Benihana

INSEAD

This case was written by Francesca Gee, Research Associate and James Téboul, Professor atINSEAD. It is intended to be used as a basis for classroom discussion rather than to illustrate eithereffective or ineffective handling of an administrative situation.

Copyright © 1997 INSEAD, Fontainebleau, France.

Benihana UK (Ltd.)

10/97-4719

N.B. PLEASE NOTE THAT DETAILS OF ORDERING INSEAD CASES ARE FOUND ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION.

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The weather was unseasonably chilly, even for Britain, thought Gary Anderson as he stepped out of the underground into the cold rain one evening in late May 1996. This was his first visit to London where he was soon due to take up a new, highly challenging job: turning around Benihana’s three loss-making restaurants. There was one thing he would certainly miss from Australia: the warm weather, he said to himself as he walked into the Benihana restaurant in Swiss Cottage, a well-heeled residential district in North London.

This was an incognito visit: nobody at the restaurant knew that the new boss would dine there that night. Gary Anderson quickly surveyed the large stylish cocktail bar area, which stood empty. Beyond the high plate-glass window, tree branches undulated in the wind above wooden tables and chairs. He walked down the stairs to the bright pink, high-ceilinged dining room in the basement. Smiling profusely, an Asian hostess greeted him in hesitant English at the bottom of the stairs and showed him to a seat at one end of a large hibachi table. It was early evening, and Gary was one of the first guests. Before a dining server brought him a steaming hot towel, he had time to take in the surroundings: not as glamorous as Benihana’s newest branch in Piccadilly, he thought, and less spectacular than the trendy Benihana in Chelsea, with its grand staircase. Yet the pink dining room was pleasant, almost cosy, with its 14 tables1 and the huge stylised kanji ideographs which covered an entire wall. But the decor, once stylish enough to attract celebrities such as the Princess of Wales, badly needed smartening up.

The dining server took his order for a pre-dinner drink and gave him a menu. With raised eyebrows, Gary Anderson noticed differences with the menus of both the Piccadilly and Chelsea restaurants, whose addresses were not even mentioned. Even the logo was different! The menu was lengthy and the core offering - steak, chicken, seafood - came in enough combinations to puzzle the novice. Although all main courses were served with soup, salad, a prawn appetiser, hibachi vegetables, rice and green tea, prices varied widely.

The hostess returned with a couple and their teenage daughter; she seated them at the other end of Gary Anderson’s table. They seemed to be local residents. It was a quiet evening early in the week and filling all eight seats at the table promised to take a while - not to mention the 13 other tables in the dining room. What a shame to see such a beautiful restaurant half empty, thought Gary Anderson. He had only been in London for two days, but he had seen enough to know that cutting the three restaurants’ financial losses would not be easy. "This will be quite a challenge," he thought.

Benihana of Tokyo

The Benihana chain, which by May 1996 included 60 restaurants, mostly in the United States, with sales of over $75m, had started 32 years earlier in New York. Its founder, Hiroaki (Rocky) Aoki, was a flamboyant and restless character. Born in Japan in October 1938, he trained as a wrestler in his teens. "I had three brothers. It was right after the war and we had to

1 All tables at Benihana restaurants seat eight.

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fight for our food. I found out then that the strong guy wins."2 Rocky won a national university championship and secured a place on the Japanese wrestling team at the 1960 Olympics in Rome. On his way, he passed through New York City and decided to live there.

In New York Rocky enrolled at City College’s School of Restaurant Management; he supported himself by selling ice cream from a truck in Harlem. "Big success. Not many Japanese ice cream salesmen in Harlem!"3 He won the national flyweight wrestling championship twice and in May 1964 he invested his savings ($10,000) to open his first restaurant in Manhattan’s trendy Upper West Side. He called it Benihana - the name of a small red wild flower in Japanese.

When the dining server returned Gary Anderson ordered Rocky’s Choice, a combination of chicken and steak. The other guests at his table asked for the Seafood Combination of scallops, lobster and king prawns. Shortly afterwards the dining server was back with four bowls of Japanese onion soup, soon followed by salads: crisp lettuce, tomatoes, radishes and cabbage in ginger dressing.

As they finished their salads, a chef wearing a cook’s hat briskly stepped up to the table, pulling along a three-tiered cart laden with utensils and ingredients. An imposing chopping knife in a metal case dangled noisily from his belt. He smiled and said: "My name is Andrew. I’m your chef tonight." The show had begun.

