What strategies does Benihana employ to maintain operating margins in the face of inflation?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
Inflation significantly affected our operations in 2022 and 2023, to a lesser extent. The impact of inflation on labor, food and occupancy costs could, in the future, significantly affect our operations. We pay many of our employees hourly rates related to the applicable federal or state minimum wage. Food costs as a percentage of revenues have been somewhat stable due to procurement efficiencies and menu price increases, although no assurance can be made that our procurement will continue to be efficient or that we will be able to raise menu prices in the future. Costs for construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. We believe that our current strategy, which is to seek to maintain operating margins through a combination of menu price increases, cost controls, careful evaluation of property and equipment needs, and efficient purchasing practices, has been an effective tool for dealing with inflation. There can be no assurance, however, that future inflationary or other cost pressure will be effectively offset by this strategy.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company believes its current strategy has been an effective tool for dealing with inflation. This strategy involves a combination of approaches designed to mitigate the impact of rising costs on their operations. These approaches include menu price increases, cost controls, careful evaluation of property and equipment needs, and efficient purchasing practices.
The FDD highlights that inflation significantly affected Benihana's operations in 2022 and to a lesser extent in 2023, impacting labor, food, and occupancy costs. The company pays many employees hourly rates related to federal or state minimum wage, making labor costs sensitive to minimum wage increases. Food costs, particularly beef which represents approximately 23% of food and beverage costs, are also subject to market fluctuations. Occupancy costs are affected by construction, taxes, repairs, maintenance, and insurance expenses.
While Benihana aims to maintain stable food costs as a percentage of revenues through procurement efficiencies and menu price increases, the FDD notes that there is no guarantee these measures will continue to be effective. Similarly, while the company has historically passed increased commodity and other costs on to customers by increasing menu prices without affecting customer traffic, there is no assurance that additional price increases would not affect future customer traffic. Prospective franchisees should consider these factors and discuss with Benihana how these strategies have been applied and their effectiveness in different market conditions.