PROJECT ON BENIHANA OF TOKYO OPERATION MANAGEMENT-I

SUBMITTED BY- GROUP-7

AYUSH MADAN (11FN-028) K. RAHUL GUPTA (11DM-053) RAHUL GUPTA (11DM-117) ROHIT K. SINGH (11DM-128)

SHRUTI SHAH (11FN-100) SUBHOMOY GANGULY (11IT-029)

CONTENT

1. Acknowledgement

2. Executive Summary

3. Case Summary

a) Initial Analysis

b) An overview of Business of Benihana

c) Advertising Policy

d) Future Expansion

4. Benihana of Tokyo – An Operational Overview

a) Benihana Process flow

b) Benihana Service system

c) Focus on quality

d) Strategies Used for Operational Excellence

5. Major Learning from the Strategies

a) Learning with respect to characteristics of Services

b) Quality Uncompromised

c) Timeliness

d) Relevance of Operations in Competitiveness

Acknowledgment

It gives us immense pleasure to complete this project on such a good note and present the relevant

findings in a concise format. This report and the subsequent project would not have been possible

without the guidance and the opportunity provided to us by Prof. A.K. Dey. We thank him for his

valuable time and effort and his effective guidance throughout the trimester. We would also like to

thank all the colleagues in Section G who helped us in the project.

Group-7

Sec-G

Executive Summary

The given case is about a restaurant chain Benihana of Tokyo. This restaurant chain is known

for its unique customer delight and operational excellence. Being opened in 1964, it has set

up new standard in service sector and throws a lot of insight in process and cost management.

Its owner Rocky Aoki has been very successful with the help of initial understanding of this

business. While introducing hibachi style concept they have been able to reduce dining time,

labour cost, reducing the variability of the menu they have reduce average food cost. This has

over all led to improved functional expertise.

Also total Japanese experience and expert chef and a unique experience where food id cooked

in front of the customer has maintained continuous interest in this food chain.

While currently doing well, company has to deal with several issues affecting its future. The

major issue is expansion policy where shortage of expert chefs and capital are the most

important concern.

Case Summary

Benihana of Tokyo has been started by Hiroaki (Rocky) Aoki in 1964. Rocky came to

America with his university wrestling team and realised that America would give him more

opportunity than his native nation Japan. He soon began to develop an interest in restaurant

business and decided to enrol in School of Restaurant Management. He spent three years

analysing American restaurant market.

He started his business in 1964 with his initial saving of $10000 and borrowing of $20000 on

the west side. From 1964 when it was a net deficit organization, it has now become a firm

with chain of 15 restaurants and net worth of $12 million.

Initial Analysis of Rocky:-

Americans enjoy eating in exotic surrounding but they are deeply mistrustful of exotic

food.

Also people very much enjoy watching their food being prepared.

The biggest problem in this industry in U.S. was scarcity of skilled labour.

Food storage and wastage contribute significantly to the overhead of any typical

restaurant.

An Overview of Business of Benihana:-

Benihana is a chain of restaurant with 15 restaurants across the country. Its first restaurant

was opened in the West side. It was a great success and recovered its cost within six months.

To reduce the wastage, Benihana used to serve only three Middle American entries- steak,

chicken and shrimp.

It also insisted an atmosphere which was Japanese in style. The walls, ceilings, beams and

artefacts all gave a Japanese traditional look. The building materials were shipped from Japan

and resembled by two expert carpenters from Japan. Their main concept was Hibachi Table.

It helped them reduce the dining time and cost.

In 1966, he opened his second restaurants in East Side to meet the over demand in that area.

The third unit was in Chicago and was one of the most profitable ventures. The food

beverage split was 70/30 and expenses were very low. The fourth unit was in San Francisco

and the fifth unit was in Vegas.

In his business initially Rocky mainly focused on food selling and importance to beverages

was very less. But the sales as a proportion of total space provided to lounge/bar was high. So

he increased the size of this area in his third restaurant and the sale of beverages in this

particular restaurant was 30-33% of the total sales.

The dining area is cynosure of restaurant. “Teppanyaki table” was one of the main centre of

the attraction. The food consisted of steak, filet mignon, chicken and shrimp. Any one or a

combination of these could have been ordered. The accompaniments were unvaried – bean

sprouts, zucchini, fresh mushrooms, onions and rice. The average customer turnover was an

hour. The average cheque amount for lunch and dinner was about $6 and $10 including

beverage charges. The main purchase in the business was that of meat. Only special quality

meat was bought. For every restaurant, operation timing was varied. Also lunch business was

given utmost importance. It accounted for about 30-40% of total dollar business despite of

being low cheque hours.

