- Environmental concerns: Health issues with beef can create a shift in people’s choice of meats. Together with the “Shift in meat consumption”, they threat Outback’s main product.
- Work life quality attitudes: People put more emphasis on the enjoyment of life and life qualities, and this is an opportunity for Outback and the restaurant industry
Political/Legal Segment ( International)
-
GATS: Franchising scored a win in the GATS agreement. This topic was addressed directly in international trade talks. As trades rules relax, an opportunity opens for international expansion.
- GATS limitations and Asian Regions Tariffs: Most countries have not made their restrictions on franchising publicly known. With limited information and steep tariffs and inconsistent regulations in Asian regions, Outback’s ability to import commodities and equipment is threatened.
Economic Segment
- GDP: In 1994, US per capita GDP is $25868, and as GDP rises spending increases. Outback has an opportunity to capitalize on the higher spending.
- Personal Savings Rate: In 1994, PSR is approximately 5.2 and following a declining trend. As the rate decreases spending increases, and it is a positive trend for Outback, for there may be more consumers.
Technological Segment
1) Product innovations: Outback makes unique products, like the multi-seasoned croutons. Product innovations create opportunities for differentiation.
Global Segment
1) Critical Global Markets: There is an opportunity for growth in Eastern Europe, Soviet Union, China, India, and Latin America.
Industry Environment
Porter’s 5 Forces
1) Threat of New Entrants
New entrants are deterred by Outback’s focus on product and service differentiation. The capital required to establish a restaurant chain and become a supporting operation of franchises is also enormous, and lengthy time is needed to establish a niche and strategy. Furthermore, Outback has established distribution channels ranging from solid relationships with suppliers and co-operations with joint venture businesses. All these factors are obstacles for new entrants.
2) Bargaining Power of Suppliers
Outback is a supplier of knowledge, experience franchises and food. There are numerous restaurant franchises, so there are many choices for buyers. However, Outback’s products are differentiated, and it poses as a credible threat of forward integration, as it is already a seller of foods.
3) Bargaining Power of Buyers
As a buyer, Outback has always used the same suppliers. It has an undying commitment to them, and in exchange, it wants them to have an undying commitment in return. Even in the face of international expansion, Outback wants to keep its suppliers, hence showing extreme loyalty. However, when it seems that the supplier has a lot of power, in reality, Outback is forcing high quality.
4) Threat of Substitute Products
A major substitute product is similar Outback foods available in grocery stores, as cooking at home is still the preferred method of consumption. Also, some companies provide frozen dishes that are microwave ready. This is also a substitute of the dinning experience. In terms of the franchising sector, starting one’s own business from scratch is a substitute. However, the cost and risk of doing so may deter some investors. These substitutes are threats to Outback’s foods and services.
5) Rivalry Among Competing Firms in Industry
Initially, strong relationships with the local media were used for promotional efforts. Later, full-scale national media programs, such as television advertising and local billboards, were used. The only printed advertising came as a part of a package offered by charity or sports events. This approach is different from other restaurants, where coupons are printed and there is aggressive media advertising. In a way, Outback takes a different route and does not compete excessively in advertising with competitors.
Competitors
Applebee’s: competes with Outback domestically, especially in the franchising sector, where it has experienced the most growth.
Chili’s
The Olive Garden
Bennigan’s
Lonestar Steakhouse and Saloon: a themed steakhouse.
Resources and Capabilities/Core Competencies (S/W)
Resources
Tangible
1) Financial: In 1990, the company acquired a $2.5M financing package from a venture capital firm. Also, the company undertook three highly successful public equity offerings. This provides financial strength to Outback in terms of expansions and joint ventures.
2) Human Resources: Outback has great relationships with employees, which allows it to be strong in providing the highest quality of service to consumers. Also, the turnover rate of managers (5.4%) and employees is low.
Intangible
1) Innovation: As discussed above, Outback emphasizes on innovative products, such as the making of unique croutons, creating innovative appetizers, like its signature trademark “Aussie-Tizer” and the “Bloomin Onion”.
2) Reputation: Outback has a high reputation for making quality dishes. It is fanatical about quality and has one of the highest food costs in the industry.
Capabilities
1) Entrepreneurialism
2) Product Differentiation
3) Ease of expansion due to reputation
4) Financial stability
Core Competencies
1) Contacting support operations for international franchises
2) Providing great dining experiences to consumers.
3) Building relationships with suppliers.
