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.
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.
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Since Outback has already developed and sustained relationships with suppliers in the U.S., they could opt to keep these suppliers as long as they are willing to move internationally with Outback. However, Outback must remember that if these suppliers move internationally, they will need to deal with many issues as well that may limit their areas of expansion. The smart move for Outback in this situation would probably be to develop relationships with suppliers that are already established in countries of target to minimize dependency on a supplier that may not survive in another market. In addition, suppliers that are already established will be able to offer Outback a more competitive price than that of one that has just entered a new market segment.
Overall, I would recommend that Outback Steakhouse Inc. enter markets where beef is the preferred meat as to avoid a cultural backlash. Entering the Latin American and European markets is better than jumping into the Asian market. In addition, I think Outback should focus on entering richer markets where the majority of the population has a reasonable amount of disposable income, because of the type of business it is.