Outback Steakhouse Case

Synopsis of Case

In 1995, Outback Steakhouse was proclaimed as one of the most successful restaurant chains in the United States. The chain was started by Chris Sullivan, Bob Basham, and Tim Gannon during the 1980s. Prior to starting the Outback Steakhouse chain, Sullivan and Basham were successful franchisees of the Chili’s Restaurant chain. About the same time Gannon played a significant role in several New Orleans restaurant chains. Outback Steakhouse, formerly known as Multi-Venture Partners, was founded in 1987 after Sullivan and Basham sold their Chili’s franchise to fund their venture and they invited Gannon to join. In 1988 the trio opened their first two restaurants in Tampa, Florida.

Together, the founders managed to create an Australian themed eatery that served dinner only. The company was able to find a niche market, an untapped opportunity between high-priced and budget steakhouses to serve quality steaks at an affordable price. The owners of OB tried to diversify entering the Italian grill by purchasing half interest in the Carrabba’s Grill, and two years later purchased sole rights to develop the Carrabba’s concept. Carrabba’s did not prove to be as successful as the Outback, which led to the closing of many of them.

With this niche market, Outback realized profits in first years of operations, which is very rare in the industry. The company experienced rapid expansion in the first few years of business, typical of the industry. Outback Steakhouse went public in 1991 with the initial stock price being $4.27. During 1994 the company’s stock price ranged from a high of $32 to a low of $22.63. Family and friends provided the first investments in the company as it started to grow the company sought financing from a venture capital firm in 1990.

With their market growing considerably, Outback Steakhouse has decided that it wants to go international to expand their market share. Hugh Connertly, the appointed president of Outback International, has planned to enter market segments such as Canada, Hawaii, South America, Korea, Japan, Great Britain, and eventually progress through all of Europe.

Major Issues

Moving into an international market has many issues to consider and the strategic approach towards expansion in each individual country must be analyzed and implemented very carefully.

Minor Issues

Outback’s international expansion plans will rely on current suppliers due to strong relationships that have been built throughout business relationships. However, these suppliers currently do not operate internationally thus posing a supply-chain problem for possible expansion into international areas.

Other issues regarding international expansion into other countries also need to be considered including, access to supportive infrastructure, adapting to local culture and trade laws. Competitors within each of these regions will also pose a threat; a deeper analysis of competition within the food service industry utilizing Porter’s Five Forces model is located on the next page.

Industry Analysis

Analysis of Competition Utilizing Porter’s Five Forces:

• Risk of new entry by potential competitors: the risk is very high in the restaurant industry because of the low capital investments required to enter. Outback Steakhouse competes not only with the casual diners but as well as with fast food chains, and even supper markets. Many of the high-end grocery stores offer variety of complete meals. It costs the customer absolutely nothing to switch to a different restaurant; therefore companies in this industry cannot depend on locking in the customers. However, by establishing a brand loyalty customers will return. Established restaurants such as Outback Steakhouse have an advantage with the economies of scale in advertising and purchasing.

• Rivalry among established firms: the restaurant industry is fragmented. There are many companies operating in this industry some are global chains and some are local chains. Because of the number of players, no one company can charge outrageous prices. Each company in the particular segment controls the prices of others in that segment. Of the company can differentiate itself like Outback Steakhouse it would be able to offer a slightly higher price that its competitors.

• Bargaining power of buyers: in this industry the customers have a lot of options to choose from. This gives the buyer power, however when the customer makes a choice it is very unlikely that they will be able to negotiate the price with seller. When the restaurants