What are the potential consequences of security breaches or data loss for Benihana?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
g food costs by adjusting our purchasing practices or menu prices, our operating margins would likely deteriorate.
Terrorism, including cyber-terrorism or efforts to tamper with food supplies, could have an adverse impact on our brand and results of operations.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability, which could adversely affect our business and our reputation
We utilize information technology systems and networks to process, transmit and store electronic
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information in connection with our business activities. As the use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems
and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data, all of which are vital to our operations and business strategy. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects.
We estimate that approximately 80% of our sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information has been stolen. We may in the future become
subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents. Further, in 2015, the major credit card networks shifted the liability associated with EMV (Europay/Mastercard/Visa) chip card technology to the merchants. With this liability shift, any restaurant or merchant that is not using an approved chip-and-pin point-of-sale device would be liable for counterfeit or fraudulent charges.
Despite the implementation of security measures (such as the employment of internal resources and external consultants to conduct auditing and testing for weaknesses in our informational technology environment), our internal computer systems and those of our third-party contractors and consultants are vulnerable to damage or disruption from hacking, computer viruses, software bugs, unauthorized access or disclosure, natural disasters, terrorism, war, and telecommunication, equipment and electrical failures. There can be no assurance that we will promptly detect any such disruption or security breach, if at all. Unauthorized access, loss or dissemination could disrupt our operations, our ability to process and prepare company financial information, and manage various general and administrative aspects of our business. To the extent that any such disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure or theft of confidential, proprietary or personal information, we could incur liability, suffer reputational damage or poor financial performance or become the subject of regulatory actions by state, federal or non-US authorities, any of which could adversely affect our business.
We are subject to numerous and changing U.S. federal and foreign government regulations. Failure to comply with or substantial changes in government regulations could negatively affect our sales, increase our costs or result in fines or other penalties against us.
Each of our venues is subject to licensing and regulation by the health, sanitation, safety, labor, building environmental (including disposal, pollution, and the presence of hazardous substances) and fire agencies of the respective states, counties, cities, and municipalities in which it is located, as well as under federal law. These regulations govern the preparation and sale of food, the sale of alcoholic beverages, the sale and use of tobacco, zoning and building codes, land use and employee, health, sanitation and safety matters. Alcoholic beverage control regulations govern various aspects of our locations' daily operations, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. Typically, our locations' licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of venues for an indeterminate period of time, or third-party litigation, any of which could have a material adverse effect on us and our results of operations.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, security breaches and data loss can have significant repercussions for the company and its franchisees. These breaches could compromise sensitive business information, prevent access to critical data, and expose Benihana to potential liability, all of which could negatively impact its business and reputation. The FDD emphasizes that cyber incidents, including unauthorized access attempts, are increasing in frequency and sophistication, posing a continuous threat to the security of Benihana's systems and networks.
Specifically, a security breach impacting customer or employee data, or confidential business information, could lead to a material loss of revenue due to damage to Benihana's brand and reputation. It could also decrease the company's ability to retain existing customers or attract new ones. Furthermore, Benihana could face substantial costs related to data loss or recovery, business interruption, and supply chain disruptions. The document also mentions the increasing sophistication of unauthorized access attempts, including the use of malicious code, software vulnerabilities, and social engineering, which are further intensified by the rapid adoption of artificial intelligence technologies.
Benihana estimates that approximately 80% of its sales are processed through credit or debit cards, making it particularly vulnerable to claims arising from fraudulent transactions due to actual or alleged theft of card information. The company could also be subject to lawsuits or other proceedings related to these incidents. Moreover, Benihana is subject to Payment Card Industry Data Security Standards Requirements (PCI DSS) and any other data-related requirements, and franchisees must comply with these standards at all times during the franchise term.
Despite implementing security measures, Benihana acknowledges that its computer systems and those of its third-party contractors remain vulnerable to various disruptions, including hacking, computer viruses, natural disasters, and equipment failures. The FDD states that there is no guarantee that Benihana will promptly detect any such disruption or security breach. If a breach results in data loss, damage, or inappropriate disclosure of confidential information, Benihana could face liability, reputational damage, poor financial performance, or regulatory actions, all of which could adversely affect its business.