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) b) c) d) a) b) c) d) a) b) c) d) Initial Analysis An overview of Business of Benihana Advertising Policy Future Expansion Benihana Process flow Benihana Serv ice system Focus on quality Strategies Used for Operational Excellence Learning with respect to characteristics of Services Quality Uncompromised Timeliness Rel evance of Operations in Competitiveness 4. Benihana of Tokyo An Operational Overview 5. Major Learning from the Strategies

Acknowledgment It gives us immense pleasure to complete this project on such a good note and pr esent the relevant findings in a concise format. This report and the subsequent project would not have been possible without the guidance and the opportunity pr ovided to us by Prof. A.K. Dey. We thank him for his valuable time and effort an d his effective guidance throughout the trimester. We would also like to thank a ll 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 ch ain is known for its unique customer delight and operational excellence. Being o pened 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 succe ssful with the help of initial understanding of this business. While introducing hibachi style concept they have been able to reduce dining time, labour cost, r educing the variability of the menu they have reduce average food cost. This has over all led to improved functional expertise. Also total Japanese experience a nd expert chef and a unique experience where food id cooked in front of the cust omer has maintained continuous interest in this food chain. While currently doin g 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 mos t important concern.

Case Summary Benihana of Tokyo has been started by Hiroaki (Rocky) Aoki in 1964. Rocky came t o America with his university wrestling team and realised that America would giv e 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 Ma nagement. He spent three years analysing American restaurant market. He started his business in 1964 with his initial saving of $10000 and borrowing of $20000 o n the west side. From 1964 when it was a net deficit organization, it has now be come a firm with chain of 15 restaurants and net worth of $12 million. Initial A nalysis of Rocky: Americans enjoy eating in exotic surrounding but they are deepl y mistrustful of exotic food. Also people very much enjoy watching their food be ing prepared. The biggest problem in this industry in U.S. was scarcity of skill ed 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 re staurants 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 w astage, Benihana used to serve only three Middle American entries- steak, chicke n and shrimp. It also insisted an atmosphere which was Japanese in style. The wa lls, ceilings, beams and artefacts all gave a Japanese traditional look. The bui lding materials were shipped from Japan and resembled by two expert carpenters f rom Japan. Their main concept was Hibachi Table. It helped them reduce the dinin g 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 m ost profitable ventures. The food beverage split was 70/30 and expenses were ver y 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 be verages 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 restaura nt and the sale of beverages in this particular restaurant was 30-33% of the tot al sales. The dining area is cynosure of restaurant. Teppanyaki table was one of t he main centre of the attraction. The food consisted of steak, filet mignon, chi cken and shrimp. Any one or a

combination of these could have been ordered. The accompaniments were unvaried b ean sprouts, zucchini, fresh mushrooms, onions and rice. The average customer tu rnover 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 o f meat. Only special quality meat was bought. For every restaurant, operation ti ming was varied. Also lunch business was given utmost importance. It accounted f or 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 a re 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 acce ss to residential areas. Training: - All the chefs were highly trained. All were young, nave, single and certified. Though it was very difficult shifting them fr om Japan to America due to high affluence at their own native, once they got shi fted to America they were quite stable over there. This was due to reason that t hey 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 ma nagement level. Under there was one V.P. Operations. Controller, Manger Operatio n and Advertising Manager used to report him. V.P. operation also looks after th e franchise businesses. Under Manager Operation Company owned units were there. Manager Restaurant was under Manager Operation. Chefs were under Manager Restaur ants. Advertising Policy: - Company spends around 8-10% of its gross sales on cr eative advertising and public relationship. It concentrated on being different a nd innovative in their advertising approach. They never used to put their advert isement on the entertainment page of the newspaper. They knew that have to sell visual product so they included outstanding visual in their ads. Future Expansio n: - Three regions for the growth were America, Japan and other world. Every reg ion has its own challenge. The main constraints of expansion anywhere were follo wing: Failure of franchise business- There were several reasons behind it. The f irst reason was that many franchise owners do not know about the restaurant busi ness. Secondly, franchises were unable to take care of Japanese chefs properly. In presence of franchises, the control was difficult and the management found th at owning restaurants were more profitable than the giving franchises. Biggest p roblem was staff. There were only two carpenters and each unit required 30 staff s 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 max imum five units. Expansion inside USA was very much possible as there was not mu ch penetration in

