Prasanna V oUTBACK sTEAKHOUSE 6000I Vikram Prasanna hereby certify that the attached assignment and all materials therein have been created by me unless otherwise footnoted and that all the material contained herein including charts, graphs and other materials have been created by me. | SUBMITTED TO: MARIA RADFORDSUBMITTED BY: VIKRAM PRASANNASTUDENT NUMBER: 212448858 DATE OF SUBMISSION: 2ND MARCH 2014 |

CASE OUTLINE: The case outlines Outback Steakhouse, one of the fastest growing and most acclaimed restaurant chains in North America by 1995. The chain was founded by Chris Sullivan, Bob Basham and Tim Gannon when they realized an untapped opportunity existed in serving quality steaks at affordable prices. The chain differentiated itself through its consistent high quality food, dinner only timings, and unique “buy in” concept with managing partners, suburban locations, stringent hiring practices and a high emphasis on the quality and degree of personalization of service it provided. Although initially company owned and managed, based on requests from known acquaintances, the chain cautiously embarked on the franchisee route as well. By 1995, Outback acquired rights to develop Carrabba’s Italian Grill as part of its diversification strategy. In 1994, Hugh Connetty was appointed to lead Outbacks overseas expansion and charter out its future direction.
INDUSTRY ANALYSIS: The industry has been analyzed using Porters’s Five Forces framework in APPENDIX1 .The food service industry in the U.S although lucrative, is highly concentrated and is mainly comprised of large chains competing for customers. There is threat from an increase in competition locally, from local and international chains and can be classified as medium. As an industry the bargaining power of suppliers is low to moderate. However, for specialized restaurants such as Outback Steakhouse, suppliers have a much higher degree of bargaining power due to the requirement for quality ingredients in a timely manner. Low switching costs, the number of dining alternatives and the nature of the industry ensure that the buyer has very strong bargaining power. The threat of substitutes (alternative dining options) in the industry are high. However, specialized restaurants in the industry have a lower threat than the industry. Overall, due to the sheer number, type and size of players in the market such as McDonalds, Wendy’s, Taco Bell etc., the competition and rivalry that is vying for a share of the overall U.S food services/ dining pie is fierce.
KEY SUCCESS FACTORS: The following summarize the KSF’s (exhibited in APPENDIX 3). 1) Consistent process of high quality ingredients selection based on long term relationships with suppliers viewed as partners.2) Generous portions of high quality food and affordable prices. 3) Selecting suburban/ residential locations for restaurants that fit with only dinner dining and an outback experience based on Australian theme.4) Casual and comfortable ambience with a high degree of personalized and quality service to customers. 5) Managing partner/JVPs are required to invest in the restaurants they are running ensuring active interest and participation from their end and overall sales growth 6) Culture of recruiting, developing and retaining right employees for the right position in a comprehensive manner.7) Dinner time only service 8) Building long term partnerships with suppliers by viewing them as partners.
ELEMENTS OF CURRENT STRATEGY: 1) Culture that encourages innovation and internal entrepreneurship.2) Unique “buy in” ownership structure with immediate and capital appreciation benefits for employees 3) Dinner service ensuring prompt and responsive customer service levels and fresh food.4) Suburban location with an “Australian“ theme.5) High