Andrew, quite unaware that he was cooking for his new boss, seemed relaxed and joked with the four guests as he prepared the prawn appetiser. First he lined up the prawns in a row. Then with quick, precise gestures, he took each prawn, cut off the tail, threw it into a pile. He cut lengthways through the prawns and threw them into another pile. His hands moved as fast as a film projected at high speed. The prawns were browned lightly in lemon juice. Sprouts, chunks of onion and courgettes sautéed in butter and sprinkled with sesame seeds accompanied all four dinners.

Throughout dinner, Andrew entertained the guests at his table like a stage performer. He also sought to anticipate their every need: when he poured individual portions of ginger sauce and mustard sauce for each guest, he explained which one best enhanced each of the foods which followed. As he prepared to cook the fried rice, with one hand he cracked open the first egg and quickly tossed the shell into the air, catching it behind his back. He then brought out two large wooden salt and pepper shakers, twirled them, threw one into the air while tapping the other on the table, caught it, poured some salt from it into the frying rice and tossed it back into the air. At one point he missed and the shaker fell onto the table with a loud thump. The guests laughed. When Andrew had finished cooking and serving, he bowed to the guests. Spontaneous applause erupted. Gary Anderson joined in the clapping.

2 Skylite, July/August 1981.

3 idem

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The Original Formula

Benihana only offered teppanyaki cooking, in which food is grilled in front of guests. In 1964 this was an innovation in New York. Teppanyaki, a century-old tradition in Japan, had become a luxury concept, and Rocky Aoki was democratising it again. He also designed the special hibachi table built around a central gas-heated, stainless steel plate. Because all tables were for eight, guests often found themselves sitting next to perfect strangers.

The menu resembled that of an American steak house, but Japanese style. It offered only three basic items (top quality steak, chicken and prawn) in various combinations; customers could either order one as a single main dish, or ask for a set meal. A full dinner had all three, with the prawn as appetiser. Bean sprouts, courgettes, fresh mushrooms, onions and rice were the standard accompaniments.

The simplicity of the menu made it easier to control quality and ensure fast delivery; since nothing was prepared in advance in the kitchen, wastage was significantly reduced. Food was purchased every day and since the ingredients were cooked before them, customers could see that they were very fresh. By minimising storage and waste - major overhead items for most restaurants - Benihana was able to keep down food costs (to about 30% of food sales, compared with an average of 35-40% at competing restaurants).

The Facilities

Rocky Aoki decorated the first Benihana restaurant, at West 56th Street in Manhattan, so that it looked like a Japanese country inn. The building materials - weathered beams, bamboo ceiling, woodblock prints, calligraphic drawings, ceramics - came from old houses in rural Japan; he had them shipped over and reassembled by a crew of Japanese carpenters. Through the 1970s Benihana used authentic building materials from Japan at most of its locations, although some of the larger restaurants had a contemporary decor, especially when they were housed in highly visible, free-standing buildings on busy main roads. In later years, the use of traditional materials was discontinued: they had become prohibitively expensive.

With only four tables, the first Benihana was nearly always full. It had a small bar where customers could have drinks while waiting for a table. Rocky Aoki soon realised how useful the bar was as a buffer to absorb variations in demand and to help ensure full utilisation of the dining room; in later restaurants the bar and lounge were larger (as in Exhibit 1). Beverage sales soared in line with the amount of space, from 18% at total sales at Benihana’s first unit to over 30% at its third Manhattan restaurant, which opened in 1970.4

Because teppanyaki required less space than conventional cuisine, at Benihana restaurants food storage and preparation took up only about 25% of the total area, compared with an average of 35% at most other restaurants; this increased productive dining space. (Exhibit 2 has operating statistics for a typical US Benihana restaurant in the 1970s.)

4 In the 1980s however, drinking became less popular in the United States and the bars often stayed empty. At

24 large Benihana restaurants, they were turned into sushi bars and run as profit centres. (In Atlanta and metropolitan New York, Benihana even offered sushi to take away.)

