The One Group Hospitality (STKS) announced a week ago their agreement to acquire Safflower Holdings Corp., the owner of the Benihana brand in the Americas. Our article
provides our spontaneous (at that point) reaction to the deal.
WITH A WEEK TO THINK ABOUT IT:
The first Benihana opened in NYC in 1964, financed with $10,000 by then 25 year old, Rocky Aoki. We met Aoki when BNHN, having become publicly traded in 1982, participated in the small -mid-cap restaurant conference that we ran for about fifteen years in the 1980’s and early 1990’s. In those years I got to know his then President, CPA Joel Schwartz. During those years, Rocky liked to promote Benihana by way of his personal adventures, including an attempt to fly a hot air balloon around the world and the piloting of an ocean-going racing boat, which at one point crashed and seriously injured him. My view of those days is that Aoki, CEO and controlling shareholder, as dynamic as he was, not only did not have the professional skills to build out this promising chain, but President, Joel Schwartz, spent a great deal of time trying to modulate Rocky’s personal and professional impulsiveness.
Benihana, from the 1980s until Aoki’s death in 2008 (at the age of 69) and Joel Schwartz’ leadership until his retirement in 2009, had what could be considered “mixed” results. The Company had grown to three chains, Benihana, RA Sushi and Haru, with over 100 restaurants in total. Missteps, however, during that period had included the opening of the upscale Big Splash restaurant and frozen food division called Benihana National Classics.
After Aoki’s death, there were extended legal battles among his heirs, which seriously complicated corporate planning. In 2009, Richard Stockinger (a previous Board member of BNHN, and executive with Restaurant Associates) was installed to replace Joel Schwartz as CEO.
Benihana agreed in 2012 to be acquired by Angelo Gordon & Company for $296M, though the variety of lawsuits were yet to be settled.
In February, 2014, Steve Shliemon (previously President of Bloomin’ Brands’ Carabba) was named CEO and President.
In 2016, Tom Baldwin (previously a Board member of BNHN and other restaurant chains, also CEO at the conclusion of his 20 years with Morton’s Restaurant Group when Morton’s went private) was named CEO of BNHN.
By 2019, prior to Covid, according to industry sources, BNHN was being “prepped” for sale by Angelo Gordon, with a possible sale price in the range of $600M.
The transaction just announced values Benihana at about $350M, no doubt a disappointment to owner, Angelo Gordon, after twelve years of ownership.
OUR LONG TERM PERSPECTIVE
We will no doubt be learning a great deal more about the current state of Benihana, the opportunities and the risks, and will keep our readers posted accordingly.
At this point, from the current information available, Benihana seems to be 60 year old proven experiential full service casual dining concept, serving relatively healthy food at a modest price. Based on what has been reported: with a reported $6.5M Average Unit Volume, in 8,000 square feet (over $800/sq ft) with a store level EBITDA approximating 20%, the cash on cash return (depending on the leverage used) should be at least 25-30%, though no current build out costs have been provided.
With only 88 company owned Benihana restaurants, and 17 additional franchised/licensed venues in the Americas, there is obviously a great deal of white space. It is worth noting that there could be franchising opportunity for Benihana, RA Sushi, or some combination. On 2/26/24, a 1,280 square foot franchised Benihana RA Sushi restaurant opened in Miami. Other expected short term openings, per a company release on 2/26/24:
- Benihana RA Sushi Bayside in Bayside Marketplace, Miami, a fast casual restaurant, is planned to open mid-year 2024.
- RA Sushi Plantation, FL in Plantation Walk is planned to open this summer at 333 North University Drive. The RA Sushi restaurant will be over 3,800 square feet with 34 tables, a full-service sushi bar and dedicated area for take-out and delivery business.
- Benihana San Mateo, CA is scheduled to open late 2024 at 2204 Bridgepoint Parkway with 18 teppanyaki tables and a full-service sushi bar.
CONCLUSION
Comparing Benihana’s $800+/square foot AUVs and 20% store level EBITDA margins to other full service casual dining chains, a case can be made that Benihana is potentially a 400 unit chain “masquerading” today with only 88 locations. Based on what we know about the unit level economics and the long term positioning of Benihana, with or without RA Sushi, there seems to no material reason preventing Benihana from steady, profitable, substantial expansion. The fact that unit growth has been so sporadic and modest over many years is a function of corporate “noise”, rather than indication of a concept losing appeal over time. It is even possible that Benihana comes alive today with an experiential appeal, at a modest price, to an increasingly health-conscious customer base.
With all of the above considered, and a lot more to learn, it all boils down to STKS’ ability to take advantage of what seems to be a substantial opportunity. Time will tell, but based on STKS’ management’s success over the last five years with STK and Kona Grill, our inclination (especially because we personally like the Benihana dining experience and the food) is to bet on the upside.
This one will be interesting.
Roger Lipton