Site selection: - As lunch was given importance, the sites were being selected where there

was high traffic. It was taken in to consideration that a lot of people are there in the vicinity

and there are many who are available for both lunch and dinner. Mostly units were near

district headquarters and some of them have access to residential areas.

Training: - All the chefs were highly trained. All were young, naïve, single and certified.

Though it was very difficult shifting them from Japan to America due to high affluence at

their own native, once they got shifted to America they were quite stable over there. This was

due to reason that they got better growth in Benihana and also firm took care of them both

tangibly and intangibly very well.

Control: - Papasan and Rocky were at the top of the management level. Under there was one

V.P. Operations. Controller, Manger Operation and Advertising Manager used to report him.

V.P. operation also looks after the franchise businesses. Under Manager Operation Company

owned units were there. Manager Restaurant was under Manager Operation. Chefs were

under Manager Restaurants.

Advertising Policy: - Company spends around 8-10% of its gross sales on creative

advertising and public relationship. It concentrated on being different and innovative in their

advertising approach. They never used to put their advertisement on the entertainment page

of the newspaper. They knew that have to sell visual product so they included outstanding

visual in their ads.

Future Expansion: - Three regions for the growth were America, Japan and other world.

Every region has its own challenge. The main constraints of expansion anywhere were

following: -

Failure of franchise business- There were several reasons behind it. The first reason was

that many franchise owners do not know about the restaurant business. Secondly,

franchises were unable to take care of Japanese chefs properly. In presence of franchises,

the control was difficult and the management found that owning restaurants were more

profitable than the giving franchises.

Biggest problem was staff. There were only two carpenters and each unit required 30

staffs out of that 8-10 were trained chefs.

Finally there was cost factor. Each unit needed $300000.

As company was not willing to take loans, the optimal expansion per year was maximum five

units. Expansion inside USA was very much possible as there was not much penetration in

the market. Five overseas projects were under negotiation. They were of the joint venture

type. Each of these projects has its unique characteristic. The firm also has diversification

plan. Company has entered into an agreement that is researching for a processing firm who

has interest in producing a line of Japanese food which Benihana can sell on retail shops.

Though company‟s target segment has been middle income people, currently they are trying

to attract young customers. They are trying to enter into combination of Japanese – Chinese

operation.

Benihana of Tokyo – An Operational View

Benihana Process flow:-

In Benihana the process flow has been depicted below. It is like customer enters the lounge

and seated at bar/lounge area. A drink is served to customer. Then order of food is taken. In

the meantime Chef prepares for food in kitchen. Then waitress serves soup, salad and

beverages. Then chef appears and wheels out cart of food items and start preparing food.

Customer consumes main course. After that customer gives the cheque and bill payment is

done and customer leaves the restaurants.

Normally a customer can come, have dinner and go back in 45 minutes. The average

customer turnover time is an hour and in slow times it can go up to one hour and thirty

minutes.

Benihana Service System:-

Hibachi Table Concept:-

This concept was initiated by Mr Aoki in 1958. This was incorporated regarding concerns

about rising costs and increased competition. It eliminates the need of conventional kitchen

with Hibachi table. It needs only one skilled person that is „Chef‟ and one waitress. Each

table can accommodate eight people. It helps in increasing attentiveness of service and also

reduces the cost like labour cost is only 10-12% of gross sales. Also back of the house area

which includes preparation area, dry and refrigerated storage, employees‟ dressing room and

office are only 22% of total area as compared to 30% in conventional kitchen restaurants.

Lounge

Seating

Getting

Drinks Ready

Handing over

menu

Serving

Drinks

Taking Orders Chef Setup

(In kitchen)

Chef Wheel in

Stocks

Payment

Collected

Cheque

Delivered

Desert Served Food Served,

eaten at table

Preparation

at Table

There are several other advantages of using this concept: -

Customers get entertained while watching their food prepared instead of seating idle. So

this virtually reduces the perceived waiting time.

Food does not sit in the queue as does not need to brought to customer by waiter

Orders also do not wait in queue as cooking starts instantaneously after getting the order.

Ultimately this concept reduces the dining time and various waiting time in the process. Due

to this customer turnover will increase and overall total performance will improve.

Focus on Quality: -

Their focus on quality was intense. The quality of meat used in the food was of special

quality. While cooking too, the oily part was removed consciously. Secondly the chefs who

cooked were highly trained. They were given intense training before they join Benihana. So

the quality of food cooked was highly standardised.