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Staff

Hibachi and teppanyaki were clever responses to a perennial problem in the restaurant business: the shortage of skilled labour. Teppanyaki required only one skilled employee: the chef. In 1996, a typical Benihana restaurant in the United States cost about $1m to open and had annual gross sales of about $2m. It had about 25 staff (initially all had been Oriental, although this was no longer the case in 1996) including six to eight chefs, a manager, an assistant manager and a couple of trainee managers. A team of one chef and one dining server handled two tables and provided attentive service to guests while keeping down labour costs. Employees shared among themselves tips given by customers, which amounted to about 15% of the bill. The more senior chefs were paid bonuses linked to the restaurant’s sales.

Benihana’s most successful innovation was the showmanship involved in cooking in front of customers. Restaurant guests enjoyed watching their food being prepared. Cooked food also reassured those less familiar with Japanese cooking: it wasn’t all raw fish. Children particularly loved watching the chefs juggle knives (replaced by less dangerous salt and pepper shakers in later years) and listening to their jokes. In early years all chefs had to complete a three-year formal apprenticeship in Japan; before they moved to the United States Benihana trained them for another three to six months in the English language, American manners and showmanship. At first, attracting chefs had not been easy. Once in the United States, however, career opportunities at the fast-expanding company and Benihana’s commitment to the well-being of staff and guarantee of job security usually ensured that the chefs stayed on.

Operations

Streamlined procedures set Benihana apart from other restaurants. Food preparation methods were fairly standardised; food grilled at the table was prepared in batches by kitchen staff, who also made salads, cold appetisers and desserts. Because Benihana used fewer ingredients, inventory control was simplified. Since the chefs operated in front of customers, fewer dining servers were needed, and guests never had to complain that the food was cold!

When a restaurant was full, the objective was to have customers come in, be seated, have dinner and be on their way out in as little as 45 minutes. The usual turnover time was an hour, and up to an hour and a half in slow periods. The average bill was about $25 at dinner and $15 at lunch (which accounted for 20% of total sales). Similar items were served for both meals.

Positioning

Benihana was not a traditional Japanese restaurant: it was unlike anything else that existed in the United States. The key differentiating factor was the ‘show’. Other important selling points were the high-quality of food, good value for money and attentive service. Rocky Aoki saw advertising and public relations as vital, and 8-10% of gross sales was devoted to promoting Benihana. (A Benihana ad is shown in Exhibit 3.) Because of its success the concept was widely copied; Marriott for instance set up a chain of 13 purely teppanyaki restaurants which it named Mikado.

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Growth and Diversification

Early Growth and Franchising

The first Benihana restaurant in Manhattan quickly became a success and was soon unable to cope with the flow of customers. Two years later Rocky Aoki opened a second, larger restaurant on the same street, just three blocks to the east; this too was very successful. In 1968 he took advantage of an opportunity to expand in downtown Chicago; the new restaurant surpassed the two New York operations. 1969 saw the opening of the 38,000 sq.ft. (3,800 sq.m.) Benihana village, with restaurants, cocktail lounges and entertainment facilities in Las Vegas, a joint venture with the Hilton organisation.

Because of Benihana’s success, wealthy investors rushed to acquire franchises. Six franchises were sold in 1970-71 (in Harrisburg, Pennsylvania, Fort Lauderdale, Portland, Seattle, Beverly Hills and Boston). Soon afterwards, however, Rocky Aoki chose to privilege expansion through company-owned units. In 1973 he decided to use bank and lease financing to grow faster. The decision to stop franchising was prompted by a number of problems: the franchisees often lacked market knowledge and experience of the restaurant business. American investors had trouble relating to Japanese staff. Finally, Benihana found it harder to control franchisees than its own managers. Rocky Aoki eventually closed down or took over most of the franchises. In 1996 most Benihana restaurants in the US were company-owned; only overseas operations were either franchises or joint ventures.

Rocky Aoki, the Daredevil Entrepreneur

Rocky Aoki’s personality and charisma were a key ingredient in Benihana’s success. A celebrity in his own right, throughout the 1970s and 1980s he made headlines both in the United States and Japan. Ten years before British entrepreneur Richard Branson, Rocky Aoki raced motorboats (nearly killing himself in the process) and piloted balloons across the Atlantic and Pacific. His objective was to gain publicity for Benihana. He told a journalist shortly before attempting to cross the Pacific in a helium balloon in 1981, at a cost of over $1m:

"It doesn’t matter what I’ve spent... When it’s over, I can write a book about it. I can take the balloon to Japan, to Europe, anywhere there is a Benihana restaurant, to promote the name of my company and make it grow...You can’t buy that kind of exposure for Benihana, not for a million dollars. I’m not interested in becoming the best balloonist in the world. I want to promote Benihana."5

The crossing was a success: the crew broke the world record for distance. This and other highly publicised sporting ventures helped turn Benihana into a household name. In 1986 the chain was named ‘American restaurant of the year’; Benihana was mentioned in the US press once a day on average and one in three Americans had heard of it. This enabled the company to reduce its advertising spending to 3-4%.

