Outback Steakhouse Essay
The principal features of Outback Steakhouse’s Strategy in the US
Chris Sullivan, Bob Basham and Rim Gannon founded Outback Steakhouse. They saw an untapped opportunity for serving quality steaks at an affordable price thereby filling the gap between high priced and budget steakhouses. Outback was able to position itself as a firm that provides not only excellent food but also cheerful, fun and comfortable experiences. There are a combination of business practices and features that made Outback Steakhouse successful in the US market, which are: 1) Astute positioning within the intensely competitive US restaurant business through differentiation strategy. Outback Steakhouse offered high quality food and service, relaxed ambience and comfortable …show more content…
experience. They used consistently high quality ingredients to prepare their meals, provided hand made dishes and the quality of food was central to the chain’s differentiation. Also, Outback Steakhouse offered generous portions at moderate prices, had a casual dining atmosphere with high attentive service attracting a diverse mix of customers. They not only offered bigger menu than the typical casual restaurant did in the 1980s but also, the restaurant was fully staffed with fully trained employees. Their servers had not more than three tables so as to guarantee good service as well as provide familiar feeling to the customers. 2) Limiting service to dinner – Outback Steakhouse limited their service to only dinner. They operated from 4:30pm to 11:00pm thereby reducing the hours of restaurant management and employees. This strategy ensured that the food was fresh, as they were prepared in the evenings and not in the mornings. 3) Customer satisfaction and location of stores with Australian theme – the firm ensured that employees were properly selected and trained to do what ever is needed to meet the needs and preferences of customers. The stores where situated in residential areas rather than downtown, this meant low rents. 4) Management and Ownership structure - the company provided restaurant management the opportunity to purchase a 10% interest in the restaurant they managed. Each restaurant was managed by a managing partner and 10-20 restaurants are overseen by a regional manager/joint venture partner (JVP) 5) Human resource – selection of managers and employees. The company was tough on results, but kind with people. They carefully selected each franchisee to ensure that all franchise was fully committed to Outback’s principles and beliefs. Employees had to write and aptitude test and were interviewed with at least two managers. Their goal was to create an entrepreneurial climate that fosters learning and personal growth. 6) Long-term relationship with suppliers – Outback created long-term relationships with its suppliers; its suppliers were referred to as partners.
Why the Strategy was Successful
Outback’s differentiation strategy from other competitors guaranteed that the company provided high quality of food and services to its customers. They put customers needs as the highest important value to the firm. The location of the restaurants in suburbs reduced cost of rent and the management and ownership structure guaranteed self identification of managers to work for their own business thereby bring out the best in them. The benefits package and hiring system ensured they were able to select talented workers that share the same values and beliefs with them and keep them motivated and the long-term relationship with suppliers ensured high quality of raw materials.
Key Elements of the International Expansion Strategy being proposed by Hugh
Mr Connerty’s key elements of international expansion strategy includes: 1) To focus on its pure strength - support operation. Hugh’s international strategy was to provide opportunities for their suppliers internationally to build plants abroad. Also, Outback has an underlying commitment to their suppliers – never changed suppliers – and expects the same level of commitments from their suppliers. 2) Finding the right franchise partner for abroad expansion – Hugh expansion strategy entailed selecting the right franchise partner. Hugh wants to select people who have synergy with Outback, who think like them and who believe and share the same principles as the company. 3) Geographical expansion – Plans to expand internationally first into Canada, then into a diverse international stage all within the first year. Then to the UK and then a natural advancement throughout Europe.
Assessing the proposed strategy (a) Should outback steakhouse expand internationally or would it be better to expand through starting new restaurant chains within the US?
Outback should expand first, nationally in the US, while studying the various countries in terms of the extent to which market demand exist for there kind of restaurant in regards to the level of disposable income, urbanization demographic and other social economic factors. Also, Outback has to understand the cultural and social factors that influences customer preference in these countries as well as find supplies in sufficient quantity, good quality and at a stable price before expanding internationally. Since gains from operating globally are increasing, by expanding internationally, Outback will gain competitive advantage over its competitors. (b) Does the strategy outlined by Connerty make sense?
I believe the strategy outlined by Connerty does not make sense as he did not take time to analyse how the internal resources and capabilities of Outback will align with the States and countries national environments he plans to expand into. Also, he did not look at the regulations and trade restrictions, the supply chain, social and cultural factors of the States and countries he intend to expand into. Before expanding within the US and internationally, a proper analysis needs to be carried out.
