After well over two decades, you'd think a chain like Kona Grill would be in it for the long haul. But it turns out putting sushi and burgers under the same roof might not be the best way to hit the big 3-0.
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00:00After well over two decades, you'd think a chain like Kona Grill would be in it for the
00:04long haul. But it turns out, putting sushi and burgers under the same roof might not
00:08be the best way to hit the Big 3-O.
00:11Despite Kona Grill's attempts to modernize, customers haven't exactly jumped to support
00:15the struggling company. In fact, many folks online have criticized both the service and
00:20the menu. On Reddit, disappointed customers in Denver highlighted how Kona Grill's food
00:24has gone down in quality. Some even compared their experience at the restaurant to the
00:28likes of Applebee's and Red Lobster, which sounds like all but a death sentence for a
00:32company that works so hard to be on the cutting edge of chain dining.
00:36Of course, some of these issues may be unique to the Denver location, but the Kona Grills
00:40in other regions aren't doing so hot either. Yelp reviews from Arizona's Desert Ridge location
00:45note that the food feels too expensive for the quality. If customers don't embrace it,
00:49there may be no hope for this once-shining beacon of steak and seafood.
00:53Unlike show business, there is such a thing as bad press in the restaurant industry, and
00:57word on the internet can quickly make or break an eatery's reputation.
01:02It doesn't matter how well-known a chain is, a restaurant won't attract new customers without
01:06exciting food. Kona Grill does cycle in new dishes, but it's pretty clear the company's
01:10eye is on price more than anything. To get people in the door, the chain now offers affordable
01:15meal promotions like unlimited sushi after 3 p.m. on Sundays, a three-course pre-fixed
01:20menu for $39, and drives like Burger Mania, Power Lunch, a brunch menu, and an enticing
01:26happy hour.
01:27Right now we have $3, $6, and $9 options, and so there is something for everybody on
01:33our happy hour menu.
01:35And while reasonably-priced promotions aren't unusual in the casual dining world, focusing
01:39so much energy on promoting food could interfere with the chain's ability to produce high-quality
01:44meals and keep up with trends moving forward.
01:48The key to making a restaurant a success is fresh faces. While regular customers can provide
01:52reliable sales, consistently getting new people in the door is a non-negotiable for
01:57any struggling restaurant. Case in point, Kona Grill is taking great pains to get butts
02:01in seats.
02:02From redesigning their restaurants to improving back-of-house tech, there's lots of evidence
02:06to suggest the company is trying to breathe new life into its customer base. And to its
02:11credit, four test locations with updated designs have already opened in Ohio, Oregon, Utah,
02:17and Arizona, with promising results.
02:19Kona Grill is also going virtual. Working with Ghost Kitchen creators Reef, the chain
02:24launched an operation in Austin, Texas that features menu items available for delivery
02:29outside of full-service restaurants. And while taking advantage of a digital audience is
02:33always a smart idea for a company looking to modernize, moves like this are a bit of
02:37a reach for a restaurant that was still struggling to maintain an audience with its existing
02:41business model.
02:43Kona Grill is no stranger to struggle. It's never been the biggest player on the block.
02:47In fact, large portions of the United States have never even seen one. But it filled a
02:51niche market for steak and seafood fans who wanted a more elevated atmosphere than other
02:56casual dining chains. Much of its business came from lunch sales and daytime dining,
03:01and many locations' proximity to malls and shopping centers helped get people in the
03:05door.
03:06But when malls started to see a drop in business, Kona Grill felt the effects. This came to
03:10a head in 2019, when the company declared bankruptcy.
03:14The future of Kona Grill is up in the air after they filed for Chapter 11 bankruptcy
03:19protection earlier this week."
03:21Unable to steady sales and revenue losses, Kona Grill switched CEOs in an attempt to
03:27regain its footing. The company was in such a shaky spot it was almost knocked off the
03:31Nasdaq. But another organization in the dining sector saw potential, and took a chance on
03:35the chain.
03:36Oh, so there's still hope.
03:38Unable to pull out of its tailspin, Kona Grill's salvation was The One Group, a parent
03:43company with a variety of popular restaurants like Benihana and STK Steakhouse. The One
03:48Group offers what it describes as,
03:51"...vibe dining, a blend of quality food, stellar service, and modern atmosphere."
03:55If you're thinking that Kona Grill sounds like a good fit for that model, so did they.
03:59The One Group bought Kona Grill for a cool $25 million in fall 2019, and took on around
04:06$11 million of the chain's existing debt.
04:08The deal also made Denver, Colorado, headquarters for Kona Grill and its 24 locations at the
04:13time. Unfortunately, the timing of the purchase didn't do much to help the chain's stability.
04:18The One Group took over just months before COVID-19, which put even booming restaurants
04:23in a tough spot. With a new property filled with troubled operations and an unclear future
04:27for the restaurant industry at large, The One Group would have had an uphill climb getting
04:31Kona Grill back to its former glory, let alone surpassing it.