4) Building relationships with employees
5) Entrepreneurialship
Business, Corp, Co-op, and International Strategies
Business Level Strategy
Differentiation
Outback develops new systems and process, such as new appetizers and croutons. It shapes perceptions by advertising and participating in community activities. The focus of Outback is on quality, as it has a high food cost. Lastly, it maximizes human resource contributions through low turnover and high motivation. Employees are empowered and encouraged to be entrepreneurs.
Corporate Level Strategy
Outback has a moderate level of diversification and vertical integration.
International Strategy
1) Outback should have a Multi-Domestic Strategy. Strategy and operating decisions are decentralized to strategic business units in each country. Outback will allow local franchisees to handle operating decisions, while it provides the framework.
2) Products and services are tailored to local markets. Different markets have different tastes that are defined by believes, religions, or lifestyles. Outback also assumes that markets differ by country or region.
3) Business units in each country are independent of each other. The investors in different countries purchase Outback franchises, and they are independent from other investors.
Cooperative Strategy
1) Joint Ventures: In 1994, Outback had six restaurants it operated through joint ventures in which the company had a 45% interest. The earliest case was a joint venture with Carrabba’s. The company was responsible for 100 percent of the costs of the new Carrabbas Grills, and it owned a 50% share.
2) Franchises: In 1994, franchisees operated 44 restaurants. Franchised restaurants generated 0.8% of the 1994 revenues as franchiee fees. International franchises are in the plans.
Synthesis
SWOT Synthesis
1) Strengths
a) Impeccable reputation
b) Solid relationship with suppliers
c) Good relationship with employees
d) Quality products
e) Diversified business focuses (joint ventures, franchises)
f) Franchising experience
2) Weaknesses
a) Fixed suppliers
b) Non-competitive marketing strategies
c) Lack of distribution chain overseas
3) Opportunities
a) Overseas expansions
b) Joint venture possibilities
c) Franchising
4) Threats
a) Saturated US market
b) Possible future changes in consumer taste
SWOT Matrix
Strengths Weaknesses
Opportunities
Threats
Criteria, Evalution & Recommendation
Possible Alternatives
1) Expand into Asia
2) Expand into Europe
3) Expand into Latin America
4) Expand into Canada
5) Stay domestic and find new niche after the saturation point.
6) Seek other joint venture partners
Criteria
Infrastructure/ Demographics / Income
Market Share / Trade laws /Cost Revenue /Competition
Evaluation
1) There is weak infrastructure in Asia, however, there is huge market potential, with India and China having over 2 billion in population. In the future, trade laws may loosen. In the meantime, they are not reliable. The income is low, but this may be changing.
2) Europe has good infrastructure, but a high demand of quality. This may pose a costly problem. The income level is high, as Germany as the highest GDP in 1994. There is a good source of suitable franchisees. Cost of building infrastructure may be kept at a minimum.
3) Mexico has poor infrastructure, and has only 5% upper class population. Trade laws are relaxed, however it poses the same problems as Asia in terms of income and infrastructure.
4) The domestic market is moving towards saturation. A new niche/concept can be investigated. The infrastructure and supply chain are in place. However, there is high competition domestically, and the market share may not be profitable.
5) Canada has good infrastructure, low differences in demographics, similar values and proximity of distance. The cost to expand is lower than other areas, and the government is co-operative. The income in Canada is lower than that of the States, and there is a lack of population.
6) New joint venture partners can bring new revenue. There will be cost for recruiting suitable partners or franchisees.
Recommendation
1) Expand into Canada.
2) Gradually expand into other countries
3) Seek other joint ventures in the restaurant industry
4) Actively recruit franchisees domestically and overseas.
Implementation
Action Plan for Implementaion
1) Form a international business department that over sees expansions
2) Gather statistical data on possible Canadian locations
3) Choose location
4) Access planned location in terms of infrastructure and supply chain
5) Formulate strategy
6) Recruit and franchisees
7) Plan for future expansions into other countries
8) Seek other joint venture possibilities
New Organizational Structure or Controls
Outback will need a new department, perhaps under Hugh Connerty to handle planning and the execution of international expansions.
Criteria to Evaluate Change Successful
1) Profit: Positive returns from the changes.
2) Cost: Minimum cost
3) % of Total Revenue: The revenue due to the new changes meets target.
4) Reputation: The reputation remains strong
5) Market Share: More market penetration
The company’s Statement of Principles and Beliefs refer to employees as “Outbackers”
Canada, Mexico, Caribbean Islands, Costa Rica, Venezuela, Brazil, China, Japan, Korea, Hong Kong, Philippines, Thailand, Singapore, Malaysia, Indonesia, and Australia.
General Agreement on Trade in Services
