Outback Steakhouse Market Share example essay topic

Synopsis of CaseIn 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 1980's. 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: o 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. o 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. o 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 are being considered as the buyers, they have bargaining power the company is a chain and buys in large quantities.

The buyers do not depend on the supplier because they can purchase from anyone, unless if they have an alliance with is supplier as in the case of Outback Steakhouse. o Bargaining power of supplier: the suppliers are many and the products they supply can be supplied by many others. However some companies seek to establish alliances with their supplier in order to compliment their own competitive advantage. This such as case the suppliers can requests a minimal price for the alliance as to pay more attention to a specific company. o Threat of substitute products: this threat is very high as any restaurant can satisfy the customers' need (the need to satisfy hunger). However, a customer's preference can also come into play. Not only is the diner segment a substitution, but also fast food chains and as mentioned before grocers, who have comparably, lower prices. Outback Steakhouse decreases this threat by adding the distinctive competencies to the value offered to the customer; that is the cheerful environment, delicious food, and affordable prices.

SWOT Analysis Strengths: o Superior innovation: the Outback Steakhouse founders were very original when they designed the concept for the company. Because of its superior innovation, Outback Steakhouse was able to achieve a competitive advantage by offering its customers' quality food in a fun and relaxing environment. o Superior quality: Outback Steakhouse managers stress quality at every level of the company, from the kitchen to top management. Purchasing was dedicated to obtaining the highest quality ingredients and supplies. Indeed the company was almost fanatical about quality. By purchasing quality products, Outback Steakhouse was able to offer quality meals to its customers. o Excellent human resources management: as well as focusing on productivity and efficiency of the Outbackers (employees), Outback Steakhouse focuses on the long-term well-being. The company uses aptitude tests, psychological profiles and interviews in the employee selection process as a way of finding the right employees who have the entrepreneurial spirits.

Unlike others in the industry, Outback Steakhouse offered their employees health benefits. The way they handled their employees shows that Outback Steakhouse has very appropriate management style. o Well-developed strategy: Outback Steakhouse has identified itself to have a differentiation strategy by achieving superior quality, efficiency, customer responsiveness and innovation. Weaknesses: o Narrow product line: Outback Steakhouse does not offer a variety of options on the menu mainly restricting their main product to beef. This could be a problem when the company tries to expand into global market, in areas such as Asia where chicken is widely preferred over beef Outback Steakhouse will find it difficult to expand there. o Lack of innovation: innovation is one of the company's strengths and gave it its competitive advantage. However, the company has not shown any new innovation to add to the Outback Steakhouse concept. The company has tried new areas but the originality was not there to open an entire new chain.

Opportunities: o Diversify menu offerings: this coincides with the threat that customer tastes change. One trend was that more people are turning away from red meat (which makes up Outback Steakhouse menu) adding new varieties of chicken and pork to the menu could be beneficial. o Vertically integrated backwards: Outback Steakhouse could opt to purchase small companies that supply the products that they need. This will also add to the expanding the core business, as the company will be entering new related business. SWOT Analysis Opportunities: o Expand business internationally: the top 50 restaurant franchisers increased their sales from US$15.9 billion to US$17.5 billion between 1992 and 1993 making international business a great opportunity to expand into new market segments. Threats: o Economic downturn: a slow down in the economy would really hurt a diner such as Outback Steakhouse, because it is considered a luxury restaurant to some extent. Only upper class would be able to eat their everyday.

In a recession people would opt to eat at home or eat at fast food chains, which are considerably cheaper. o Increase in industry rivalry: in a saturated market new entrants will be coming up with new innovative ideas they are going to enter the market, because the industry is already overcrowded with cost-leadership restaurants. Such as company could take from the Outback Steakhouse market share or develop an offer for the same niche that Outback Steakhouse serves. Solutions and Recommendations The company's functional-level strategy is to differentiate its restaurants by emphasizing consistently high quality food and services. Outback Steakhouse offers generous portions at moderate prices and a casual atmosphere suggestive of the Australian Outback. In a nutshell, this strategy is responsible for the company's success.

Along with this strategy Outback Steakhouse Inc. owes it success to its Outbackers who offer their exceptional entrepreneurial spirit to the company's image, and its strong relationship with suppliers. These strategies are sustainable in the domestic market and most of them are transferable. However the relaxed structure that the company has might not work as well in nations that respect hierarchy. The strategies to build long-term relationships with suppliers and the treatment of employees will be transferable because host countries want the companies to spend money when they expand abroad. At this time international expansion is important because of the location strategy that Outback uses. To maintain the image, as a semi-upscale diner the company cannot overcrowd areas with many restaurants, this will take away from the image.

This is a good strategy to keep when expanding internationally, because it will still be focusing on the middle to upper class crowds at dinnertime. 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..