Based on the company's presentation last week at the CL King Best Ideas Conference in New York, Benihana's stock may be a solid idea for Fools looking to invest in a growing restaurant chain. During the company's talk, CFO Jose Ortega and other managers updated the audience on Benihana's three restaurant concepts. (For details on the company's recent sizzling performance, check out its results for the latest fiscal year.)
Since 1964, the namesake franchise has wowed diners, as chefs prepare meals on a hibachi grill right at their customers' table. "Audience" might be an equally good description of those diners; the company described the teppanyaki experience as "theatrical," with the chef doing nearly as much entertaining as cooking. Customers with less of a desire to be entertained can still enjoy sushi on the other side of the restaurant.
The mix of cooking and showmanship apparently works wonders for the corporation; average check size was just less than $28 per patron during Benihana's first quarter. And after an extended period of stagnating sales, management recently developed a game plan for keeping the concept relevant in consumers' minds while also broadening its reach. Keeping Benihana fresh is definitely important, since the chain accounted for 74% of the company's total sales last year.
Roughly three years ago, an internal study prompted management to remodel the vast majority of existing Benihana stores. Executives hope to update outdated stores, while altering new store layouts to increase efficiency and drive further sales. These "design initiatives" include a slightly smaller store size, but increased emphasis on "theater presentation" -- this is a performance, after all -- and minor improvements such as the elimination of a cashier to handle checks by the door.
The moves appear to be working. Management estimates that updated stores are seeing a 10%-20% sales lift within the first year. It expects the renovation campaign to conclude by fiscal 2009, after which roughly half the units will be less than five years old. Going forward, it projects two to four new stores annually as it refines the ideal prototype design.
The company's pure sushi concept has been designated Benihana's future growth engine. Management plans to expand the store base to at least 100, up from the 14 currently in operation. Average check size is slightly smaller, at $21 per patron, but the 25-35-year-old intended age group and "35% beverage mix" per check constitute a lucrative target market.
Company descriptions of Ra stem from "youth oriented" to "edgy" and "vibrant." Management plans to open eight to 10 locations annually, joining existing stores in "hip" locations such as Chicago, Phoenix, and South Florida. Targeted new locales also include Dallas and Baltimore, as Ra grows from 14% of last year's sales to become a major contributor to Benihana's overall sales and earnings.
Haru is just as trendy as Ra, with a "higher priced, sophisticated, urban" flavor, but management sees the expansion potential as more limited. Haru requires "high density urban markets" to support takeout and delivery, which accounts for 40% of the concept's sales. There are only seven stores in existence, six of which are in Manhattan. Average check size runs about $30, the highest among the three company concepts. Still, Haru will likely continue to account for only slightly more than 10% of sales, since growth ambitions are higher at both Ra and Benihana.
The Foolish bottom line
Benihana's growth plans are ambitious, possibly rivaling those of competing chains such as P.F. Chang's
Still, I like what I see at Benihana. Management has found a way to revive a more mature flagship concept, and it has a verifiable hit in one of the only national sushi concepts. Haru isn't currently a major focus, but it could prove a future growth driver in other major cities, especially if management decides to add international expansion to its menu of growth options.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.