Establishing competitive advantage globally requires congruence between Outback’s business strategy and the pattern of the States and countries comparative advantage it intends to expand into. For Outback to gain competitive advantage by expanding in the US market the firm has to match its internal strength, resources and capabilities to the key success factors of the industry such as location and recruiting the right talent in those States it plans to expand into. Expanding internationally also depends not just upon Outback’s internal resources and capabilities, but also the national environments of those countries – in particular, the availability of resources in those countries they intend to expand into.
If Outback is to expand internationally, advise Chris Sullivan on: (a) The optimal rate of international expansion:
Moving from a national to an international business environment creates complexity and increased opportunities. In an international environment, a firm’s potential for competitive advantage is determined not just by its own resources and capabilities but also by the conditions of the national environment in which it operates including input prices, exchange rates and a host of other factors. First, Outback needs to carryout a market research to understand the international terrains they intend to expand into; analyses such as the market demand, cultural and social cultural factors, regulations and policies etc. Second, they should build relationship with partners that share the same core values with them and expand first in the US and into Canada before expanding into other parts of the world. Finally, set up a committee that ensures that the standard of Outback Steakhouse is adhered to and the brand name is maintained. (b) The best mode of entry into foreign markets
Outback should enter foreign market through franchising (licensing).
This strategy involves lower cost when compared with direct management and joint venture. It reduces portfolio risk by diversifying into new consumer market and the firm’s structure is appropriate for this strategy and resource base. (c) Which countries to enter first
Outback needs to understand the risk and potential of entering a particular market. Also, based on income, infrastructure, demographic and trade laws; Outback should expand first to Canada, then Mexico, Japan, the U.K, Germany, Saudi Arabia and UAE. (d) Whether Connerty is the right person to head the international division Connerty is not the right person to head the international division as he has no experience abroad, his experience is Limited to the US (south Georgia and Northern Florida). I recommend a more experienced person handle the expansion of Outback Steakhouse with experience in Joint venture and franchising internationally.
Appendices
Porters Five Forces
Rivalry: HIGH
Competitive Rivalry * Competition in the restaurant industry is very strong due to the fact that all restaurants are basically going after the same potential
customer * Fragmented restaurant industry (high Segmentation of the industry) * Many global restaurant chains
Buyer Power: HIGH * Low switching costs for the buyers * High concentration of buyers/customers * Buyers do not depend on suppliers (restaurants) * Alternative sources are available for the customers
Threat of Entry (Most important): LOW
Depending on barriers to entry * The differentiation of Outback Steakhouse is moderate; apart from steak houses and grills, competitors are casual diners, fast food chains and groceries. * Economies of scale available for large restaurant chains. Outback steakhouse: economies of scale for advertising and purchasing * The possibility of new entrants joining the industry is high as it does take a low investment to start a restaurant.
Threat of Substitutes: HIGH
Reduction in demand for products as customers switch to alternatives * Many substitutes with similar products available (apart from relaxing and outback concept), e.g. grills, other steak houses, fast food chains and grocers * Any restaurant can satisfy basic human need to "satisfy hunger" * Cooking at home could hinder sales
Supplier Power: MEDIUM * Concentration of suppliers is low/medium (internationally depending of country) * Many suppliers are available (internationally depending of country) * Switching costs are moderate (but needs to be considered that quality of beef is important) * Very high linkage of Outback Steakhouse to their supplier acc. to the high quality)
The key success factors * Human resources * Convenient Location * Operational efficiency * Price-performance relation * Maintaining brand reputation
SWOT ANALYSIS
Strength:
* Good supplier relation and strong entrepreneur spirit * Good geographical strategy - Location of restaurants (suburbs) * Relaxing atmosphere (Australian Theme) * Excellent Human Resources Department * Differentiation Strategy (customer orientation)
Weaknesses:
* No international experience * No brand awareness in foreign countries * Serving only dinner not serving lunch crowds * No menu innovation (R&D, Product Development)
Opportunity
* Diversify menu offerings * Demand for foreign franchise * Expand business internationally
Threat
* Saturation of US-Market within five years * Health concern about red meat consumption * Competitors with new concepts and innovations * Cultural differences and economic barriers such as tariffs, regulations, laws, labor laws and unification etc.
