Benihana Company Essay

Custom Student Mr. Teacher ENG 1001-04 12 February 2017

Benihana Company

Helping our guests feel welcome is as important as our cooking. And it is just as great a skill. Ever striving for excellence in hospitality, it is truly our restaurant family who has built Benihana’s success.

Company History:

Benihana, Inc. owns and licenses restaurants in the Benihana and Benihana Grill chain of Japanese dinnerhouses. The restaurants specialize in an exhibition-style of Japanese cooking called teppanyaki. Customers sit around a communal table at which a Benihana chef slices their seafood, steak, chicken, and vegetables with lightning speed, grills their meal right in front of them, and then tosses it accurately onto their plates. The restaurants are decorated with Samurai armor and valuable art, and Shoji rice paper screens partition the dining areas. For the fiscal year ending March 31, 1996, the company had sales of over $81 million, an all-time high. By December 1996, Benihana operated a total of 49 licensed and wholly owned restaurants in 20 states as well as in Bogota, Columbia, and Aruba, Netherlands Antilles.

Early History, from Tokyo to New York

The founder of Benihana, Inc. was a 25-year-old Olympic wrestler from Japan named Hiroaki Rocky Aoki. He got his start in the restaurant business by working after school in his family’s coffee shop in downtown Tokyo. His mother named the family business Benihana after a red flower that survived the bombing of Tokyo during World War II. Rocky was a scrapper, defending himself in the streets and schoolyards against bigger boys. He got hooked on wrestling, became a national university champion, and earned a place on the 1960 Olympic team. Although he didn’t compete because he was over his weight limit, he did fall in love with New York when the plane stopped there on the way to the Games in Rome. That fall he left Japan for the United States.

In 1964, Aoki graduated from New York Community College’s School of Hotel and Restaurant Management. During the summer he earned money driving the only ice cream truck in Harlem. The job was not easy, as he explained in an article in Management Review. “Every time I robbed, I get up earlier the next day and work later to make up. Every time I lose money, I get more challenge.” With that philosophy, he managed to save $10,000 during the summer, which, along with a loan, was enough to start his first restaurant, Benihana of Tokyo.

Aoki’s concept for his new restaurant, derived from specialty restaurants he knew of in Japan, was part entertainment and part food service. He wanted to offer Americans food they were familiar with, such as chicken, steak, and shrimp, prepared in a novel setting. He chose the teppanyaki table–a stainless steel grill surrounded by a wooden eating surface–where customers could watch a knife-wielding, joke-telling chef prepare and serve their food. His parents and brothers came from Japan to help him get started.

Unfortunately, New Yorkers equated Japanese food with raw fish and weren’t comfortable sitting at a table with strangers. They ignored the midtown Manhattan eatery until the restaurant critic of the New York Herald Tribune gave it a glowing review. Suddenly, everyone in New York, including the Beatles and Muhammad Ali, wanted to sit around one of Benihana of Tokyo’s four teppanyaki tables. Within six months after the review the restaurant had paid for itself, and Aoki quickly opened another restaurant in a larger, fancier building. The new location provided the same teppanyaki-style cooking but was decorated with valuable art, Samurai armor, heavy wooden ceiling beams brought from Japan by Aoki’s father, and sliding Shoji screens to provide some privacy.

1965-80: Building a Company

The Benihana concept combined reasonable prices with good food, and, by preparing what was eaten right at the table, held waste to a minimum. Profits were good, and, in 1968, Aoki opened his first Benihana of Tokyo outside New York City–in downtown Chicago. That location made $700,000 in its first year and continued to be one of the company’s top earning outlets.

Between 1969 and 1972, the company opened six more of its own restaurants and licensed franchisees to open another ten. In a joint venture with the Las Vegas Hilton, the company developed Benihana Village, a 38,000-square-foot complex of restaurants, bars, and other entertainment venues. In 1972, the company grossed $12 million and the Harvard Business School selected Benihana of Tokyo as a case study of an entrepreneurial success story.

With business going so well, Rocky Aoki could devote time to his other interests which included racing balloons and powerboats, collecting items ranging from vintage cars to slot machines and learning backgammon. “Rocky wanted to play,” Joel Schwartz, the company’s president, explained in a 1989 Forbes article. To help oversee the chain’s operations and expansion, Aoki brought in a management company, Hardwicke Cos., as a partner in 1976. The relationship lasted only four years and, in 1980, Aoki ended the partnership, paying $3.7 million to break the contract. As Rod Willis of Management Review explained in a 1986 article, “He [Aoki] felt the company’s management style clashed with his predominately Oriental workforce, and he wanted to maintain control over each restaurant’s quality.” The following year Aoki settled, without admitting any guilt, a Securities and Exchange Commission charge that he had improperly traded in Hardwicke stock while serving as vice-president of Hardwicke.

