Five weeks after completing the purchase of Kona Grill, new owner One Group Hospitality is already tweaking the polished-casual concept, starting with an intended jolt to the chain’s bars.
The chain will get a “more upbeat” music playlist, along with an updated drink menu and a revamp of Kona’s approach to happy hours, One CEO Manny Hilario told financial analysts Friday. He explained that a rejuvenated happy hour will likely prompt more after-work patrons to stay for dinner, a strategy that has worked well for One’s core concept, upscale steakhouse chain STK. The goal is to raise high-margin alcohol sales to 35% of a Kona’s total intake, from a current level of 30%, Hilario said.
“These efforts will create more brand buzz,” Hilario said. The brand’s new parent will attempt to amplify the chatter by using influencers to tout the brand on social media.
Costs, he said, will be lowered by implementing STK’s labor controls and remedies for reducing staff turnover. Kona’s purchasing will be combined with One’s overall sourcing efforts for greater leverage in negotiating prices, Hilario added.
Expansion of the concept will be suspended as the rejuvenation is underway, Hilario said, but he described Kona as the likely vehicle down the road for the company’s entry into small or midsized markets where an STK would be overkill. STK’s 20 restaurants are all high-volume operations located in major destinations and cities.
All in all, Hilario said, the purchase provides “a great opportunity with minimal risk.” One paid $25 million in cash and assumed $11 million in working capital obligations for rights to a 24-unit chain that should generate $100 million in sales next year, according to the company. It expects a $24 million contribution to revenues and a $1 million bump in EBITDA for the fourth quarter of 2019.
One bought Kona out of bankruptcy after a spectacular decline for the brand. Costs had been slashed, and CEOs were seemingly changed more often than the menu.
What wasn’t readily evident, Hilario said, was the cleanup that came with the Chapter 11 filing. ”In many ways, it was almost like two distinct portfolios of restaurants,” he said of the Kona that operated under court supervision. “About half of the restaurants were very good and profitable, and about half were unprofitable. [During] the bankruptcy process, the unprofitable locations were all closed, leaving 24 high-performing domestic restaurants.”
“In summary,” Hilario said, “we think there are multiple opportunities that this acquisition will provide to us.”
One revealed its plans for Kona after posting a 9.3% rise in same-store sales for STK for the third quarter.