How does Benihana recognize revenue from restaurant sales?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. If the Company derecognizes an uncertain tax position, the Company's policy is to record any applicable interest and penalties within the provision (benefit) for income taxes in the consolidated statements of operations and comprehensive income.
Revenue Recognition
Revenue is derived from restaurant sales, management services and license related operations.
The Company recognizes restaurant revenues, net of discounts, when goods and services are provided. Sales tax amounts collected from customers that are remitted to governmental authorities are excluded from net revenue.
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 performance obligation related 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, 2021 and 2020 the deferred revenue allocated to loyalty points that have not been redeemed is $0.1 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.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, revenue is recognized from restaurant sales when goods and services are provided to customers, net of any discounts. This means that Benihana records the income when the food and beverages are served and the customer pays, after subtracting any discounts offered. Sales tax collected from customers and then remitted to government authorities is excluded from the reported net revenue. This provides a clearer picture of the actual sales earned by the restaurant.
For Kona Grill, Benihana has a loyalty program where customers earn points for every dollar spent. The obligation to provide future discounts related to these points is treated as a separate performance obligation. A portion of the transaction price is allocated to these loyalty points. The revenue related to these points is recognized when the points are redeemed for rewards or when it's deemed unlikely they will be redeemed. As of December 31, 2023 and 2022, the deferred revenue allocated to loyalty points that have not been redeemed was $0.2 million and $0.1 million, respectively. The company expects the loyalty points to be redeemed and recognized over a one-year period.
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 a decrease to a customer's available balance. If the likelihood of redemption is remote for certain gift cards due to long periods of inactivity, and there is no requirement for remitting balances to government agencies under unclaimed property laws, outstanding gift card balances may then be recognized as breakage in the consolidated statements of operations and comprehensive income as a component of owned restaurant net revenue. 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.