STK, Kona Grill Use Value to Drive Industry-Leading Results

Both brands are beating pre-pandemic same-store sales comparisons by double-digits, including 81.9 percent at STK.

August 8, 2022 Ben Coley

During a recent conversation with analysts, Manny Hilario, CEO of The ONE Group Hospitality, described STK Steakhouse and Kona Grill’s business as “very solid.” It’s a strong compliment, but arguably an understatement.

The ONE Group’s same-store sales lifted 12.8 percent in the second quarter year-over-year, including a 19.8 percent rise at STK and a 3.7 percent increase at Kona. On a three-year basis, consolidated comps soared a whopping 53.5 percent—81.9 percent for STK and 27.6 percent for Kona.

U.S. average weekly sales per restaurant are even loftier. STK hauled in $331,000 in Q2, or $17.2 million in annualized AUV. That’s far above the $288,000 mark the steakhouse posted last year. At Kona, average weekly sales per unit was $107,000, or $5.6 million annualized AUV. That’s up from $103,000 in the year-ago period.

“Our focus on strong operational execution, innovative culinary offerings, and vibe dining continues to resonate with our guests, and I'm extremely pleased with our topline business performance during the second quarter despite the ongoing challenges facing our industry,” Hilario said during the company’s Q2 earnings call.

Hilario attributed rising sales to a host of value-driven programs, like Kona Grill’s $19 Power Lunch (soup or salad, entrée, and brownie) and $7.99 Cheeseburger, along with STK’s Pre-Theater prix fixe menu and its $3/$6/$9 Happy Hour Menu. That’s in addition to midweek date night promotions and takeout and delivery specials.

While value offers are bringing in more traffic, Hilario noted high-end consumers are still fueling performances of premium products. STK, which has a bigger contingent of wealthier demographics than Kona, has seen a lot of trading up. At Kona, consumers are coming for the entry-level price points, but take rates on items like the $5 French fries are “extremely high,” Hilario said.

“The value that we have is everyday value,” the CEO said. “We've always been committed to value, but as we've always said in the past is that if need be, we would switch our marketing to value, which is what we're doing right now is really promoting the entry price points. But I would tell you right now, I do see customers coming in for that, but they're actually going to the regular price points when they get to the restaurant. I have not seen any material trends where people are actually trading down or taking less items on the menu.”

Both chains are also finding sustained success with their brunch programs, both introduced during the pandemic. Performance is pretty even on a per-restaurant basis, Hilario said, although some locations over-index because of their geography, like Las Vegas. In terms of the daypart’s growth opportunities, the CEO said the potential is significant. He added that it’s a matter of promoting the program and driving guest frequency.

Hilario believes STK and Kona are on step 1 of 10 of what they can do with brunch. Some of the signature dishes at Kona include Rocky Mountain Omelet, Spicy Lobster Avocado Toast, and Macadamia Nut French Toast. For STK, there’s Hot Chicken Waffle, Wagyu Burger BKFT, and Smoked Pork Belly Benedict. Both brands offer bottomless mimosas.

“We are looking at elevating the drink programs, adding some new features on products,” Hilario said. “So there's a lot of promoting and activities that we plan to really add interest to the daypart. Remembering that any brunch program that offers quality alcohol program is doing very well with the consumers. And it's a fun day to go—particularly Sunday brunches is a very high time that people like going out. So we feel pretty good that we still have a lot of runway on brunch. And promoting and product will be, if you will, the two things that will help us elevate that daypart.”

Kona Grill

Kona Grill earned $107,000 in average weekly sales per restaurant in the second quarter.

Since COVID arrived, The ONE Group has worked to move its sales mix away from corporate and event-driven business and more toward special occasions, like date nights, holidays, ladies’ night out, brunch happy hours, and other social occasions. Topline sales prove how successful the strategy has been; Kona and STK achieved record-breaking sales around Easter, Mother’s Day, and Father’s Day without promotion.

However, large corporate gatherings are starting to return. The ONE Group is building its catering capabilities to prepare for this growing demand.

“For the fourth quarter, two things to consider: Number one is events, and we're actually starting to see a pretty decent amount of fourth quarter events, particularly in December,” Hilario said. “ … If you think about December last year, we did have the beginning of Omicron. So we actually think that relative on the lap, actually, the fourth quarter is a good lap for us. So I would say that we have a good comparative or lap to go against. And I think that the leading indicator on events is actually very good for the fourth quarter right now.”

Cost of goods sold in Q2 was 25.8 percent, not much higher than the first quarter. The ONE Group delivered these results by selling high-margin toppings and sides and committing to its beverage and bar programs. For labor, there were notable increases in average wage year-over-year at the manager and hourly levels.

Because of strong traffic performances in the first part of 2022, STK and Kona have taken modest pricing so far, providing it plenty of dry powder to do so in the back half of the year. It should be 4-5 percent for Kona and about 1-2 percent at STK for select items. Hilario said these menu price increases should bring Kona’s margins to the 14-15 percent range and STK’s to roughly 22 percent.

“We held off from taking more price in the second quarter because we wanted to measure how transactions and how consumers were behaving,” Hilario said. “We're now feeling a little bit more confident that we can take advantage of our pricing power.”

In the remaining months of 2022, The ONE Group plans to open two corporate STK restaurants and three corporate Kona stores. The company believes there’s room for 200 STK units globally and 200 Kona outlets in the U.S. Additionally, In July, the brand debuted the first of three ghost kitchen locations in partnership with REEF Kitchens. Two more will open before the year is over.