Does Benihana enter into long-term agreements for the purchase of beef, seafood, produce, and other food supplies?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
We are exposed to market price fluctuations in beef, seafood, produce and other food product prices. Given the historical volatility of beef, seafood, produce and other food product prices, these fluctuations can materially impact our food and beverage costs. In addition, the COVID-19 pandemic has adversely impacted commodity prices due to supply and labor shortages. While we have taken steps to qualify multiple suppliers who meet our standards as suppliers for our restaurants and enter into agreements with suppliers for some of the commodities used in our restaurant operations, we do not enter into long-term agreements for the purchase of such supplies. There can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of our control and we may be subject to unforeseen supply and cost fluctuations. Dairy costs can also fluctuate due to government regulation. Because we typically set our menu prices in advance of our food product prices, our menu prices cannot immediately take into account the changing costs of food items. To the extent that we are unable to pass the increased costs on to our customers through price increases, our results of operations would be adversely affected. We do not use financial instruments to hedge our risk to market price fluctuations in beef, seafood, produce and other food product prices at this time.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, Benihana does not enter into long-term agreements for the purchase of beef, seafood, produce, and other food supplies. While Benihana has taken steps to qualify multiple suppliers who meet their standards and enters into agreements with suppliers for some commodities, there is no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of their control. These fluctuations can materially impact Benihana's food and beverage costs.
Because Benihana typically sets menu prices in advance of food product prices, the menu prices cannot immediately take into account the changing costs of food items. If Benihana is unable to pass the increased costs on to its customers through price increases, their results of operations would be adversely affected. Benihana does not currently use financial instruments to hedge their risk to market price fluctuations in beef, seafood, produce, and other food product prices.
This policy means that franchisees may experience unpredictable costs for key ingredients, impacting profitability. Franchisees need to be prepared for potential cost increases and have strategies to manage these fluctuations, such as adjusting portion sizes or implementing short-term price adjustments where possible, while remaining competitive.