The 1980s: Ups and Downs

To help pay off the debt incurred in the split with Hardwicke, Aoki decided to take part of the company public. He accomplished this by having Benihana of Tokyo (BOT) form Benihana National Corporation (BNC) in 1982 and then taking the latter company public the following year. Investors paid the Miami-based BNC $11 for a unit consisting of two common shares and a warrant to buy another at $6. With the $5.5 million raised by selling half a million of these units, BNC bought 11 restaurants from Aoki in exchange for 60 percent of the BNC common stock and $2.5 million to pay BOT’s debt. Later in the year, BNC bought another three restaurants from BOT for $7 million.

In spite of the new corporate structure, Benihana of Tokyo and Benihana National Corporation remained under the management of the same group of executives. As corporate president, Joel Schwartz continued to oversee the day to day operation of both companies. Aoki, who served as chairman of both entities, retained 51 percent of the common stock in BNC and kept about 30 restaurants in the privately held BOT. Aoki developed new concepts for the Benihana food chain but he also continued to play hard, becoming a championship-level backgammon player and setting a world record in off-shore powerboat racing. The Double Eagle V, a 400,000 cubic-foot gas balloon, displayed the Benihana logo as it became the first crewed balloon to successfully cross the Pacific Ocean, with Aoki as one of the crew members.

One of Aoki’s new concepts was Benihana National Classics, a line of Chinese gourmet frozen foods, introduced in 1984 and sold in supermarkets. Chinese cuisine was chosen when the company found that Japanese food didn’t freeze well. Within a year the Classics were the best-selling Oriental frozen foods in the United States, with sales in one quarter alone reaching more than $40 million and profits climbing to over $4 million. The company’s stock took off, going as high as $21.50 in 1985. In December of that year, Restaurant and Institution magazine named Benihana of Tokyo the most popular family-style restaurant in America. At that time, Benihana of Tokyo and Benihana National together operated or franchised restaurants in 60 locations, from Seattle to New Jersey, serving a total of 25,000 customers a day.

Benihana National’s frozen food success quickly attracted the attention of major food companies. When Campbell Soup and Stouffer’s began offering their own lines of Oriental frozen foods, however, Benihana couldn’t compete. The company lost $11 million on frozen foods between 1985 and 1987 and finally sold the business, for $4.5 million, to the small company that had been producing the dinners for them.

Frozen food, however, was not Aoki’s only new idea. In 1985, Benihana National opened its first seafood restaurant, The Big Splash, just north of Miami. Aoki believed the sea would be the primary supplier of food in the future, and, borrowing an idea from a Malaysian fish market, came up with the concept of a seafood marketplace/restaurant. Customers could choose from hundreds of varieties of fresh seafood, decide how they wanted it cooked, and watch it being prepared. The idea was so popular initially that a second Big Splash was opened.

The seafood restaurants soon experienced difficulty, however, registering losses of $2.7 million during 1987. The wide variety of options ran completely counter to the tight focus and minimal waste of the Benihana steakhouses. At the Miami location, the majority of customers were retirees who resented the high prices and preferred to eat fish they were familiar with. “All we sold was salmon and red snapper,” Aoki told Eric Schmukler in a March 1989 Forbes article. The company closed its Big Splash outlets in March 1988. The 1988 fiscal year was a hard one for Benihana, as the company recorded a loss of nearly $7 million.

Despite the company’s financial problems with Classics and Big Splash, the Benihana restaurants themselves were still popular. By the end of fiscal 1989, the publicly owned Benihana National Corp. reported profits of some $1.8 million on sales of $34 million at its 20 restaurants, with Aoki’s privately-held Benihana of Tokyo taking in similar revenues.

1990-94: Making a Turnaround

Rocky Aoki kicked off the new decade by opening a gallery in one of the Miami Benihana restaurants to display a portion of what was becoming known in the art world as the Rocky Aoki Collection. Having spent more than a year consolidating his diverse collections, Aoki told Antiques & Collecting, “I think it’s a natural to have a gallery here. More than 90,000 people eat in this restaurant every year; why not provide them with something beautiful to look at, not to mention buy, if they so desire.” In a 300-square-foot space that had been the restaurant’s gift shop, diners could view etchings by Icarts, lamps by Tiffany and Handel, and bronzes by Remington.

The publicity about Aoki’s collection helped generate business for the restaurant, and overall company revenues continued to grow. Profits, however, were less than a million dollars a year, and BNC stock fell below $1 a share. Angry at the situation, some shareholders sued. As Marilyn Alva reported in a 1992 Restaurant Business article, the shareholders claimed Aoki and his management team were in a conflict of interest by managing the two companies. The complainants further maintained that Benihana management had misappropriated the assets of Benihana National Corporation, passing them through Benihana of Tokyo for their personal benefit. The shareholders, however, were ultimately unsuccessful in trying to take control of the company away from Aoki.