Chris Sullivan, Bob Basham and Rim Gannon founded Outback Steakhouse. They saw an untapped opportunity for serving quality steaks at an affordable price thereby filling the gap between high priced and budget steakhouses. Outback was able to position itself as a firm that provides not only excellent food but also cheerful, fun and comfortable experiences. There are a combination of business practices and features that made Outback Steakhouse successful in the US market, which are: 1) Astute positioning within the intensely competitive US restaurant business through differentiation strategy. Outback Steakhouse offered high quality food and service, relaxed ambience and comfortable …show more content…
experience. They used consistently high quality ingredients to prepare their meals, provided hand made dishes and the quality of food was central to the chain’s differentiation. Also, Outback Steakhouse offered generous portions at moderate prices, had a casual dining atmosphere with high attentive service attracting a diverse mix of customers. They not only offered bigger menu than the typical casual restaurant did in the 1980s but also, the restaurant was fully staffed with fully trained employees. Their servers had not more than three tables so as to guarantee good service as well as provide familiar feeling to the customers. 2) Limiting service to dinner – Outback Steakhouse limited their service to only dinner. They operated from 4:30pm to 11:00pm thereby reducing the hours of restaurant management and employees. This strategy ensured that the food was fresh, as they were prepared in the evenings and not in the mornings. 3) Customer satisfaction and location of stores with Australian theme – the firm ensured that employees were properly selected and trained to do what ever is needed to meet the needs and preferences of customers. The stores where situated in residential areas rather than downtown, this meant low rents. 4) Management and Ownership structure - the company provided restaurant management the opportunity to purchase a 10% interest in the restaurant they managed. Each restaurant was managed by a managing partner and 10-20 restaurants are overseen by a regional manager/joint venture partner (JVP) 5) Human resource – selection of managers and employees. The company was tough on results, but kind with people. They carefully selected each franchisee to ensure that all franchise was fully committed to Outback’s principles and beliefs. Employees had to write and aptitude test and were interviewed with at least two managers. Their goal was to create an entrepreneurial climate that fosters learning and personal growth. 6) Long-term relationship with suppliers – Outback created long-term relationships with its suppliers; its suppliers were referred to as partners.
Why the Strategy was Successful
Outback’s differentiation strategy from other competitors guaranteed that the company provided high quality of food and services to its customers. They put customers needs as the highest important value to the firm. The location of the restaurants in suburbs reduced cost of rent and the management and ownership structure guaranteed self identification of managers to work for their own business thereby bring out the best in them. The benefits package and hiring system ensured they were able to select talented workers that share the same values and beliefs with them and keep them motivated and the long-term relationship with suppliers ensured high quality of raw materials.
Key Elements of the International Expansion Strategy being proposed by Hugh
Mr Connerty’s key elements of international expansion strategy includes: 1) To focus on its pure strength - support operation. Hugh’s international strategy was to provide opportunities for their suppliers internationally to build plants abroad. Also, Outback has an underlying commitment to their suppliers – never changed suppliers – and expects the same level of commitments from their suppliers. 2) Finding the right franchise partner for abroad expansion – Hugh expansion strategy entailed selecting the right franchise partner. Hugh wants to select people who have synergy with Outback, who think like them and who believe and share the same principles as the company. 3) Geographical expansion – Plans to expand internationally first into Canada, then into a diverse international stage all within the first year. Then to the UK and then a natural advancement throughout Europe.
Assessing the proposed strategy (a) Should outback steakhouse expand internationally or would it be better to expand through starting new restaurant chains within the US?
Outback should expand first, nationally in the US, while studying the various countries in terms of the extent to which market demand exist for there kind of restaurant in regards to the level of disposable income, urbanization demographic and other social economic factors. Also, Outback has to understand the cultural and social factors that influences customer preference in these countries as well as find supplies in sufficient quantity, good quality and at a stable price before expanding internationally. Since gains from operating globally are increasing, by expanding internationally, Outback will gain competitive advantage over its competitors. (b) Does the strategy outlined by Connerty make sense?
I believe the strategy outlined by Connerty does not make sense as he did not take time to analyse how the internal resources and capabilities of Outback will align with the States and countries national environments he plans to expand into. Also, he did not look at the regulations and trade restrictions, the supply chain, social and cultural factors of the States and countries he intend to expand into. Before expanding within the US and internationally, a proper analysis needs to be carried out.