5 Skylite, July/August 1981.

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Rocky Aoki was equally adventurous in his business undertakings; he produced Broadway shows and lost $1m in one soft-core sex publishing venture, among others. In 1976 he formed a joint venture with an American leisure conglomerate, the Hardwicke Cos., to manage Benihana’s planned international expansion. The relationship foundered after four years. In May 1983 Aoki raised $5.5m in share capital for a new company, Benihana National Corp., based in Miami, which acquired 14 Benihana restaurants and repaid $2.5m of bank debt on behalf of Aoki’s privately owned company.

Meanwhile Rocky Aoki continued to come up with new concepts. Ambitious plans to diversify into frozen food distributed through supermarkets were initially successful, with 1985 sales over $40m. But when giant companies such as Campbell Soup started pushing their own oriental TV dinners, Benihana could not compete in TV advertising or in giving retailers ‘incentives’ for freezer space. By late 1987, Benihana National had lost $11m in the business; it sold it for $4.5m and booked a final loss of $1.6m.

An elaborate new seafood restaurant concept, named Big Splash, with 20 types of fish on the menu, was also a flop. The flagship restaurant opened in Miami, where retirees balked at the high prices and exotic seafood. 1989 saw the Benihana Cafe experiment: a downsized version for areas that could not support a full-fledged steak house. Rocky Aoki said: ‘As long as I’m above water, I feel good. Money is for spending. If I don’t spend, I don’t learn.’

Growth slowed dramatically in the restaurant business in the late 1980s and the recession of 1990-91 produced negative real growth in revenues for US restaurants. The latest concept, Benihana Grill, opened in Sacramento in late 1995. Benihana had already covered all major US markets for conventional restaurants and the grills – with about half the capacity of restaurants - were aimed at smaller markets. Main dishes - still featuring teppanyaki cooking at the table - were about 35% cheaper than at a conventional unit.

By 1996 Rocky Aoki remained involved in day-to-day operations, paying frequent visits to Benihana restaurants around the world. The company’s structure was fairly centralised, with a Director of Operations overseeing regional managers, which in turn supervised the 46 restaurant managers in the United States. After Benihana University - the central training centre where generations of chefs had learned to dice, slice and juggle with knives - closed down in the mid-1980s, each unit became responsible for hiring and training its own staff. Head office provided help in the form of training materials and quarterly regional management seminars. By 1996, Benihana had about 1,500 staff in the United States and spent 6-7% of gross sales advertising, particularly on network television.

International Expansion

Benihana’s first restaurant outside the United States was a joint venture at the Royal York Hotel in Toronto, Canada, in 1973. By 1996, Benihana also managed units in Tokyo, Seoul, Bangkok, Pattaya, Manila and Surfer’s Paradise, Australia. It had three restaurants in London and was about to open a second restaurant in Manila as well as new units in Aruba and Dubai. Locations in China, Singapore, Malaysia and Hong Kong were under consideration. By 1996,

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growth had slowed down in the US and further expansion had to be overseas. The booming consumer markets of the Pacific Rim area, where labour was abundant and still comparatively cheap, were the most promising. However, continental Europe, where Benihana had no restaurants, was also seen as a favourable market. Because Benihana did not have the resources to finance international expansion on its own, this was done through joint ventures - typically with a different partner for each restaurant. (The cost of opening an overseas restaurant varied greatly, but could reach $2m.)

As Benihana expanded beyond the United States, it discovered the challenges posed by different market conditions: staffing, local regulations, advertising. "Many variables change between markets," explained Gary Anderson. "Rents in London are very different from those in Manila. Labour costs are considerably lower in the United States than in Australia. Food costs also vary, depending on the availability of prime grade steak or fresh seafood." One issue was the extent to which Benihana’s successful formula should be adapted to local markets. The company’s policy was that, while some local input was necessary, the basic concept should remain unchanged.

