Will Japan-based Pepper Lunch dominate the US?

If the Melting Pot and a Japanese steakhouse brand had a food baby, it just might be Pepper Lunch, a fast casual Teppanyaki restaurant, where diners cook meats on personal-sized iron platters delivered table side.

Although the Japan-based concept has only five restaurants in the U.S., it spans nearly 500 locations in 15 countries and plans to have 100 North American locations open by the end of 2025, according to Yuto Tago, CEO of Hot Palette Asia Pacific, the company's parent company, which owns 126 corporate stores in three countries and has 382 franchisees.

"Pepper Lunch is a beloved global concept, but franchising in the U.S. looks much different than it does for many of the brand's largest international footholds, therefore we had to find the leadership team that understood how to marry the brand's core offerings with the operational necessities required to thrive in the competitive American franchise marketplace," Tago told FastCasual in an email interview.

Apparently, Troy Hooper was the man for the job. In February 2023 he became CEO of Hot Palette America, the private equity firm leading the U.S. development.

"There's nothing in the market quite like Pepper Lunch," Hooper told FastCasual in an email interview. "It's experiential fast-casual dining, so consumers get the wow factor of a sizzling plate at the fast casual price. The brand has a cult-like following overseas."

Hooper's job is to create a similar passion in North America.

"At Pepper Lunch, you are the MasterChef," Hooper said. "They assemble the finest and freshest ingredients on their patented sizzling hot iron Teppan plate and you simply immerse yourself in the culinary and wholesome experience of 'Sizzle it your Way.'"

How it works

Diners order from a counter, and employees deliver to their tables sizzling iron platters, which remain hot for about 20 minutes, allowing customers to cook their own food.

Options include Angus sirloin steaks featuring curry rice, Teriyaki dishes and the brand's "pepper rice," a vegetable and rice options mixed with beef, eel or salmon. Dishes range from $10 to $25 depending on the guests' meat selection.

The history of Pepper Lunch

Kunio Ichinose, a 28-year chef opened Kitchen Kuni, a full-service steak restaurant in Japan, in 1970, and soon after encountered an iron plate, which he considered a "revolutionary cooking system."

Instead of a conventional gas cooker, he introduced a high-power electromagnetic cooker, which allowed him to serve steak quickly and at a reasonable price. Customers may often confuse the Teppanyaki grill with a Hibachi grill, but the difference comes down to the type of iron plates used. Teppanyaki, for example, relies on a flat griddle, while Hibachi refers to a a grated barbecue-style grill. The iron plate will heat up to 500 degrees in 70 seconds.

"Meat that is grilled at this temperature range remains tender and juicy," Hooper said. "The iron plate also keeps food warm for a longer time hence customers can enjoy full flavors of the dish."

Kuni adapted this concept to suit his steak restaurant, Kitchen Kuni, and presented the business plan at the International Hotel Restaurant Exhibition in Tokyo. He opened the first Pepper Lunch in 1994 in Kanagawa, Japan.

The name stems from "pepper" being the main ingredient and "lunch" as the dishes are served at lunch prices all day, Hooper said. The concept eventually earned the New Business Model Development award from the Ministry of Agriculture, Forestry and Fisheries of Japan in June 2005 and opened its first U.S. location opened in 2018.

"The brand is beloved overseas with a cult-like following in its home country of Japan," Hooper said. "Pepper Lunch wants to make America sizzle and believes there is an untapped market of their one-of-kind dining experience in the United States."

Although the restaurant relies heavily on the dine-in user experience, it offers delivery and carry-out, which make up 10% of sales via delivery apps such as DoorDash and GrubHub in the U.S. and Grab Food and Food Panda in other countries.

"We are developing and testing a new kitchen layout with upgraded equipment to increase the production efficiency of our to-go offerings in order to more confidently promote this option to our customers," Hooper said.

Expanding in the US

Pepper Lunch locations are open in Irvine, Artesia and Alhambra, California, as well as in Las Vegas and Nevada Houston, but the team is ready to enter a variety of U.S. markets.

"Our first priority is to sell 55 locations to existing multi-unit operators in 2023, and then build on that success by reaching 100 or more in 2024," Hooper said. "Pepper Lunch is backed by a private equity firm and with my team's restaurant franchise leadership now at the helm, we've been given full autonomy to achieve the stated goals. The PE firm and myself strongly believe the brand is poised for growth as Pepper Lunch has been able to demonstrate market demand and strong AUVs with the locations here in the U.S. for the past five consecutive years."

All five U.S. restaurants are owned by one franchisee, but Hooper said he's ready to open a corporate store as well as a franchised store soon in California.

"Our rapidly-rising brand is a perfect opportunity for multi-unit operators looking to join on the ground floor of a next-generation experiential fast casual dining concept that's unlike anything else in the marketplace," he said. "Our US locations earn 1.5 million AUV with upwards of 28% EBITDA. Over the next six to 12 months, we're on track to improve our AUV to 1.65 million as our highest-performing store is earning 3 million in AUV."

The initial investment for a franchisee ranges from $235,000 to $785,000 with an initial franchise fee of $30,000. The average unit spans between 1,600 and 1,900 square feet and takes about nine months to build.

The chain's success over the past five years in the U.S. and Guam is just the start of North American expansion, Hooper said.

"We've combined food personalization within our authentic Japanese dishes, fast casual pricing and sizzling plate flare to create a one-of-a-kind dining experience that stands out in the crowded restaurant marketplace," he said. "These factors combined with our no-skill low-labor model, and our impressive unit economics makes Pepper Lunch poised for accelerated U.S. growth."