STK, Kona Grill Skyrocket Past Pre-Pandemic Marks

The parent company achieved a record 22.6 percent restaurant level profit margin in Q2.

August 11, 2021 Ben Coley

While some casual-dining chains are chasing pre-pandemic sales levels, The ONE Group Hospitality is waving at those figures in the rearview mirror.

Overall, same-store sales grew 38 percent in the second quarter compared to 2019, up from a 3.3 percent rise in Q1. At STK Steakhouse, comps increased 54.3 percent in Q2 versus two years ago, and rose a whopping 92.8 percent in July. The 23-unit restaurant earned $288,000 in average weekly sales in the second quarter, which would be an AUV of close to $15 million on an annualized basis. That’s far above the $197,000 in average weekly sales during the same quarter in 2019. To be clear, this is not a case of STK having a weaker period two years ago; same-store sales actually rose a respectable 6.4 percent in Q2 2019.

Kona Grill, which The ONE Group acquired in fall 2019, is on a similar trajectory. The 24-unit brand saw same-store sales soar 23 percent in Q2 against 2019 and 31.9 percent in July. Kona reached $103,000 in average weekly sales in the quarter, equivalent to $5.4 million in AUV on an annualized basis.

Because of the massive growth in The ONE Group’s top line, the company achieved a record 22.6 percent restaurant level profit margin and 12.9 million in adjusted EBITDA. More specifically, STK saw margins of 27.4 percent while Kona finished at 17.2 percent.

“The stellar performance validates our position that guests are looking for the high energy, differentiate experience that our vibe dining offering delivers,” CEO Manny Hilario said during the company’s Q2 earnings call. “Our teams are doing a phenomenal job providing experience and I couldn't be more proud of them.”

Hilario outlined multiple ways STK and Kona are driving customers to restaurants, starting with off-premises—a sales channel that remains elevated despite most stores returning to 100 percent capacity. The ONE Group views takeout and delivery as a major opportunity to convert guests to long-term loyal customers, which is why the company made key investments in state-of-the-art technology and operational execution. For instance, guests are now able to order curbside pickup and delivery from nine separate third-party partners.

Marketing initiatives have also proved crucial in attracting customers. During Q2, the company launched a Takeout Tuesday event at STK featuring its popular Wagyu Burger and Fries for $9.99. At Kona, the restaurant offered a $7.99 KG Burger and Fries for National Burger Month in May. Hilario said the company has anecdotal and factual data that suggest customers are being introduced to the restaurants and then coming in to celebrate their birthday or other special occasions.

Kona Grill

Some of The ONE Group’s best restaurants are earning as much as $1.5 million in annualized off-premises sales.

“We have seen particularly in markets like San Diego—I would consider them to be the mid-size markets—the takeout delivery platform as being a great introductory price point offering,” Hilario said. “And if you look at our menu, we very carefully crafted the takeout delivery menu to be an extension of the in-room or the dining room menu.”

The ONE Group is adapting future store designs to cultivate the growth of off-premises. The STK restaurant in Bellevue, Washington, that opened this summer was the first store designed within COVID. The back-of-house includes a separate takeout section and a second line to take pressure off the main lines for the dining room.

The company also plans to open a store in Dallas that will be the first location with an off-premises area separate from the restaurant.

“Our rationale there is because a lot of people come to STK to pick up takeout or delivery, and some of them may not be dressed up,” Hilario explained. “And they walk into the lobby of the restaurant and in on a Friday or Saturday night, they may not feel as comfortable walking into it picking up takeout/delivery. So, we do think that having a separate area within the restaurant dedicated to takeout/delivery, it makes a lot of sense.”

Another significant sales lever is the manner in which STK and Kona have managed to spread demand across dayparts. That includes the ever-growing brunch program, which captures strong daytime demand on Saturdays and Sundays. On the weekdays, Mondays through Wednesdays were typically for business travelers and corporate private events. While those sales dollars are slowly returning, they’re still down from what they were prior to COVID. STK and Kona have replaced those lost dollars with social occasions, particularly date nights.

Because of those pivots, Hilario believes STK and Kona are strong in all parts of the day throughout the entire week, with Fridays and Saturdays rising to the top. Other sections of the business that have fueled sales are reduced price points during Happy Hour and growing traffic on holidays. In fact, STK and Kona ran several promotions around Easter, Mother’s Day, and Father’s Day during Q2 and achieved record-breaking sales on those days.

“The only place that there's huge opportunity, and probably not a strength is events,” Hilario said. “And I think that as we look out into the fourth quarter, we're starting to see a lot of demand for holiday party. So, I do think that in the fourth quarter, that will be the next layer of business that will totally sit on top of the underlying business and will even further drive our top lines.”

Kona Grill

The rising sales more than validate The ONE Group’s upcoming development plans. The company will debut a combined 13 STK restaurants and F&B venues with hospitality partners in 2021 and 2022. Year-to-date, six have opened, including a licensed STK at Los Cabos International Airport in Mexico that’s earning close to $200,000 in average weekly sales. Additionally, the company-owned STK in Bellevue, Washington, is generating more than $240,000 per week. The ONE Group believes STK can open at least 200 restaurants globally.

The company has also identified a site in Salt Lake City for Kona’s first new store since acquiring the brand two years ago. Hilario said the restaurant is capable of opening another 200 locations across the U.S. That journey will start with an initial target of three to five openings per year.

Hilario said The ONE Group’s original intent with Kona was to work on volume and margin, and those figures are already above where he thought they’d be. When you combine those numbers with landlords calling the company with favorable real estate and value, The ONE Group is more than excited to restart growth at Kona.

“I think some of the things we've done with the bar program, the music program, the addition of the brunch has been right on because we're in lots of suburban projects where people on the weekends need things to do so we're kind of playing off that,” Hilario said.

“And then we're also leveraging our strategy with patios,” he continued. “And I think that's what you'll see with the future Kona Grill is an emphasis on patios and rooftops. We'd like rooftops on Kona Grill so you're going to see us being able to drive very great economics with a low real estate cost because we will have rooftops and patios at all these locations.”

Total revenues for The ONE Group increased 324.6 percent to $70.8 million in Q2, compared to $16.7 million last year. Net income was $13.8 million, or $0.41 net income per share, versus a net loss of $2.9 million, or $0.10 net loss per share in the year-ago period.