One special challenge was that few potential customers outside North America had ever heard of Benihana. This, said Gary Anderson, was perhaps Benihana’s main weakness: "Maybe we take our name for granted and don’t maintain a strong enough presence in the marketplace. In the US our visibility is very high, many people know Benihana. But internationally it isn’t the case and we have to work a lot harder to keep our name up-front. "

Benihana in London

Benihana had entered the European market in 1986, when it opened the Swiss Cottage restaurant as a joint venture with Falcon General, a British defence contractor. "For several years it was extremely popular - up to 300 people some nights; it achieved profitability in three years." Despite this success the two partners decided to end the relationship in the late 1980s. In 1992 Benihana (UK) Ltd. was set up as an equal joint venture with the Ono Group of Japan. The partnership’s initial plans were to invest over $12m in order to open a dozen or more restaurants in Europe by 1997. A second Benihana opened in London in 1993 on the trendy King’s Road in Chelsea, followed by the Piccadilly restaurant in September 1995, both in partnership with the Ono Group; by May 1996 no restaurants had been opened in other European countries. While the Ono Group closely tracked financial performance, it did not get involved in day-to-day restaurant management.

The Three London Restaurants

Piccadilly, the flagship restaurant, was located just off a busy main avenue, in a stylish but fairly quiet one-way street. Meters limited parking time to two hours. The restaurant was close to the Ritz hotel and the upmarket Fortnum and Mason department store, and it had large display windows through which passers-by could see the chefs at work. Because of the awkward location, to attract guests Benihana relied on tourist magazines and hotel concierges

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(fortunately, there were plenty of hotels, mostly four-star, nearby). The restaurant had 20 tables in an elegant open area of 10,000-sq.ft. (1,000-sq.m.); however the bar and lounge were smaller than those at the Swiss Cottage and Chelsea restaurants. A walkway at the back of the main dining room took guests to different levels decorated with rather flashy murals.

While Piccadilly relied more on tourists and on the local business community for trade, the clientele at Swiss Cottage was more family-based, although the restaurant was close to a good repertory theatre. Chelsea attracted trendier (and often wealthier) guests. The King’s Road restaurant was in a basement with an inconspicuous entrance: a plate-glass door simply inscribed with the Benihana name. Inside, however, customers discovered an ultra-modern, somewhat ostentatious, decor. A long gallery led to a sweeping staircase reminiscent of Hollywood musical extravaganzas. Downstairs they found on one side a spacious tent-ceilinged bar, on the other a sea of white pebbles crossed by darker ‘stepping stones’ that took them into twin dining areas with a total of 16 tables. (Exhibit 4 has photographs of Benihana’s three London restaurants.)

The Swiss Cottage and Piccadilly restaurants were close to each other - only 20 minutes away by underground. When one restaurant was short-staffed, a chef could come in quickly, cook one or more tables and return to his usual restaurant.

Staff

Each restaurant had between 35 and 50 staff (depending on the restaurant’s size and the time of the year), not all of whom worked full-time. The restaurant managers (two of whom were Japanese) were seconded by one or two assistant managers. Each manager was responsible for controlling product and service quality in his restaurant. Each restaurant also had a chief chef and a second chef. A senior chef, Isao Suzuki, who had been with the company since the 1960s, trained all the chefs, most of whom were not Japanese. Guests were greeted by a receptionist or hostess; once they were seated dining servers attended them. Bartenders officiated over the lengthy drinks list. Behind the scenes, kitchen helpers prepared salads, soups, tempura and dessert; utility workers washed and cleaned. (Exhibit 5 describes average staffing levels for the Piccadilly restaurant.)

Typical work hours were from 11 a.m. to 3 p.m. for lunch and for dinner, 5.30 p.m.-11 p.m. (midnight on Fridays and Saturdays). While guests spent 90 minutes or longer over a meal, the chefs only had to be present at the hibachi table for 40 minutes. Morale was important to ensure that all staff worked together cohesively.

Most chefs started as kitchen helpers or dining servers; senior chef Suzuki then trained them to become teppanyaki specialists who could cook and perform in front of customers. The duration of training varied widely, according to individual aptitude and drive. Some learned to juggle and chop at high speed in six months, others in three; the less gifted were not up to notch even after 12 months. Communication skills were essential. Once a chef had been trained, there was a risk that he or she would be poached by a competitor ready to offer higher pay. While this was a compliment to Benihana, it posed operational headaches.

