- Do a SWOT analysis of Outback. What does it suggest?
One of the company’s strengths is its unconventional management strategy—one that is virtually unheard-of in the restaurant industry. First, the restaurants are open for dinner only, providing short working hours for all employees. Servers receive better tips at dinner than they would serving lunch, and the single-shift days keep hourly employees from competing for more favorable shifts.
Additionally, general managers work only five days each week. The shorter hours ensure employees, particularly managers, are able to have a normal home life, thereby avoiding burnout. Second, high food costs are common in Outback restaurants, because the company insists on using only the highest quality and freshest meats and other ingredients. No frozen meats are used, and cooks make sauces and dressings fresh in each restaurant.
Finally, Outback offers large payouts to store managers; company officials believe in sharing the wealth. General managers sign a five-year contract and invest $25,000 in the restaurant location in which they will work. In exchange they receive a 10 percent ownership in that location, meaning that they receive 10 percent of the cash flow as part of their compensation.
General managers also receive about 4,000 shares of stock in the company, and hourly workers have an employee stock purchase plan available to them. The generous compensation plan attracts experienced restaurant managers. It also ensures consistency by lowering management turnover and emphasizing an ownership mentality.
Another strength is decentralization of the company. There is only one layer of management between the founders and the restaurant managers; therefore there is no unnecessary bureaucracy. Top management places trust in its general managers to make important decisions, and the chain has a unique hiring strategy. Job candidates must not only pass an aptitude test; they must also submit to a psychological profile in order to determine whether their dispositions will fit in to the restaurant’s friendly, casual attitude. These two tests are requirements for every level of employee, down to the busboys.
But because Outback is a steakhouse, steaks make up 55 percent of the chain’s sales. Reliance on steaks in a world where cholesterol and fat awareness is at an all-time high could be a weakness for Outback. Furthermore, Outback’s insistence on top-quality food products results in food costs that are higher than those of most competitors. Therefore Outback must either deal with lesser profit margins or charge their customers higher prices for meals, an option that is definitely not attractive to diners. Currently the average check price at an Outback restaurant is $18.
Despite the fact that sales have risen, Outback stock has slid due to fears of overexpansion. Outback has invested in the Carrabba’s Italian Grill chain as well as having entered into joint ventures for three other restaurant concepts. Join ventures like that with Carrabba’s are an attractive opportunity for growth for Outback. In the Carrabba’s deal, Outback pays construction costs and splits earnings with Carrabba’s.
Finally, Outback officials recently announced plans to open one of the company’s Australia-themed restaurants in Australia. It has been a long time coming, as the company has been in business for 13 years and has yet to move into the country that inspired its existence. One possible reason for Outback’s international expansion has been fear of reaching a point of saturation in the United States. Outback must continually update its restaurants in order to capture the attention of even its loyal customers away from competitors like Lone Star, Longhorn and Logan’s Roadhouse as well as from new themed restaurants in other segments.
Outback Steakhouse is one of the hottest growing restarting. This may or may not be true, but despite internal weaknesses and the threats of over saturation and consumer boredom, Outback’s strengths are great enough to ensure solid sales.
4) Is the “Principals and Believes” Policy Successful?
Outback Steakhouse has always had a formula for success. From its tiny beginnings in 1987, to its now having over 800 restaurants throughout the U.S., Canada, and other foreign markets, its sales and profits have measured Outback's success. This success is achieved by Outback's Principles and Beliefs, through which Outback maintains support of its restaurants and employees. Outback Steakhouse is a company of restaurants, not a restaurant company, and supports each restaurant individually. The purpose of the corporation is to enable each manager to effectively run their restaurant. Outback believes that if they take care of their people, namely Outbackers, customers, suppliers, neighbors, and partners, then the institution of Outback will take care of itself.
5) Evaluate Outback’s Financial Performance and present conditions.
During the year ended December 31, 2002, the evolution of the Company into a multi brand based casual dining company began to come to achievement. Carrabba’s and Outback International both made material contributions to growth and earnings and other brands began to emerge. As a result, these contributions together with the continued growth of the Outback Steakhouse brand, consolidated revenues increased by 11%, to $2.4 billion and system-wide sales grew by 11%, to $2.9 billion. Net income was $156.4 million compared with $133.4 million for the previous year. On a per share basis, this was $1.97 vs. $1.70 for the previous year (exhibit 1).
Revenue growth was accomplished primarily by opening new restaurants and the 1.5% growth in Carrabba’s comparable store sales, which represents the seventh straight year that Carrabba’s has achieved positive growth. Outback Steakhouse comparable store sales were unchanged for the year primarily as a result of thier decision to limit television advertising for six months following September 11, 2001. Thereafter, same store sales growth momentum turned positive. Sales trends in both Outback Steakhouse and Carrabba’s were affected unfavorably by the continued soft economy in former high tech and telecom markets, which had been flourishing until the end of 2000. The severity of the downward spiral appeared to be abating toward the end of 2002 and Outback is hopeful that sales in these markets will flatten out in 2003.
6) What major issues and conditions is the restaurant industry facing?
Intense competition was increasing tremendously in the restaurant industry. External extremities such as price, availability of commodities and consumer preference, which dictated how each restaurant operated. Another factor that affected the restaurant industry was the September 11, 2001 attacks, that day caused the whole restaurant industry to experience a lower than average revenue increase for almost a year and half. Also the restaurant industry faced various federal, state, and local laws. Each restaurant was subject to alcohol licensing and regulations by certain government authorities. Each restaurant establishment needed to apply to a state to for a permit to sell alcohol. In addition to the other issues and condition, there were control regulations put in place for daily operations, which also included minimum age of patrons and employees, house of operations, advertising, wholesale purchasing, and inventory control.
7) What recommendations would you makes to Harry Gauntlett to keep increasing sales and profit margins in his stores?
The recommendations I would make to Harry Gauntlett is pretty simple. I would higher prices of meals two to three dollars per meal, but also keep his niche which is a customer friendly, high quality meal, “no rules” environment to dine in. This recommendation would not only keep his customer cliental but also increase his customer base and increase his profit margins and sales. Outback Steakhouse is unique for its quality and taste of food, and its casual dining atmosphere. That uniqueness will allow Outback to increase its price without losing customers. Also according to the restaurant industry trends, the majority of people that eat out have an annual income of $70,000 or more. Raising the price a couple of dollars will not hurt many of Outback Steakhouse customers financially. Therefore, raising prices would be very beneficial to Harry Gauntlett and the company’s shareholders.