Read the full case [[here|/static/files/MBI/Module%2017/Benihana%20of%20Tokyo.pdf]]

!Summary
* Chain of 15 units across the country.
** Nine were company-owned locations: New York (3); San Francisco; Chicago; Encino and Marina del Rey, California; Portland, Oregon; and Honolulu.
** Five were franchised:  Boston, Fort Lauderdale, Beverly Hills, Seattle, and Harrisburg, Pennsylvania.
** The  last unit, Las Vegas, was operated as a joint venture with Hilton Hotels Corporation.
* Market analysis:
** Americans enjoyed eating in exotic surroundings but were deeply mistrustful of exotic foods. 
** People very much enjoy watching their food being prepared.  
* The number one problem of the restaurant industry in the United States is the availability and cost of labor:
** By eliminating the need for a conventional kitchen with the hibachi table arrangement, I can give an unusual amount of attentive service and still keep labor cost to 10%-12% of gross sales (food and beverage) depending on whether a unit is at full volume.
**  Significantly increase the proportion of floor area devoted to productive dining space.  Reduce required floorspace from 33 to 22 percent
* Food storage and wastage contribute significantly to the overhead of the typical restaurant.  By reducing the menu to only three simple Middle American entrees:  steak, chicken, and shrimp.  I have virtually no waste and can cut food costs to between 30% and 35% of food sales depending on the price of meat. 
* Finally, I insist on historical authenticity.  The walls, ceilings, beams, artifacts, and decorative lights of a Benihana are all from Japan.  
* Decided to stop franchising:
** The fourth unit was in San Francisco and the fifth was a joint venture in Las Vegas in 1969.  By this time, literally hundreds of people were clamoring for franchises.  Rocky sold a total of six until he decided in 1970 that it would be much more to his advantage to own his units rather than franchise them.  Following are the franchises that were granted:  Puerto Rico (not successful due to economic turndown), Harrisburg, Fort Lauderdale, Portland (company bought unit back), Seattle, Beverly Hills, Boston. 
* The decision to stop franchising was made because of a number of problems.  ** First, the franchises were ''bought by investors'', none of whom had any restaurant experience.
** Second, it was difficult for the American investor to relate to a ''predominantly native Japanese staff''.
** Finally, control was considerably more difficult to maintain with a franchisee than a company employee manager.
* During the period to 1970 several groups had attempted to imitate the Benihana success.  One even included a group with intimate knowledge of the Benihana operation who set up in close proxim
* Site selection:
** Management wanted to be sure that a lot of people were nearby or going by both at lunch and at dinner.  Rent normally ran 5%-7% of sales for 5,000-6,000 square feet of floor space.  Most units were located in a predominantly business district
* Training of chefs:
** Because the chefs were considered by Benihana to be a key to its success, all of them were highly trained.  All were young, single, native Japanese and all were certified, which meant that they had completed a three-year formal apprenticeship
** While Benihana found it relatively difficult to attract chefs and other personnel from Japan due to the general level of prosperity there as well as competition from other restaurants bidding for their talents, once in the United States they were generally not anxious to leave.  This was due to several factors:
*** One was the rapidity with which they could rise in the American Benihana operation versus the rather rigid hierarchy based on class, age, and education they would face in Japan. 
*** A second and major factor was the paternal attitude Benihana took toward all its employees.  While personnel were well paid in a tangible sense, 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. 
*** As a result, turnover of personnel within the United States was very low, although most did eventually return to Japan.
* Advertising Policy 
** The company invested 8%-10% of its gross sales on reaching the public.  Glen Simoes, the director of advertising and public relations, summed it up: 
* Future Expansion 
**  We tried franchising and decided to discontinue the program for several reasons. 
*** Most of our franchisees were businessmen looking for investment opportunities who did not really know and understand the restaurant business—this was a problem.
*** The Japanese staff we provided were our people and we have obligations to them that the franchisee could not or would not honor which at the time made us unhappy.
*** The uniqueness of our operation in the hands of novices made control more difficult.
*** Finally, we found it more profitable to own and operate the restaurants ourselves.
** ''Growth limited by the # carpenters to get the traditional Japanese setting!''
** Other constraints:
*** Further, one of our biggest constraints is staff.  Each unit requires approximately 30 people who are all Oriental.  Six to eight of them are highly trained chefs with a similar number of waitresses; there are four to five managers and front men, two to three people in the bar, and the remainder are bus staff and dishwashers. 
*** Finally, there is the cost factor.  Each new unit costs us a minimum of $300,000. 
*** We've been highly tempted to try to grow too fast without really considering the full implications of the move.  One example was the franchise thing, but we found it unsatisfactory.  Another example is that a large international banking organization offered to make a major investment in us that would have allowed us to grow at a terrific rate.  But when we looked at the amount of control and autonomy we'd have to give up, it just wasn't worth it, at least in my mind. 
*** Cost of traditional items:
**** Another thing I'm considering is whether it's worth it to import from Japan every item used on construction to make a Benihana 100% authentic.  Does an American really appreciate it and is it worth the cost?  We could use material available here and achieve substantially the same effect.  Also, is it worth it to use Japanese carpenters and pay union carpenters to sit and watch?  All these things could reduce our costs tremendously and allow us to expand much faster.
!!Growth
Areas for growth: the United States, overseas, and Japan. 
* In the United States we need to expand into the primary marketing areas Bill talked about that do not have a Benihana. 
* But I think through our franchises we also learned that secondary markets such as Harrisburg, Pennsylvania, and Portland, Oregon, also have potential.  While their volume potential obviously will not match that of a primary market, these smaller units offer fewer headaches and generate nice profits.  Secondary markets being considered include Cincinnati and Indianapolis. 
* The third principal area I see for growth is in suburbia.  No sites have yet been set, but I think it holds a great potential.  A fourth growth area, not given the importance of the others, is further penetration into existing markets. Saturation is not a problem as illustrated by the fact that New York and greater Los Angeles have three units each, all doing well. 
* We are also considering someday going public.  In the meantime, we are moving into joint ventures in Mexico and overseas.  Each joint venture is unique in itself.  We negotiate each unit on the basis that will be most advantageous to the parties concerned, taking into account the contributions of each party in the form of services and cash.  Once this is established, we agree on a formula for profits and away we go.


!Questions
# What are the differences between the Benihana production process and that of a typical restaurant?
## Food prepared at your table
## Food prepared by well trained staff
## Less money for service (less waitresses)
# Examine the production system in detail. What are the major design choices which generate operating efficiencies?
## Floor space design
## Limited menu choice reducing waste on food
## More room for the launch area -> More drinks
## Higher throughput time per table
## Location closed to business centers
# What are major concerns about the firm’s future at the time when the case was written?
## Growth strategy, Scaling the concept
## Diversification strategy



bag
mbi_public
created
Sat, 17 Sep 2011 07:44:13 GMT
creator
dirkjan
modified
Sat, 17 Sep 2011 07:44:13 GMT
modifier
dirkjan
tags
Case
M17
creator
dirkjan