What happens to the proceeds from the sale of gift cards at Benihana before they are redeemed?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
ated to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are converted to a reward and redeemed, or the likelihood of redemption is remote. A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on the stand-alone selling price, as determined by menu pricing and loyalty points terms. As of December 31, 2023 and 2022 the deferred revenue allocated to loyalty points that have not been redeemed was $0.2 million, which is recorded as a component of accrued expenses in the accompanying consolidated balance sheets. The Company expects the loyalty points to be redeemed and recognized over a one-year period.
Gift Cards
Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as revenue when redeemed by the holder. There are no expiration dates on the Company's gift cards and the Company does not charge any service fees that would result in
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the proceeds from the sale of gift cards are initially recorded as deferred revenue. This means that Benihana does not recognize the revenue immediately upon the sale of the gift card. Instead, the revenue recognition is deferred until the gift card is redeemed by the holder. Benihana gift cards do not have expiration dates, and the company does not charge service fees that would reduce the cardholder's balance.
Benihana will continue to honor all gift cards presented for payment. However, Benihana may determine that the likelihood of redemption is remote for certain gift cards, especially those with long periods of inactivity. In such cases, if there is no legal requirement to remit the balances to government agencies under unclaimed property laws, Benihana may recognize these outstanding gift card balances as "breakage" in their consolidated statements of operations and comprehensive income, specifically as a component of owned restaurant net revenue.
For example, for the years ended December 31, 2023 and 2022, Benihana recognized $0.1 million and $0.3 million, respectively, in revenue from gift card breakage. This indicates that a portion of the gift cards sold in prior periods were not expected to be redeemed, and Benihana recognized the corresponding revenue.