155.34 $2,146.32 $2,830.89 $2,909.82
Revenue Bar $403.34 $111.32 $125.39 $871.32
Revenue Dinner $2,752.00 $2,035.00 $2,705.50 $2,038.50
Bar Size 55 15 15 55
Batching Type Tables of 8 None Tables of 8 None
From the table above, we see that: Alone, the bar appears to add roughly 59% to profits (No Bar Batch – Reg Bar No Batch) / No Bar No Batch = ($495 - $201) / $495 = 0.59 = 59% Alone, batching appears to add roughly 89% to profits (No Bar No Batch – No Bar Reg Batch) / No Bar No Batch = ($495 - $55) / $495 = 0.89 = 89% $617.51 difference between regular restaurant and Benihana (No Bar No Batch – Reg Bar Reg Batch) = 124%, so the effects of the bar and batching aren’t perfectly additive. 3. What does Benihana do to increase service capacity (as compared with a “standard” restaurant at that time)? • • • • • • • • • Teppanyaki style of cooking reduces need for back-of-house kitchen, increases size of dining area/seating capacity. Limited menu reduces need for storage/refrigeration, increases size of dining area/seating capacity. Limited menu reduces customer ordering time. Teppanyaki style means no order queue, meals prepared instantaneously. Prep work performed ahead of time (trimming fat from meat, etc.) reduces cooking time. Teppanyaki chefs dictate pace of meal, reducing time spent eating. Using the bar as a holding area allows BH to serve full batches of eight customers per table, which utilizes capacity more fully as empty seating is minimized. (Bar also becomes a profit center through drink sales.) Batching places...