How does Benihana handle revenue recognition for its Kona Grill loyalty program?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
eg)
Management agreements typically call for a management fee based on a percentage of revenue, a monthly marketing fee based on a percentage of revenues and an incentive fee based on a managed venue's net profits. Similarly, royalties from the licensee in license agreements are generally based on a percentage of the licensed restaurant's revenue. These management, license and incentive fees are recognized as revenue in the period the restaurant's sales occur.
The Company recognizes initial licensing fees and upfront fees related to management and license agreements on a straight-line basis over the term of the agreement as a component of management, license and incentive fee revenue on the consolidated statements of operations and comprehensive income.
The Company has a loyalty program for Kona Grill to encourage customers to frequent its restaurants. The loyalty rewards program awards a customer one point for every dollar spent. When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated. The performan
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company has a loyalty program for Kona Grill where customers earn one point for every dollar spent. Benihana considers the obligation to provide future discounts related to these points as a separate performance obligation, allocating a portion of the transaction price to it. This means that when a customer earns points, Benihana doesn't immediately recognize all the revenue from that sale. Instead, a part of it is deferred.
The deferred revenue is recognized when the loyalty points are redeemed for rewards, or when it's deemed unlikely that the points will be redeemed. The allocation of the transaction price to loyalty points is done on a pro-rata basis, based on the stand-alone selling price, which is determined by menu pricing and the terms of the loyalty points program.
As of December 31, 2023 and 2022, the deferred revenue allocated to unredeemed loyalty points was $0.2 million, recorded as part of accrued expenses on the consolidated balance sheets. Benihana anticipates that these loyalty points will be redeemed and recognized as revenue within a one-year period. This accounting approach ensures that revenue is recognized when the company fulfills its obligation by providing the discounts or rewards associated with the loyalty program, aligning revenue recognition with the actual delivery of value to the customer.