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What Entrepreneurs Can Learn About Turning Profits From Hibachi Chefs

There’s more to Benihana than volcano onions and flying shrimp. The history of the restaurants can teach us a few things.

What Entrepreneurs Can Learn About Turning Profits From Hibachi Chefs
[Photo: Flickr user Nicholas Eckhart]

Like many American entrepreneurs, Hiroaki (“Rocky”) Aoki had a wild youth. As a rambunctious teenager in Japan in the 1950s, he sold pornography in school and started a rock band called Rowdy Sounds. He also showed discipline: as a flyweight wrestler his hard work earned him a spot in the 1960 Summer Olympics, an athletic scholarship to an American university, and eventually the U.S. flyweight title and a spot in the wrestling Hall of Fame. As he matured, his creativity, energy, and diligence increasingly turned to business. While competing as a wrestler, he studied for an associate’s degree in restaurant management, and in his free time he ran an ice cream truck in Harlem.

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Aoki’s most successful venture started small. With $10,000 from his ice cream truck, he started a four-table Japanese steakhouse called Benihana on West 56th Street in New York. The first few years were bumpy, but the restaurant began to draw buzz for its food and atmosphere, eventually becoming a hotspot for celebrities. (Muhammad Ali and the Beatles dined there.)

Aoki capitalized on this success by expanding the restaurant into a chain, first throughout New York City and eventually to the rest of the country and the world. Today Benihana is in seventeen countries. At the time of Aoki’s death in 2008, his empire was thought to be worth more than $100 million. So thorough is his stereotype that it borders on parody, complete with his name, the paternity suits, intrafamily lawsuits, a collection of antique cars, an array of eccentric hobbies, and an ethnically flavored semi-mystical back story for the chain’s name (after a single red flower–benihana in Japanese–that Aoki’s father saw amid the rubble after a U.S. bombing of Tokyo in World War II).

Anyone who has been to a Benihana restaurant knows why it’s unique: The chef cooks the meal right in front of you; in fact, “cooking” does not do justice to the performance. The chef is a virtuoso: he juggles his knives, tosses food from the spatula directly onto your plate, and creates onion ring volcanoes! Only at Benihana do meals end with a round of applause. Search for “Benihana” (or, better yet, “hibachi chef”) on YouTube and you’ll see hundreds of videos with tens of thousands of hits, showing the theatrics.

All this contributes to Benihana’s success in a roundabout way. Aoki did more than create a bit of entertainment. He understood at a deep level the scarcity restaurants faced. And he solved it.

People think restaurants are about food, décor, and service. After all, this is what we experience as customers. Yet we all know wonderful restaurants that have shut down. Getting customers in the door does not ensure success in the restaurant business. Dry, logistical, and operational decisions drive profitability.

The problem restaurants face is that most of their costs are fixed. Sure, they spend money on the food, but the ingredients do not cost as much as the overhead: salaries, rent, electricity, insurance, and so on. Whether you serve many customers or only a few, most of these costs must still be covered. As a result the business is all about “cream.” After your revenues rise to a level that covers the fixed costs, a large percentage of the remainder goes directly to profits. This creates interesting math. Three seatings on a busy Saturday night is not just 50% more profitable than two seatings. If the first two cover your fixed costs and leave you with a small profit, then the third is “cream,” mostly all profits.

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What Aoki (and others) recognized is that the restaurant business is really about seating scarcity. How many seatings can you fit in? You get more seatings if you can squeeze in more tables. You get more seatings if you fit more people per table. You get more seatings if you can turn tables over faster, if you get four sets of customers out of a table each evening rather than three.

What appears to be theater at Benihana was really a very clever solution to scarcity. The chef’s production involves people sitting at communal tables. And communal tables of eight mean a much more efficient packing of customers. No more waiting for two tables of two to open up side by side so you can seat a party of four. At communal tables you simply fill up the tables as people come in. A table of four merely means four chairs at the table. But even better, the tables turn over much faster.

The chef cooks theatrically–and quickly–in front of you. You sit, the chef is there, the menu is small, and the time to order is limited. The chef then festively paces the meal for you. The food is tossed onto your plate, and you eat quickly because you can see the following course is about to be tossed next. Even the dessert—ice cream, which near the hibachi melts quickly–is designed for speed. And when the show ends, the chef bows and you applaud and it’s over. What are you going to do, sit around and chew on your chopstick? It is hard to loiter when the chef is standing there, all done, the table has been cleared, and others are leaving. All this means that Benihana earns much more per table per night; some estimates suggest Benihana earns ten cents more in profit per dollar of revenue than other restaurants, making it far more profitable.

Besides well-orchestrated meals, Benihana provides an important lesson for many organizations. Even when businesses are insightful enough to identify their true scarce resource, they often underappreciate the complexity of managing scarcity and the benefits that come from doing it just a little bit better.

Excerpted from Scarcity: The New Science of Having Less and How it Defines Our Lives by Sendhill Mullainathan and Eldar Shafir. Scarcity copyright © 2013 by Sendhill Mullainathan and Eldar Shafir. Published November 4, 2014, by Picador/Henry Holt & Company. All rights reserved.

Sendhil Mullaniathan, a professor of economics at Harvard University, is a recipient of a MacArthur Foundation “genius grant” and conducts research on development economics, behavioral economics, and corporate finance. He lives in Cambridge, Massachusetts.

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Eldar Shafir is the William Stewart Tod Professor of Psychology and Public Affairs at Princeton University. He conducts research in cognitive science, judgment and decision-making, and behavioral economics. He lives in Princeton, New Jersey.