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New dining servers were given a 90-minute orientation by their restaurant manager, followed by four days of training. They were often students whose visa did not allow them to work more than 20 hours a week. Their duties were to greet customers, bring them an oshibori hot steamed towel, take drinks orders and serve the drinks, explain the menu and serve side orders, soup, salad, sauces, boiled rice, green tea and dessert. (In a typical six-course meal, three courses would be served by the chef and three by the dining server.) They also presented the bill and collected payment. Busboys brought food from the kitchen and drinks from the bar for dining servers to serve. They prepared china, cutlery and other accessories, removed the plates and cleared the tables, prepared sauces, changed ashtrays.

Positioning

By 1996 Benihana advertised itself in London as ‘a uniquely entertaining dining experience’ rather than as a restaurant offering conventional Japanese fare. (Exhibit 6 shows a typical Benihana ad.) All three restaurants opened for lunch and dinner seven days a week. (Exhibit 7 analyses Benihana’s sales in London.) The average bill was £20 for lunch and £31 for dinner. (This did not include VAT and a 12.5% cover charge.)

Benihana encouraged customers to book their table in advance. This enabled managers to better schedule staff, especially chefs, who were always in short supply. There was no special procedure to measure customer satisfaction other than watching and asking politely departing customers whether they had enjoyed their evening.

The Challenge

Gary Anderson had joined Benihana as manager of the Surfer’s Paradise restaurant in Australia in 1992, after a period of training in Miami. (His international experience also included a role in opening Benihana’s first restaurant in Manila.) He successfully turned around the operation despite an unfavourable location - the restaurant was on the third floor a five-star international hotel located on a one-way highway with three lanes, with no external sign and no right to advertise in the hotel's rooms. Michael Kata, president of Benihana of Tokyo, offered him a similar opportunity in London.

The strengths Gary Anderson could count on were Benihana’s tried and tested formula, and its international reputation. He had three beautiful restaurants up and running in good, upmarket locations. However, he also knew that he was faced with some major problems.

Running a Restaurant in London

To Gary Anderson’s surprise, the expectations of Britons in terms of service seemed low compared with Australians - especially at luxury resorts such as Surfer’s Paradise. Customers in London seemed resigned to poor service and hardly complained. One reason for the comparatively lower standards was that working in a restaurant was not considered a career in Britain. While in Australia university graduates did not feel it beneath them to choose

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restaurant service as a profession, in London most waiters and cooks were recently arrived foreigners. It was so difficult to find skilled staff in Britain that one manager had joked: "If they can speak English, we give them a job."

Recruiting teppanyaki chefs was a particular challenge. Because teppanyaki had become popular, experienced chefs were in demand and comparatively expensive. Smaller Japanese restaurants with only six or eight tables needed only two or three teppanyaki chefs, whom they could afford to pay more. Benihana, which normally required 12 chefs in the Piccadilly restaurant, 9 chefs at Swiss Cottage and 10 in Chelsea, had labour costs of about 36%; this was the reason why it trained most of its chefs in-house. The number of chefs was the main factor in determining how many guests the restaurants could serve at any given time.

The restaurant managers’ responsibility was to hire the right people. New recruits, who would have to entertain guests, were assessed on their communication skills. "The interviewing process is very important and should be carried out by people who are experienced in interviewing," said Gary Anderson.

While teppanyaki was increasingly popular, misconceptions about Japanese food were still rife. "Many people think that our food is uncooked," said Gary Anderson. "We’re still in the education process." Potential problems in seating perfect strangers at the same table were made worse in London, especially at the Piccadilly restaurant where many guests were tourists. "You can find yourself with six different nationalities at one table of eight. This requires a lot of psychology." Some of the guests smoked, and it was difficult to seat them next to non-smokers.

Lastly, the London restaurant scene was increasingly competitive: many new restaurants had opened since mid-1995, adding thousands of seats in the areas served by Benihana. Hotel concierges provided less than 2% of the total number of guests at Benihana in a typical week, while 6% of customers were Japanese and 24% came from groups - mainly European groups.

Sales at Swiss Cottage had dropped after the other two restaurants opened. While Benihana normally made sure that there was a base of two million people within an hour's drive of a new restaurant, the three venues, all in West London, were close to each other. Did it make economic sense to keep all three restaurants, or should one of them either close down or move to a new location?