04:35Hope is killing me.
04:36If numbers are anything to go by, it isn't looking good for Kona Grill. Locations are
04:41closing, dropping from an all-time high of 46 in 2017 to just 27 in 2024.
04:47They were pulling the fish out of the fish tank, they were taking the computer systems
04:51and walking them out, and they asked everybody to leave.
04:53Even with the help of The One Group, Kona Grill has only added a handful of new locations,
04:58including the four test locations mentioned earlier. Though there are signs of growth
05:01for the chain — new locations are supposedly in the works — there's no speedy expansion
05:06plan to suggest Kona Grill's out of the woods.
05:09Considering what the chain went through in the past, proceeding with caution may be wise,
05:12but it doesn't exactly scream confidence from a corporation's standpoint. Such a drastic
05:17reduction in locations in such a short time is a clear sign that Kona Grill has a long
05:21way to go to get back into the limelight.
05:23FSR reports that The One Group intended to reach 200 Kona Grill locations around the
05:28nation, but that feels like a pipe dream considering the current performance.
05:33Even with The One Group's efforts, Kona Grill hasn't been able to get close to its former
05:37glory. Corporate culture demands continuous growth, and the fact that Kona Grill isn't
05:41meeting same-store sales goals is a dark omen for the future.
05:44With a brief exception in late 2023, Kona Grill's sales declined every quarter for several
05:49years and dropped as much as 17 percent in 2024. Sales drops are never good news for
05:54a corporation, but it must feel particularly scary for a company that's still climbing
05:59out of bankruptcy. The only remedy for this downslide is increased traffic, which Kona
06:03Grill still can't get under control. The pandemic was years ago at this point, so even the lockdown
06:08can't be blamed for the current slippage.
06:10For better or worse, The One Group's leadership seems committed to working through this rough
06:13patch, but there's bound to be a limit to the amount of loss they can take before resorting
06:18to even more drastic measures.
06:20With red flags for Kona Grill waving in the wind, The One Group has been taking measures
06:24to maintain its own stability by way of its other restaurants. To help drive traffic toward
06:29Kona Grill, the company has shuttered several locations of another one of its properties,
06:34Raw Sushi.
06:35In one instance, there were three raw locations near neighboring Kona Grills. Eliminating
06:39double-up like this will leave only Kona Grill in key regions, and since both restaurants'
06:43menus overlap, closing nearby raws gives Kona Grill a better chance at bringing in customers.
06:49The One Group is continuing to nurture STK Steakhouse toward greater success as well,
06:53so the company is still clearly splitting its interests. While this doesn't mean success
06:57for one and failure for the other, it does raise the question, which property is more
07:01worthy of The One Group's investment?
07:03The way things are going, it's possible that Kona Grill could be the sacrifice needed to
07:07protect its parent company's greater interests. Though it sounds like Kona Grill will continue
07:11expanding for now, its built-in competitor could easily alter the roadmap. If STK Steakhouse
07:17pulls ahead, it could spell the end for Kona Grill once and for all.
07:21As pressing as its lacking sales are, that's not the last of Kona Grill's financial problems.
07:26According to a May 2024 report, the company is experiencing lower sales margins at around
07:31a quarter of its locations due to the real estate the restaurants occupy. And while Kona
07:36Grill is making attempts to reduce its overhead expenses, foot traffic would remain an issue
07:41even if those changes work.
07:42In what seems like a Hail Mary, The One Group has tested the idea of putting virtual Benihana
07:47locations inside Kona Grills in areas where the two brands don't intersect. And while
07:51making the most of its existing storefronts may make sense on paper, having two separate
07:56concepts exist in a single shell is something usually reserved for fast food restaurants.
08:01The combination Pizza Hut and Taco Bell route just isn't a good look for an upscale chain
08:06like Kona Grill.
08:07Early signs of any company's demise are often heralded by the workers on the ground, and
08:12Kona Grill doesn't have a great relationship with its employees. When the company first
08:16started struggling, it trimmed its staff, and suffered the consequences.
08:19Oh, surprise, surprise.
08:21Not surprisingly, on-site operations slipped, which hurt customer experiences. And while
08:26a cheaper payroll may have saved the company cash in the short term, Kona Grill's reputation
08:31suffered.
08:32Even worse, after the company began to get its footing back, employees still aren't particularly
08:37happy. Workers on Indeed have called out the company's sometimes toxic environment, poor
08:42hours, and a lack of a work-life balance.
08:45A location in Kansas City, Missouri, even staged a walkout, according to one employee's
08:49review.
08:50Enough negative feedback of this sort begins to create a picture of a company that still
08:54hasn't worked out the kinks, regardless of how sales are going or how many new locations
08:59and concepts may be in the works. When a company hopes to lift itself to the upper echelons
09:03but its workforce isn't on its side, it could be in for an even greater backslide than ever
09:07before.
09:11For more stories, visit nyseagrant.org