Benihana sees raw growth potential in recently acquired sushi concept

Nation's Restaurant News, June 2, 2003 by James Peters

MIAMI -- Benihana Inc., assisted by a new growth vehicle through its acquisition of the RA Sushi Bar and Restaurant chain, has divulged the company's biggest expansion plan in years as such Asian cuisine competitors as P.F. Chang's China Bistro and Big Bowl Asian Kitchen vie for market share.

Benihana, whose brand lineup -- besides its 87-unit flagship chain -- includes the five-unit Haru sushi concept and one Doraku restaurant, plans to open seven restaurants in its current fiscal year, which began in April. The openings include four new Benihana units, one of which already has opened, and three RA Sushi outlets, including a conversion of a former Doraku unit in Chicago.

"This is our most ambitious growth year in terms of numbers of new units that we've had in many, many years," said chief financial officer Michael R. Burns during Benihana's fiscal 2003 conference call with analysts.

The company pointed out that RA Sushi -- whose outlets occupy a smaller space than Benihana, in the range of 3,900 to 4,100 square feet, and will expand primarily through in-line locations in suburban areas -- is a key part of the growth plan. The RA brand, whose four units all are in the Phoenix metropolitan area, is popular with a younger crowd and generates alcoholic-beverage sales of about 33 percent of total volumes, Benihana officials said.

"There are markets that have nothing like it," Benihana president Joel A. Schwartz said of the RA Sushi concept.

Benihana, which acquired the RA chain in December, anticipates that its annual average-unit volumes will range from $2 million to $3.3 million. By comparison, Benihana's core teppanyaki restaurants range between 4,000 and 10,000 square feet and generate average-unit volumes of a "little more" than $3 million, although some tally annual sales of $5 million to $6 million, Schwartz said.

Benihana operates 54 namesake restaurants and franchises 17 others in the United States and six overseas. The company's plans for expanding the five-unit Haru sushi brand outside of New York City call for a new branch to open in Philadelphia next year.

Meanwhile, several other casual-dining chains in the Asian sector continue to pursue expansion that would grab market share from a category that still is dominated by independent restaurants.

"If you look at all of casual dining, [Asian] is one of the least-penetrated segments in terms of chains," said Lynne Collier, a restaurant securities analyst with Stephens Inc. in Little Rock, Ark. "With the exception of Benihana and P.E Chang's, there are just not a lot of national players in the segment. So we view that Asian category as definitely very attractive."

The failure of Darden Restaurants Inc.'s China Coast, which the company abandoned after quickly expanding it to more than 50 units in the mid-1990s, gave pause to other chain operators considering development of Asian concepts, Collier pointed out.

"The China Coast situation maybe did scare people off from that segment," Collier said.

However, given the substantial growth and strong financial performance of P.E Chang's in recent years and the longevity of Benihana, fledgling Asian concepts have sprouted. Asian-style fast-casual concepts also are developing rapidly with leaders such as Pei Wei Asian Diner, P.F. Chang's second brand, and Pick Up Stix, the second brand of T.G.I. Friday's parent, Carlson Restaurants Worldwide.

At the forefront of the segment, 84-unit P.F. Chang's China Bistro plans to open 18 more branches in 2003. By the end of the first quarter the concept already had opened five of those planned outlets.

As of May the 18-unit Big Bowl Asian Kitchen, which is owned by Brinker International Inc., had opened six new branches in the fiscal year ending this month.

Both P.F. Chang's and Big Bowl have hefty financial resources to fund robust growth, which Benihana points out has intensified competition.

"Several of our significant competitors are larger or more diversified and have substantially greater resources than [Benihana]," the company noted in its fiscal 2002 report to the Securities and Exchange Commission.

Benihana will fund its planned growth for this year by drawing on its revolving credit source and through free cash flow. The company's current growth plans are its most substantial since its December 1997 acquisition of Rudy's Restaurant Group, which operated nine teppanyaki-style restaurants that were converted to the Benihana brand.

Just as Benihana has built its identity around the tableside preparation of food by knife-wielding chef-showmen; a number of other concepts are pinning expections for growth on exhibition cooking with customer participation.

Franchisees of Genghis Grill, which was purchased by Dallas-based Consilient Restaurants in February, have opened two restaurants so far this year. The chain plans to open two to four more franchised restaurants this year, Genghis Grill controller Maria Perez said.

Genghis Grill, which has three company-operated locations and six franchised units, opened four restaurants last year, Perez added.