Restoring Profitability

Gary Anderson knew that his first and foremost task would be to control spending. The board of directors of Benihana (UK) Ltd. and his two direct bosses, Taka Yashimoto (the executive vice president and director of operations of Benihana Inc.) and Michael Kata, did not want to have to inject funds into the business for much longer.

The cost of labour, advertising and food required immediate attention. (Exhibit 8 shows typical operating expenses for Benihana UK.) As far as labour costs were concerned, restaurant managers relied too much on overtime; some high-paid staff were not performing as well as they should have. A new marketing manager with previous experience in the hotel

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industry had been hired; unfortunately, he had no restaurant background. However Gary Anderson knew that he had to tread carefully; Benihana, after all, was in many ways more Japanese than Western in its management practice.

Advertising spending was running at 12% of total sales and Gary Anderson felt that much of this money was being wasted. His predecessor had retained a costly advertising agency, as well as a free-lance public relations consultant. As far as food and beverage costs were concerned, stocktaking was haphazard.

Tackling Management Issues and Staff Morale

Managers had no clear understanding of profit and loss in their restaurant. Gary Anderson planned to introduce regular, detailed analysis of results, but wouldn’t he face a lot of resistance if he tried to implement new management control procedures?

Managers would also have to learn to listen to their staff. Staff morale was an important issue. Gary Anderson was convinced that for sales to increase, better service levels were required; this was particularly important to win repeat guests. He interviewed staff and realised that they felt that Benihana was too expensive. Something had to be done to make them proud of the company, and confident in the product they sold, he thought.

Corporate Image

Gary Anderson was not too happy with the way in which Benihana was perceived - and described - by British restaurant reviewers. (Exhibit 9 has excerpts from typical entries in restaurant guides.) He was also troubled by the absence of a clear, consistent corporate identity in all three restaurants. While the essential ingredient in the original formula had not changed - Benihana was still a specialist teppanyaki restaurant - the three units had taken on different identities. "When you walk in there is nothing except the hibachi table to tell you that they belong to the same company," he thought. "Even the logo is different."

Benihana’s original logo was in block letters; the London restaurants were the only ones in the world to use script writing. Piccadilly used a new ‘B’ trademark in pastel colours. Both the food and beverage menus were different in each restaurant. A new, standardised menu was clearly a priority. (Exhibit 10 shows the Benihana Chelsea’s menu.)

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Exhibit 1 Typical Layout for a Benihana Restaurant in the United States6

6 Adapted from Benihana of Tokyo, © Harvard Business School, 1972.

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Exhibit 2 Operating Expenses at a Typical US Benihana Restaurant7

Sales Food Beverage

70% 30%

Cost of sales Food cost (% of food sales) Beverage cost (% of beverage sales)

30% 20%

Operating expenses Labour costs Advertising and Promotion Management Rent Other costs

15% 10% 6%

5-7% 10%

7 From Benihana of Tokyo, Copyright © Harvard Business School, 1972 and company documents.

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Exhibit 3 Benihana’s Advertising (United States)

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Exhibit 4 Benihana’s Three London Restaurants

Benihana 20 tables

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Exhibit 4 (cont’d) Benihana’s Three London Restaurants

Benihana Chelsea 16 tables

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Exhibit 4 (cont’d) Benihana’s Three London Restaurants

Benihana Swiss Cottage: 14 tables

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Exhibit 5 Typical Staffing Level for the Piccadilly Restaurant

Number of Staff (46) Average Annual Pay Managers (2) Assistant Manager Trainee Managers (2) Chefs (12) Sushi Chef Tempura Chef Kitchen Helpers (3) Utility staff (3) Bartenders (3) Front staff (5) Dining servers (10) Busboys (3)

£25,000 £17,000 £12,000

£20,000 £21,000 £15,000 £12,000 £11,000

£17,000

£15,000

£15,000 £12,000

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Exhibit 6 Benihana’s Advertising (London)

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Exhibit 7 Benihana UK Sales Analysis

Lunch Sales Dinner Sales Total Sales Guest Count Average Check

May 1995 £29 069 £222 057 £251 126 7 675 £32.72 June £26 992 £214 015 £241 008 7 280 £33.11 July £26 302 £201 607 £227 909 7 493 £30.42 August £20 159 £197 783 £217 942 7 017 £31.06 September £33 292 £234 090 £267 381 8 351 £32.02 October £65 071 £313 331 £378 402 13 295 £28.46 November £52 667 £339 535 £392 202 12 137 £32.31 December £83 736 £379 903 £463 639 13 583 £34.13 January 1996 £42 226 £247 717 £289 943 9 385 £30.89 February £49 326 £276 051 £325 377 10 352 £31.43 March £50 028 £284 543 £334 571 11 106 £30.13 April £45 265 £257 496 £302 761 10 581 £28.61 May £56 555 £314 712 £371 266 13 587 £27.33

Note: Sales do not include 7.5% VAT and a 12.5% Service Charge.