quality food at affordable prices.6) Strong brand name and rapidly expanding presence in the U.S. 6) Stringent selection criteria for staff and pay structure and culture that ensures low employee attrition.7) Diversification by acquiring rights to run Carrabba’s Grill.8) High level of customer satisfaction.
ISSUE:
As CEO of Outback, what is your strategic recommendation to the Board? Should the company expand internationally or develop new restaurants in the U.S and how?
ANALYSIS AND RECOMMENDATION:
What to do? I believe that Outback should expand its operations internationally. The reasons for this consideration are derived from learning/ insights gained from SWOT Analysis contained in APPENDIX 2 and Resource and Capability framework contained in APPENDIX 4. They are as follows. The U.S market would face saturation within five years, slowing down the pace of growth the company had experienced. Competition in international markets is typically form locally owned restaurants rather than large restaurant chains. International expansion would increase the market knowledge/ awareness of global different dining trends and help Outback introduce new products in their menu in U.S. as well. Outback has a proven and very successful business model (franchisee and company owned) which has driven their rapid expansion in one of the strongest and most competitive restaurant markets in the world, the U.S. If they can benchmark the synergies created from its activities based on their resources and capabilities in other countries as well, the move would be a strong source of competitive advantage for Outback. Current experience with Carrabba’s Italian Grill has given the company the expertise of dealing with new customer segments and locations. To move in the direction of international expansion and continue to grow aggressively, this experience would help in identification of key franchisee or joint ventures partners who have the same beliefs and outlook as that of Outback Steakhouse.
How to do it/ issues to be considered? When choosing a new overseas market, factors such as market demand (disposable income, demographics, cultural factors etc.), infrastructure (transportation, supplier availability, suitable labour availability etc.), regulations and restrictions (national agreements, employment laws, franchise rules and regulations etc.) need to be studied and analyzed thoroughly. In my view Outback’s expansion should be initially limited to the American sub-continent with pilot franchise restaurant/JV in Canada or Mexico due to minimal cultural differences and its proximity to U.S. The food menu would resonate with local taste preferences and limited/ no customization would be required. Overall I believe that a Joint Venture model would be ideal. The company gets the benefit of the reduced need for capital expenditure and at the same time, has a degree of control over international operations. The benefit of having a local partner would be easier compliance with local rules and regulations, knowledge of local tradition, culture etc. In overseas markets, growth rate should be moderated initially to ensure no brand dilution and ensuring consistency in quality of food, ambience and service. APPENDICES:

Appendix 1: Porter’s Five Forces:
Porter’s Five Forces framework is an external one that is used to analyse the restaurant industry in which Outback Steakhouse operates. The model is based on the two assumptions.1) Industry structure drives competitive behaviour and 2) the restaurant Industry is fairly stable.

Threat of new entrants – Medium
The overall threat can be classified as medium. The reasons are as follows:
There is a looming and fairly probable threat from an increase in competition locally, both in terms of “homegrown “restaurants and international restaurant chains. Based on a presumably better understanding of the market, local restaurant chains might try to replicate Outback Steakhouse’s strategy if Outback expands into overseas markets. Some deterrents however are based on the requirements of the industry. Restaurant Investment capital, tangible and intangible resources and a strong and agile supply chain network. Customer loyalty and the extent of differentiation in the industry can be considered to be moderate.

Bargaining power of suppliers – High
The bargaining power of suppliers can be considered medium in the industry. The number of suppliers and the extent of their geo clustering varies depending on the country/ region etc. Switching costs also vary based on the market, but can be considered moderate. Outback’s relationship with its suppliers has been instrumental in its consistent product quality (ingredients including meat).Due to the nature of the restaurant business’ reliance on timely quality ingredients, Outback’s suppliers are critical in helping the restraint chain maintain the high quality of food and differentiate itself from the competition. Mimicking an existing supply chain framework and building and sustaining strong/reliable buyer supplier relationships must be considered high priority for any restaurant chains’ international market operations.

Bargaining power of buyers – High

In the restaurant/food industry, it is critical to not just serve to the end consumer, but also continuously keep track of the changing consumer palate and tailor food choices and presentation style to reflect and leverage such trends. Consumers exercise high power because of low switching costs and the number of restaurant alternatives available (based on the region/ market).The degree of consumer loyalty in the industry overall varies can be considered low to medium, overall.

Threat of substitute products – moderate
The threat of substitutes in the industry overall, can be perceived as being high. Reasons for this are competition from grills, steakhouses, multi-cuisine restaurants, fast food restaurants and others. Changing lifestyles of people (double income households, busier work schedules etc.) and rising income levels that lead to increased volume of restaurant patronage, affect the type and number of available substitutes. However, if a particular restaurant/chain is popular for a specific kind of cuisine, the threat of substitutes can be considered low based on a high degree of consumer loyalty.