Strategies Used to Achieve Operational Excellence: -

The strategies used to achieve “Operational Excellence” have been listed below: -

1. Less number of offering

2. Increased Space Utilization

3. Low Cost Operation

4. High Customer Turnover Rate

5. Use of Effective Advertising Policy

1. Less Number of Offering: -

No frills menu reduced the variability of the food served. If a formal look is given to the

menu, it consisted only three items for main course food. As Rocky analysed food wastage

was a major problem in restaurant business, he decided to keep his menu short and concise.

By doing this he almost turned it to a “No Waste” business. Also he was able to cut food cost

to 30-35% of food sales depending on the prices of the meat.

2. Increased Space utilization: -

Generally in normal restaurant, around 30% of the total restaurant area is used as „Back

Area”. It means that this area is not being used as revenue generating space. Being

incorporated hibachi table concept, the back area reduced up to 22% of the total restaurant

area. This led to increased revenue due to extra space added for main stream of the business.

3. Low Cost Operation: -

a. Low labour cost: - By incorporation hibachi table concept, the need for waiter and

convention kitchen has been removed. Now the food is cooked in front of the customer

who can cater two tables each having maximum of eight customers. Due to this, the

labour cost has gone down to 10-12% of the gross sale.

b. Low Food Cost: - Keeping its menu up to three kinds of the meats, Benihana has been

able to reduce the variability of its services. Due to this, storage and freezing cost has

been reduced. Also inventory turnover would be very high leading to less wastage.

Standardised services can be referred as economy of scale as same kind of food is

prepared time and again. This leads to decreases average per unit food cost and hence

reduced total cost. Benihana keeps its food cost around 30-35% of total sale as compared

to 38-48% of industry average (Exihibit1).

High margin on beverages have also contributed to profit margin as waiting customers order

for beverage.

4. High Customer turnover: -

As new concept of food preparation has been adopted, it reduces several bottle necks of

conventional kind of restaurants. There are many like removing the time taken by waiter to

serve the food, time taken in ordering the food, also order queuing as separate chefs at each

table. This leads to reduced dining time and increased revenue.

5. Use of Effective Advertising Policy: -

Benihana considered advertising as one of its main contributor to success. So it spent 8-10%

of gross sales on advertising. It had clear focus on creative and innovative advertising style.

Being in business of tangible goods, it focused its ads on intangible things like publishing eye

catching visuals. This led to better connectivity to consumers.

Using these winning strategy, Benihana was able to leave its competitors far behind. This can

be seen from the table given below which has been made using Exihibit1and other case facts.

Benchmark Benihana

Labor Cost (as % of Operating Expenses) 30-35 10-12

Food Cost (as % of COGS) 38-48 30-35

Beverage Cost (as % of COGS) 25-30 20

Rent (as % of Operating Expenses) 5-9 5-7

Promotion (as % of Operating Expenses) 0.75-2.0 8-10

Construction cost Lower Higher

6. Using these great strategies and by giving its customer ultimate service delight, Benihana

enjoyed high pricing premium. Also its replication of its processes was not possible until

and unless knowing the whole process very minutely.

Major Learnings from the Strategies

Learning with respect to Characteristics of Services: -

Variability of Services – Due to variability of services, standardization is a problem. By

employing trained chefs and reducing the number of items in menu, they have reduced

the variability of their services significantly.

By incorporating the on spot cooking concept, they have increased the customer contact

highly.

Perishability: - This is one of the biggest disadvantages of the services. But here too,

Benihana has better control. By giving the customer, one of the best atmosphere and a

great delight where their food is cooked just in front of them, they try to give them

outstanding experience of dining.

Emulation of the services is very easy. On this front, Benihana has been very unique from

beginning itself. In middle of their operation, they found competition from similar kind of

players, as given in the case they were not at all successful. Emulating its processes was

very difficult because of its unique business model.

Quality Uncompromised:-

Being in service sector, the most important factor considering the success of the business is

quality. Unlike manufactured items, service defects are not easy to measure as being

intangible. But repercussions of the defects are very strong leading to loss of consumer base.

Services also tend to be labour intensive. Keeping all the above factors in mind, Benihana

represents an excellent example of expertise management in case of chefs and also materials

used in cooking both while procurement as well as cooking.

Timeliness:-

By incorporating the hibachi table concept, they have not only increased the consumer

interaction but also reduced the time of service. They have also reduced the dining time by

cooking just near customers.

Relevance of Operations in Competitiveness:-

If we compare Benihana operations with that of the industry average, we find that they have

been doing better on many of the fronts. Due to their low cost operations, the have

significantly reduced their expenses which has led to increased competitiveness. Operation

has played important role in reducing cost and time of their service.