Hawaii works hard for its money. We took a look at 12 different businesses—from Matson to L&L Drive-Inn to a downtown parking garage—to find out just what it takes to make a living in paradise.
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Bank of Hawaii
How it works: You may think of your checking and savings accounts as sitting securely in the bank vault, but in reality, last month’s paycheck most likely paid for someone’s new car, or maybe a first home. It’s still secure, of course, but Bank of Hawaii has your money hard at work. Chairman and CEO Al Landon boils it down this way: “Lots of people allow us to manage their money, and we invest some of that at a higher rate.”
Where your money goes: The bulk of BOH’s income is made by loaning money back into the community in various forms, including mortgages, car loans, commercial loans and revolving credit lines. In 2006, it collected $425.5 million in interest and fees on loans and leases. The next largest piece comes from securities, which have a lower return, but are safer. BOH made $126.8 million from available-for-sale investment securities in 2006.
Market share: Landon estimates that BOH finances 20 percent of the state’s business activity.
Growth potential: Bank of Hawaii’s fastest growing segment is the small business sector, “which is consistent with what you’ll find in the rest of Hawaii’s economy,” Landon says. “It’s where a lot of the job creation is, and a lot of the value generation. Hawaii is particularly entrepreneurial.”
The Queen’s Medical Center
How it works: That big scary number at the bottom of your hospital bill is all but meaningless. “Ninety-nine percent of patients never pay the billed charges, because they’re covered by some form of insurance,” says Art Ushijima, president and CEO of The Queen’s Health System. Private insurance providers such as HMSA negotiate substantial discounts for medical procedures, and government-run insurance providers Medicare and Medicaid—which cover more than half of the hospital’s patients—pay even less. “If you participate in the Medicare program, you accept a set reimbursement for a certain procedure,” explains Ushijima. “Your actual costs may be more than that, but Medicare calls the shots, and you have to manage your costs to meet their number.”
Volume: The Queen’s Medical Center receives 21,000 inpatient admissions a year, and 275,000 outpatient visits. More than 1,600 trauma patients come through the emergency room each year.
Photo by Sergio GoesThe Queen’s Medical Center invests $40 million a year in facilities, equipment and technology.
Bottom line: In 2006, the hospital made $24.2 million, including $4.8 million in operating income and $14.4 in investment income. The medical business can be mercurial, though; Queen’s is projecting a $10 million loss in operating income for 2007.
How it works: The plate-lunch business is all about quantity. “We’ve got to make sure the food tastes good, but in the fast-food arena, people are looking for value. They expect large portions,” says Eddie Flores, CEO of L&L Drive-Inn and L&L Hawaiian Barbecue.
New territories: Hawaii’s plate-lunch market is saturated with competitors, so L&L has turned to the Mainland to find new customers. There are now 180 L&L locations nationwide, 51 or 52 of them in Hawaii. “It’s hard to keep track of them all,” says Flores. “We opened three this month.” L&L owns only 10 restaurants at this point, the rest are franchises. “It’s the fastest way to grow,” says Flores.
Join the team: New franchisees pay L&L a fee of $35,000, plus 4 percent of monthly sales, and cover all startup costs, typically totaling $350,000. In exchange, they receive a proven business model and a well-established brand name. “In the Mainland, we don’t advertise. As soon as people hear that we’re opening, we have 20 or 30 people from Hawaii just waiting to get in,” says Flores.
Gross sales: L&L brought in $80.6 million in 2006, an average of $448,000 in gross sales per location.
Keeping it real: Flores gives his L&L franchisees a little more freedom than other chains. “We train them, give them the recipes, but they can deviate from that. I’ve found that our customers accept the differences between locations. This particular L&L has good garlic fish; this other one has good katsu.”
Photo by Olivier KoningEddie Flores, CEO of L&L Drive-Inn.
Good for you: A successful restaurant must be sensitive to customer demands. L&L now offers tossed greens and brown rice with its lunches, selling more than 50 “healthy plates” a day at its Keeaumoku Wal-Mart location.
Largest costs: 30 percent of the cost of a plate lunch goes toward the food ingredients, 25 percent toward labor costs.
Most profitable menu item: Any plate using chicken, which costs L&L just 30 cents per plate to include.
Least profitable menu item: The laulau plate. Each laulau costs $1.80, and with the kalua pork and other items, the entire plate ends up costing L&L about $3.50, just in ingredients.
Rent: L&L restaurants typically occupy 1,000 to 1,500 square feet of space, and pay between $2.75 to $4 per square foot a month. But Flores worries about Hawaii’s ever-soaring real estate values. “All the new shopping centers I’ve been dealing with, the lease rents have increased two- to threefold,” he says. “Some people are quoting $10 or $11 a square foot. My god; no one could survive with that.”
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