Rivalry among competitive firms – High
The restaurant business is considered lucrative. There are a number of new entrants into the industry on a consistent basis due to the perceived “high growth “nature of the business. Thus, the increased competition leads to intense rivalry between the restaurant chains that are vying to satisfy customer’s “hunger”. These chains also compete on service and ambience.

Source: Grant, Robert M., (2010) Contemporary Strategic Analysis, Chapter 3: Tools of Industry Analysis (pp.69- 77) John Wiley and Sons

Appendix2: SWOT ANALYSIS

Strengths * Strong brand name and presence in the U.S. * Relaxed atmosphere (Australian theme) * Low staff attrition rate * Location – residential areas * Strong relationship with suppliers ( viewed as partners) * Fresh , high quality food at reasonable prices” value for “money” concept * Differentiated consumer orientation and customer service (well-paced table turnover and extent of personalization, “ no rules just right” principle * Experience in Franchising in the U.S. * Prevailing culture of innovation and entrepreneurship * Managing and Joint venture partner “buy in” ensuring active business participation * Low rents * Strong Human resource department and stringent recruitment policies | Weaknesses * No international experience * Among the highest food costs in the industry and operational inefficiencies * No brand awareness in foreign countries * Extremely sensitive to changes in supplier behavior due to strong supplier links * Only open for Dinner * Limited menu (mostly steaks) * Difficult to implement standardization due to “ personalized” service * Lower tables assigned per waiter/ server compared to industry standard | Opportunities * Expand the existing menu in terms of length and breadth of food being offered * Possibility of purchasing suppliers or even going as far back as owning farms that supply meat to ensure quality and consistency (backward integration) * Take the international expansion route * Additional diversification terms of joint ventures/ acquisition apart from Carrabba’s Grill and adding new chains within the U.S. * Staying open for both lunch and dinner * Possibility of having an online presence and a mobile app to promote home delivery * Increase customer menu offering through insights / knowledge gained from overseas expansion | Threats * Saturation of the U.S. market within 5 years * Growing awareness of the effects of red meat consumption * Existing suppliers cannot be used internationally and the need to identify and cultivate new supplier relationships * Competition from rapidly expanding healthy food chains such as Subway and others * Innovation and new offerings/ promotions from competitors * Changing customer palate toward new and diverse cuisines * Steakhouse concept may/ may not be “culturally” acceptable/ popular in new markets |

Source: Grant, Robert M., (2013) Contemporary Strategic Analysis, Chapter 1: Concept of Strategy (pp.12-14) John Wiley and Sons

Appendix 3: Pre Requisites for Success

Other means of differentiation/ factors: Surviving competition * Strong and reliable supplier partnerships * Maximum 3 tables per server * Suburban locations * Staff friendly working environment- large kitchens ( 2500 square feet each) * Brand recognition and awareness * Unique “buy in” management model- and Managing partners, JVP’s * High quality ingredients * Familiarity with local preferences * Innovative and entrepreneurial culture * Operational efficiencies- Low attrition rates, stringent staff recruitment measures * Experience in both owned and franchising models

Customer: * Fresh and high quality food * “Value” meals * Superior and personalized customer service * Convenient location * Relaxed atmosphere with an “Australian” theme

Ap Key success factors

Source: Grant, Robert M., (2013) Contemporary Strategic Analysis, Chapter 3: Tools of Industry Analysis (pp.87- 88) John Wiley and Sons Appendix 4: Strategy

Potential for Competitive advantage

Resources:
Tangible:
Building and equipment
Location
Unique theme design of restaurants

Intangible:
Strong Brand reputation
Unique entrepreneurial and innovative culture
Strong emphasis on distribution (suppliers viewed as partners)

Human:
Unique “buy in” model that encourages active manager involvement/ participation
Significant and active Human Resource department

Capabilities:
Operational efficiency-low employee attrition rate
Consistent high quality food at “value” prices
Franchising and direct ownership capabilities based on experience
Capability to select and screen the right employees in line with the culture and requirements
New product development based on R&D, customer preferences
Supply chain- Reliable and consistent procurement of quality ingredients
Marketing and sales effort considering the strong presence in U.S
Expanding via franchising and/ or own ownership model
Relaxing atmosphere and personalized service