As of end May 1996, £1 = $1.5.

Lunch Time Business, Benihana UK (Average)

Sales Guests Average Bill Swiss Cottage 8% 13% £21 Chelsea 8% 14% £20 Piccadilly 16% 25% £21

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Exhibit 8 Operating Expenses, Benihana UK Ltd (May 1996)

Sales

Food Beverages

74% 26%

Cost of sales

Food cost (% of food sales) Beverages cost (% of beverage sales)

28% 23%

Operating expenses

Controllable expenses

Payroll and management salaries Payroll taxes Restaurant supplies Credit card discounts Advertising and promotion Administrative costs Repair and maintenance Laundry, linen, uniforms Cleaning and sanitation Utilities Travel and entertainment Other expenses

36% 4% 1.2% 2.4% 12% 1.7% 1.3% 2% .9% 2.4% 1.1% 1.3%

Non-controllable expenses

Rent Licenses and taxes Insurance Interest Depreciation and amortisation

11.8% 3.3% .7% 3.2% 12%

Source: Company documents.

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Picadilly “Toyko meets Manhattan at this glamourous Americo-Japanese restaurant. Chefs resembling Kato from the Pink Panther films wheel in trolley-loads of ingredients and accessories with which to perfom gastro-stunts... Good bar at the front.” (Square Meal) “The spectacular, international Benihana chain is the latest thing in eating-as-entertainment - or so its copious PR puff and advertising campaigns would have you believe. This latest branch is very Beverley Hills, unashamedly opulent... Your assigned chef will introduce himself then may sporadically entertain your shared table; our juggling chef certainly did - he kept dropping his pepperpots... The food was fine, but no better than the score of other places which also serve teppan-yaki. Our main grumbles concerned the portions (meagre) and the bill (which soon mounted up). If you don’t fancy a floorshow, go elsewhere.” (Time Out) “Juggling with knives is the chefs’ party piece at these smart, ‘very Americanised’ orientals ; ‘good fun’ but - for fare which ‘has nothing to do with Japanese food’ - they can seem ‘twice as expensive as they ought to be.” (Harden’s London Restaurant)

Exhibit 9 Excerpts from Reviews of Benihana

Restaurants

Chelsea “The Chelsea branch (there are three in London) of Rocky Aoki’s successful group of Japanese restaurants. Great fun can be had watching the Japanese chefs at work, producing traditional dishes served to the accompaniment of western cocktails.” (The Ackerma n Guide) “Americo-Japanese restaurant with a ‘strictly ballroom’ feel - often overlooked, on account of its low-profile frontage. Not the place for a quiet tête à tête - diners sit round a communal hibachi stage - but more than just the mentally stretched adore the culinary acrobatics of the chefs. Raw ingredients are superb... In the evenings, bills can soar when dining à la carte. Stunning staircase provides wannabes with a spectacular entrance.” (Square Meal)

Swiss Cottage

“Swanky Japanese / American, the tour de force being knife-wielding chefs who play tricks before dicing, chopping and cooking your meal. The showmanship appeals primarily to the young & easy-to-understand menus to novices. A steep bill betrays the easy-going atmosphere, although Rocky’s Express Bento Box is a bargain.” (Square Meal) “Part of a world-wide group with over 90 branches from Beverly Hills to Tokyo, London’s first Benihana is a typically lively establishment in a bright basesment ambience next to the Hampstead Theatre and Swiss Cottage underground... Great-value weekday munches and a Sunday lunch with children’s entertainment...” (Egon Ronay’s Guide Oriental Restaurants) “American-style Japanese restaurant which has branches all around the world. Diners are seated round a rectangular grill where teppan-yaki chefs prepare, with much twirling and flashing of blades, grilles vegetables, seafood, chicken and beef...” (Nicholson London Restaruant Guide)

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Exhibit 10 Chelsea Benihana Menu (1996)

Boulevard de Constance, 77305 Fontainebleau Cedex, France

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