How did the COVID-19 pandemic affect Benihana's restaurant traffic, business, financial condition, and results of operations?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
e identified as material but may not be the only risks and uncertainties facing us. Our business is subject to general risks and uncertainties that affect many other companies, including overall economic and industry conditions.
Health and Safety
The COVID-19 pandemic has had, and is expected to continue to have, a significant effect on our restaurant traffic and our business, financial condition and results of operations.
The COVID-19 pandemic has significantly affected on our business and results. Restaurants we own and manage have been subject to significant government-mandated operating restrictions, including temporarily shut down of all in-person dining in 2020. Restrictions eased in late 2020 and through 2021. Although all of our venues have reopened, we expect that our operations will continue to be affected by COVID-19, and those effects may be exacerbated by resurgences and the spread of variants of the coronavirus. It remains difficult to predict the full impact of the COVID-19 pandemic on the broader economy and how consumer behavior may change, and whether such change is temporary or permanent.
We have made operational changes to adhere to government requirements on safety and sanitation in our restaurants. However, we cannot guarantee that changes to our operational policies and training will be effective to keep our employees and customers safe from COVID-19. COVID-19 may impact the willingness of customers to dine outside of the home. While it is not possible at this time to estimate the full impact that COVID-19 could have on our business going forward, the continued spread of the virus and the measures taken by governments or by us in response could adversely impact our business, financial condition and results of operations.
Costs associated with mitigating the impact of COVID-19 are significant and will continue in the future. We incurred COVID-19 related costs of $5.8 million and $5.5 million in 2021 and 2020, respectively.
Health concerns arising from outbreaks of flu viruses or other diseases, or regional or global health pandemic could severely affect our business.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the COVID-19 pandemic has had a significant negative impact on the company's restaurant traffic, business, financial condition, and results of operations. Benihana-owned and managed restaurants were subject to government-mandated operating restrictions, including temporary shutdowns of in-person dining in 2020. Although all venues have reopened, the document states that operations are expected to continue to be affected by COVID-19, potentially exacerbated by resurgences and variants of the coronavirus.
In response to the pandemic, Benihana incurred $5.8 million in COVID-19 related costs in 2021 and $5.5 million in 2020. These costs primarily covered sanitation, supplies, and safety precautions. The company has implemented operational changes to adhere to government requirements for safety and sanitation, including increased cleaning protocols, the creation of sanitation-focused roles, daily health and safety checklists, additional personal protective equipment, and electrostatic cleaning. However, there is no guarantee that these measures will be fully effective in protecting employees and customers.
Despite the challenges, Benihana's net cash provided by operating activities increased to $31.0 million in 2021, compared to $0.4 million in 2020. This increase is primarily attributed to net income generated during the year due to strong sales compared to a net loss in 2020, which was a result of COVID-19 restrictions. The company also received $18.3 million in proceeds from CARES Act Loans in May 2020, which were subsequently forgiven in 2021.
Prospective franchisees should note that the ongoing impact of the COVID-19 pandemic remains uncertain and could continue to adversely affect Benihana's business, financial condition, and results of operations. Factors such as the effectiveness of governmental efforts to halt the spread of COVID-19 and changes in consumer behavior are beyond the company's control. Additionally, Benihana's ability to comply with debt covenants may be affected by the ongoing effects of COVID-19, potentially impacting its ability to borrow under its revolving credit facility.