How does the cost structure of a Benihana restaurant compare with that of a typical American restaurant?

How does Benihana get its competitive advantage? Benihana introduced several unique concepts that offered it several competitive advantages in addition to lower operation cost. It was surely a Profit Making Model Non-Conventional Kitchen Benihana restaurant eliminated the concept of conventional kitchen with the hibachi table arrangement thereby significantly reducing the labour cost and the additional cost of kitchen space. Only 22% of the space used for the back of the house including preparation areas, dry & refrigeration house office space etc. compared to 30 % in normal restaurants. for Served Menu Benihana reduced the menu to only three simple Middle American entrees: steak, chicken and shrimp. It was successful to cut the food costs to between 30% and 35%. It also leads to reduce wastage which typically contributes significantly to the overhead cost of restaurant Infrastructure (Construction) The infrastructure was built by the materials gathered from old houses disassembled carefully in Japan and was built by the two crews of Japanese carpenters. Though the construction cost was slightly higher as compared to typical restaurant but it provided a perfect authentic Japanese ambience thus proved to be a Point of Differentiation (POD)

Share Labor Cost (% Operating Expenses) Food Cost (%COGS) Beverage Cost (%COGS) Rent (% Operating Expenses) Promotion (% Operating Expenses) Construction/Infrastructure

Benihana 10-12 % 30-35% 20 % 5-7% 0.75-2% Higher (Because of Japanese Authenticity)

Benchmark 30-35% 38-48% 25-30% 5-9% 8-10% Lower

Cost per Share

5% 4% 10%

Labour Food
10%

Advertising Management Rent

30%

Sales Food Beverage Cost of sales Food Beverage Total cost of sales Gross Profit

100% 70% 30% 21% 9% 30% 70% 30% of 70 30% of 30 100-30

The competitive advantage Benihana derived from its unique concept: Higher Pricing for the premium experience Greater cost effectiveness through operational excellence Not replicable without thorough process knowledge Treating process design as a customer service philosophy vis--vis problem solving

What is the relationship between the number of tables in the dining room and number of seats in the bar? Benihana considered its business as primarily food service sales. For the first unit, there was just a tiny bar with no lounge area. But over a period of time, Rocky (owner) realized that this amount of space is insufficient and thus started considering increasing the bar/lounge area depending upon the location of restaurant. Benihana has adopted Batching Strategy to entertain the customers. Usually, customers were served in batch of 8. Batching helped in increasing the throughput by getting more customers served by same staff. For Example- two groups arrived if size 5 & 3. If they are grouped then they could be served on one table instead of two. It increases the utilization capacity of the restaurant and group can be served by one staff instead of two (if not grouped). The bar in Benihana served two purposes: Keeping the customer engaged so that they dont mind the waiting time Generating revenue by serving drinks to customers. This helps in increasing the overall spend by the customer. The restaurant uses the bar as a place where customers can be made to wait. The bar doesnt have the luxury of waiting area. It should be big enough to accommodate all the people who are waiting. Too much of waiting would make the customers uninterested to dine/visit Benihana restaurant again. Thus there is a tradeoff between the size of bar & dining area. Optimal Size of Bar Scenario 15 16 17 18 19 20 Runs 20 20 20 20 20 20 Batching Yes Yes Yes Yes Yes No Bar Seats 55 63 71 79 47 63 Tables 14 13 12 11 15 13 Profit 608 707 677 453 555 492

As seen from the table, the size of the bar & number of table affect the profit margins. The optimal size of the bar can be found by gathering the data over a time horizon. We found that the optimal size would be having 63 seats in bar area while 13 table in dining area to serve the customers.