the market. Five overseas projects were under negotiation. They were of the join t venture type. Each of these projects has its unique characteristic. The firm a lso has diversification plan. Company has entered into an agreement that is rese arching for a processing firm who has interest in producing a line of Japanese f ood which Benihana can sell on retail shops. Though companys target segment has b een 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 i s like customer enters the lounge and seated at bar/lounge area. A drink is serv ed to customer. Then order of food is taken. In the meantime Chef prepares for f ood in kitchen. Then waitress serves soup, salad and beverages. Then chef appear s 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 c ustomer leaves the restaurants. Lounge Seating Getting Drinks Ready Handing over menu Serving Drinks Taking Orders Chef Setup (In kitchen) Chef Wheel in Stocks Preparation at Table Food Served, eaten at table Desert Served Cheque Delivered Payment Collected 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 an d thirty minutes. Benihana Service System:Hibachi Table Concept:This concept was initiated by Mr A oki in 1958. This was incorporated regarding concerns about rising costs and inc reased 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 an d also reduces the cost like labour cost is only 10-12% of gross sales. Also bac k of the house area which includes preparation area, dry and refrigerated storag e, employees dressing room and office are only 22% of total area as compared to 3 0% in conventional kitchen restaurants.

There are several other advantages of using this concept: Customers get entertai ned while watching their food prepared instead of seating idle. So this virtuall y 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 cooki ng 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 performan ce will improve. Focus on Quality: Their focus on quality was intense. The quali ty 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 f ood cooked was highly standardised. Strategies Used to Achieve Operational Excellence: The strategies used to achiev e Operational Excellence have been listed below: 1. 2. 3. 4. 5. Less number of off ering Increased Space Utilization Low Cost Operation High Customer Turnover Rate Use of Effective Advertising Policy 1. Less Number of Offering: No frills menu reduced the variability of the food s erved. 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 restaura nt business, he decided to keep his menu short and concise. By doing this he alm ost 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 utilizatio n: Generally in normal restaurant, around 30% of the total restaurant area is us ed as Back Area. It means that this area is not being used as revenue generating s pace. 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 a dded 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 ki tchen 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, th e labour cost has gone down to 10-12% of the gross sale. b. Low Food Cost: - Kee ping its menu up to three kinds of the meats, Benihana has been able to reduce t he 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. Sta ndardised services can be referred as economy of scale as same kind of food is p repared time and again. This leads to decreases average per unit food cost and h ence reduced total cost. Benihana keeps its food cost around 30-35% of total sal e as compared to 38-48% of industry average (Exihibit1). High margin on beverage s 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 or dering 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 Po licy: 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 focus ed its ads on intangible things like publishing eye catching visuals. This led t o better connectivity to consumers. Using these winning strategy, Benihana was a ble to leave its competitors far behind. This can be seen from the table given b elow which has been made using Exihibit1and other case facts. Benchmark Labor Cost (as % of Operating Expenses) Food Cost (as % of COGS) Bever age Cost (as % of COGS) Rent (as % of Operating Expenses) Promotion (as % of Ope rating Expenses) Construction cost 30-35 38-48 25-30 5-9 0.75-2.0 Lower Benihana 10-12 30-35 20 5-7 8-10 Higher

6. Using these great strategies and by giving its customer ultimate service deli ght, Benihana enjoyed high pricing premium. Also its replication of its processe s 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 Du e to variability of services, standardization is a problem. By employing trained chefs and reducing the number of items in menu, they have reduced the variabili ty 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 outstand ing 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 operati on, they found competition from similar kind of players, as given in the case th ey were not at all successful. Emulating its processes was very difficult becaus e of its unique business model.

Quality Uncompromised:Being in service sector, the most important factor conside ring the success of the business is quality. Unlike manufactured items, service defects are not easy to measure as being intangible. But repercussions of the de fects 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 u sed in cooking both while procurement as well as cooking. Timeliness:By incorpor ating the hibachi table concept, they have not only increased the consumer inter action but also reduced the time of service. They have also reduced the dining t ime by cooking just near customers. Relevance of Operations in Competitiveness:I f 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 operat ions, the have significantly reduced their expenses which has led to increased c ompetitiveness. Operation has played important role in reducing cost and time of their service.