Meanwhile, Benihana management took advantage of a health-conscious American public’s growing interest in Japanese food and entertainment. With the tag line, “We have been the restaurant of the ’90s since the ’60s,” Aoki and Schwartz instituted a major advertising campaign stressing the fact that Benihana had always offered healthful food. Soon afterwards, in 1993, the Atlanta Benihana of Tokyo restaurant added an 18-seat sushi bar and 35-seat Karaoke dining room to draw more customers on weekday nights. Despite the higher labor and food costs associated with sushi, the company reported an increase in beverage sales, and a lot of sampling of the $.99 sushi pieces by people waiting to eat at the traditional teppanyaki tables.

Learning from its experience a decade earlier, in 1994 Benihana National Corp. decided to get into the frozen food business again. This time, however, by entering into a licensing agreement with Campbell Soup Co., the company hooked up with a major marketer rather than trying to compete with the big names. The new product was a line of frozen stir-fry kits featuring the Benihana trademark.

The dinners served six people and sold for about $8.00. As Peter McMullin, an analyst with Southeast Research Partners, told Florida Review.Net, “This time the strategy makes sense because it is linking with a high profile food company to help strengthen the distribution side and offsetting the razor-thin margins of retail by manufacturing with a low cost producer like Campbell.” By the end of the fiscal year, revenues were over $70 million, with profits up 41 percent to $2.4 million.

1995 and Beyond: A New Company

At the beginning of 1995, Benihana National announced it would buy Aoki’s 21 Benihana of Tokyo restaurants on the U.S. mainland, along with the U.S. rights to the Benihana trademark, for about $6.15 million. On May 16, a newly created subsidiary, Benihana Inc., acquired the BOT restaurants and, through a merger, simultaneously acquired Benihana National. BNC shareholders received one share in the new holding company for each of their shares of Benihana National. Aoki continued to serve as chairman of the new company and Schwartz as president.

Benihana Inc. now owned or licensed the 43 Benihana restaurants in the continental United States along with a franchise in Honolulu. It also had the rights to develop or license Benihana restaurants in Central and South America and the Caribbean Islands. Aoki kept private his Benihana of Tokyo restaurants in Hawaii, Britain, and Thailand.

During 1995, the new company took several steps to attract more customers. Benihana introduced weekend luncheon service and, following the success in Atlanta, opened sushi bars in seven locations. The company also instituted a national Karaoke contest for its patrons. In the fall, the company opened its first smaller format unit, called the Benihana Grill, in Sacramento. At 3,800 square feet, the Grill format was less than half the size of the traditional Benihana, and enabled the company to open units in smaller locations, particularly in urban areas. Schwartz had been refining this format since 1989 as an alternative to the company’s more common free-standing, special use restaurant buildings. The Benihana Grill was designed to accommodate 10 to 12 teppanyaki tables, compared to the 18 tables in the typical Benihana. Analyst Peter McMullin remarked, “Initial indications are encouraging even before the grand opening. With the lower capital costs of approximately $500,000 versus a stand-alone restaurant cost of $2 million, this could become an enormous growth vehicle for Benihana.”

The new hours and offerings helped increase guest counts in existing restaurants by 8.7 percent and same store sales by an average of 7.7 percent for fiscal 1996. This rise, plus the addition of the Benihana of Tokyo restaurants and the new Benihana Grill, resulted in annual revenues of over $81 million.

Benihana’s growth came primarily from increased traffic in its existing restaurants, and the company continued to support that strategy. Early in 1996, in an effort to gain a larger share of the ethnic market, the company launched Spanish-language television advertisements in Miami and Los Angeles. In May, Benihana kicked off a two-year, $5 million ad campaign, focusing on the entertainment value of teppanyaki cooking. “We want to bring the Benihana name to a different audience,” company president Joel Schwartz told Nation’s Restaurant News in a May 6, 1996 article. “The ads show that Benihana is a place the entire family can come to and have a good time–a place they will see the chef perform and flip shrimp.” Individual restaurants also developed innovative marketing techniques. A visit and meal at the Benihana in Bethesda, Maryland, for example, is one of the activities in the county’s social studies curriculum for third graders learning about Japan.

The company did not depend entirely on its existing restaurants for growth. During 1996, it also signed leases for several more Benihana Grills and expanded its franchise operations, including restaurants in Bogota, Columbia, and Aruba, Netherlands Antilles. Benihana’s track record of steady growth in same store sales, rising customer count, and profitability appeared to be continuing into the late 1990s as revenues for the first half of fiscal 1997 were up over eight percent from the year before.

Further Reading:

Alva, Marilyn, “Very Rocky Business: Aoki Besieged by Shareholder Suits,” Restaurant Business, February 10, 1992. “Benihana Buying Founder Aoki’s Units,” Nation’s Restaurant News, January 16, 1995, p. 14. “Benihana Profits Rise 67% for First Nine Months of Fiscal ’95,” Nation’s Restaurant News, February 12, 1996, p. 12. “Benihana Testing Stir-Fry Kits,” Supermarket News, October 17, 1994, p. 28.

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