Establishing competitive advantage globally requires congruence between Outback’s business strategy and the pattern of the States and countries comparative advantage it intends to expand into. For Outback to gain competitive advantage by expanding in the US market the firm has to match its internal strength, resources and capabilities to the key success factors of the industry such as location and recruiting the right talent in those States it plans to expand into. Expanding internationally also depends not just upon Outback’s internal resources and capabilities, but also the national environments of those countries – in particular, the availability of resources in those countries they intend to expand into.
If Outback is to expand internationally, advise Chris Sullivan on: (a) The optimal rate of international expansion:
Moving from a national to an international business environment creates complexity and increased opportunities. In an international environment, a firm’s potential for competitive advantage is determined not just by its own resources and capabilities but also by the conditions of the national environment in which it operates including input prices, exchange rates and a host of other factors. First, Outback needs to carryout a market research to understand the international terrains they intend to expand into; analyses such as the market demand, cultural and social cultural factors, regulations and policies etc. Second, they should build relationship with partners that share the same core values with them and expand first in the US and into Canada before expanding into other parts of the world. Finally, set up a committee that ensures that the standard of Outback Steakhouse is adhered to and the brand name is maintained. (b) The best mode of entry into foreign markets
Outback should enter foreign market through franchising (licensing).
This strategy involves lower cost when compared with direct management and joint venture. It reduces portfolio risk by diversifying into new consumer market and the firm’s structure is appropriate for this strategy and resource base. (c) Which countries to enter first
Outback needs to understand the risk and potential of entering a particular market. Also, based on income, infrastructure, demographic and trade laws; Outback should expand first to Canada, then Mexico, Japan, the U.K, Germany, Saudi Arabia and UAE. (d) Whether Connerty is the right person to head the international division Connerty is not the right person to head the international division as he has no experience abroad, his experience is Limited to the US (south Georgia and Northern Florida). I recommend a more experienced person handle the expansion of Outback Steakhouse with experience in Joint venture and franchising internationally.
Appendices
Porters Five Forces
Rivalry: HIGH
Competitive Rivalry * Competition in the restaurant industry is very strong due to the fact that all restaurants are basically going after the same potential
customer * Fragmented restaurant industry (high Segmentation of the industry) * Many global restaurant chains
Buyer Power: HIGH * Low switching costs for the buyers * High concentration of buyers/customers * Buyers do not depend on suppliers (restaurants) * Alternative sources are available for the customers
Threat of Entry (Most important): LOW
Depending on barriers to entry * The differentiation of Outback Steakhouse is moderate; apart from steak houses and grills, competitors are casual diners, fast food chains and groceries. * Economies of scale available for large restaurant chains. Outback steakhouse: economies of scale for advertising and purchasing * The possibility of new entrants joining the industry is high as it does take a low investment to start a restaurant.
Threat of Substitutes: HIGH
Reduction in demand for products as customers switch to alternatives * Many substitutes with similar products available (apart from relaxing and outback concept), e.g. grills, other steak houses, fast food chains and grocers * Any restaurant can satisfy basic human need to "satisfy hunger" * Cooking at home could hinder sales
Supplier Power: MEDIUM * Concentration of suppliers is low/medium (internationally depending of country) * Many suppliers are available (internationally depending of country) * Switching costs are moderate (but needs to be considered that quality of beef is important) * Very high linkage of Outback Steakhouse to their supplier acc. to the high quality)
The key success factors * Human resources * Convenient Location * Operational efficiency * Price-performance relation * Maintaining brand reputation
SWOT ANALYSIS
Strength:
* Good supplier relation and strong entrepreneur spirit * Good geographical strategy - Location of restaurants (suburbs) * Relaxing atmosphere (Australian Theme) * Excellent Human Resources Department * Differentiation Strategy (customer orientation)
Weaknesses:
* No international experience * No brand awareness in foreign countries * Serving only dinner not serving lunch crowds * No menu innovation (R&D, Product Development)
Opportunity
* Diversify menu offerings * Demand for foreign franchise * Expand business internationally
Threat
* Saturation of US-Market within five years * Health concern about red meat consumption * Competitors with new concepts and innovations * Cultural differences and economic barriers such as tariffs, regulations, laws, labor laws and unification etc.