Manny Hilario, CEO of The ONE Group Hospitality, recently told investors that customers are craving unique experiences and a high-energy environment from STK Steakhouse and Kona Grill.
The observation is high praise, but it still may be an understatement, considering the financials the two concepts posted in the fourth quarter.
All U.S. STK and Kona restaurants experienced positive comparable sales in Q4 versus 2019. Consolidated same-store sales increased almost 50 percent compared to two years ago, including growth of 60 percent at STK and 38 percent at Kona Grill. This also isn’t the case of restaurants comparing against bad performances; in Q4 2019, STK’s comps lifted 8.9 percent, while Kona’s increased 3.8 percent.
STK earned $338,000 in average weekly sales per restaurant in the fourth quarter, which equates to an annualized AUV of $17.6 million. For Kona, the figure was $108,000, or a $5.6 million annualized AUV.
For 2021 overall, comps lifted 34.2 percent against 2019, including 45.1 percent at STK and 23.2 percent at Kona.
The ONE Group achieved a record-breaking $84 million in revenue in Q4 and achieved consolidated restaurant margins of 20.4 percent, an increase of 440 basis points from 2020. For the full year, the company earned $277 million in revenue, more than a 95 percent increase year-over-year, and swung $42.7 million in adjusted EBITDA, growth of nearly 350 percent against the previous year.
The stellar results validate 2022’s development pipeline, which is “the most robust we’ve had in our history,” Hilario said. The ONE Group plans to open at least nine restaurants: two company-owned STK stores (Dallas, San Francisco), a managed STK unit in London, three company-operated Kona restaurants (Phoenix, Riverton, Utah, and Columbus, Ohio), and three licensed outlets in Texas through ghost kitchen facilitator REEF Kitchens.
Hilario believes The ONE Group is early into its growth strategy and has significant whitespace to play with globally. STK has 23 locations across the U.S., Europe, and the Middle East, and Kona has 24 restaurants in the U.S. The total addressable market is at least 400 locations, including 200 STK restaurants worldwide and at least 200 Kona units in the U.S. For new company-run stores, The ONE Group targets between 40-50 percent ROI.
For the REEF locations specifically, Hilario views them more as an extra layer to growth as opposed to a fundamental part of the strategy. The locations only require a little upfront capital and some marketing investment. The ONE Group believes that over time, off-premises business could exceed $30 million, with sales mixing 5-8 percent at STK and 13-17 percent at Kona depending on month, quarter, and restaurant.
“I would describe [the REEF partnership] as a test to see what we can do in a place, for instance, Texas, where we really don’t have an STK or other brand we can go into places with no restaurants,” Hilario said. “I think the next REEF place we’re going to is Austin, Texas. We have no restaurants in there. So, that will give us a good opportunity to test what we can do with REEF. So, I think it’s a very interesting upside auxiliary growth opportunity, but it is not part of our core growth strategy. Our core strategy is still capturing the 200 opportunities plus for STK and 200 plus for Kona Grill.”
The ONE Group’s pent-up demand begins with STK and Kona’s food offerings. While peers have simplified menus due to inflation, labor shortages, and supply chain issues, Hilario said both concepts have continued to innovate and maintain consumer interest.
In Q4, STK showcased Wagyu beef from Australia, Japan, and the U.S., and Kona offered holiday-inspired dishes like Roasted Macadamia Nut Turkey, prime rib specials, and lobster pot stickers. Restaurants protected profit by upselling high-margin items, such as toppings and sides at STK and alcoholic beverages at Kona.
Innovation is one of several ways The ONE Group attracts new customers. There’s also the value-oriented Happy Hour, takeout and delivery offerings on third-party delivery platforms, and the accelerating weekend brunch program.
“I think, just in general, the fact that our focus is on vibe dining, it still resonates in the environment really well,” Hilario said. “So, we do always remember that there is still a pandemic going on. But I do think that our brands do provide an escape and provide an opportunity for people to enjoy themselves. And I think that’s really what’s working and helping both Kona Grill and STK.”
The fourth quarter is historically the busiest time of year, so The ONE Group entered the stretch with hiring, training, and retention as a priority. Because of that focus, restaurants were 100 percent staffed throughout the quarter and didn’t have to modify operating hours. The company also retained each of its general managers.
Hilario said the brand has been thoughtful about keeping a healthy pipeline of talent, especially with strong development coming in the future. This means investing in management, particularly at the entry level positions. Additionally, he noted the importance of being able to flex up or down to keep pace with what the macro environment is doing.
“Make no mistake that protecting the brand and making sure that we’re executing at a high level is priority number one,” Hilario said. “So, we’ll always do that. And then, we will work the strategy of growth after we know that the brands are executing at a super high level, so we will not compromise the execution of the brand relative to growth. So, we’re very disciplined on that.”
For the first quarter, The ONE Group is projecting revenue of $69 million to $70.2 million, an improvement upon last year’s $50.5 million. As the company moves through 2022 and rolls over impressive numbers, Hilario said the focus will be on the short-term and store-level execution.
“We’ll sort out through the macro issues as they present themselves as we have for the last year or two years in the pandemic,” Hilario said. “So, that’s one of the things that we have become is very resourceful. And we operate as best as we can within each one of those environments. But right now, we’re keeping our outlook on the short-term versus the longer-term just because of all the items on the macro environment.”