Generally the efficiency of the production is neglected but as Outback embarks on a differentiation and niche strategy that doesn’t affect its competitiveness. All other building blocks of competitive advantages are addressed, its products are of excellent quality, its products as well as the management system and the organisational structure are innovative and its customer responsiveness is outstanding.
Opportunities and Threats
The strategic position of Outback is mainly determined through companies that are in the same strategic group: moderate price and high quality dinners. The opportunities and threats are mainly the same for that strategic group, the entry into another group might be desirable and would result in a diversification strategy.
According to Porter’s Five Forces Model, the restaurant industry is highly competitive. The rivalry among established companies is very high as Outback operates on the one hand in the highly fragmented restaurant industry and on the other hand has to compete directly with a few big chains. The demand conditions depend to a high degree on the general economic situation, but the US market in general can only accommodate a limited number of restaurants. The exit barriers are very low. The risk of entry of potential competitors is high as the barriers of entry are very low.
The bargaining power of buyers is moderate, all customers account for only a marginal part of the revenues but as the demand is very elastic they tend to switch to the competitors if they are not fully content. The bargaining power of suppliers is moderate to high, the company doesn’t depend on one single supplier, but on high quality. The threat through substitute products is quite high, steaks could be replaced through poultry or completely different meals.
The macroeconomic environment influences the restaurant industry to a high degree as a decline or growth of the economy influences directly the demand for restaurant food. Further, the US market will be saturated with around 550-600 Outback restaurants, this offers the opportunity of further growth in the next few years but simultaneously imposes the threat of saturation of the national market and induces the need for an international option. In the social environment, the greater health consciousness leads to a lower consumption of red meat.
Normally this would be a threat, but as it can be assumed that people just switch to going out to eat red meat this could be an opportunity for even greater extension of the business. Furthermore Outback could include healthier options into its menu and diversify into other segments of the restaurant industry. A good opportunity is the expansion into the international market to overcome US-market saturation. A problem could be the lack of international experience.
Question 2 – Are Outback’s various strategy components sustainable in the domestic market ? Can they be imitated ? Are they transferable to the international markets ? Why ? Why not ?
1 – Strategy components sustainable in the domestic market
The basic strategy of Outback, a famous US steakhouse chain, was a success, because the concept was simple: provide a high quality service for an affordable price.
The average price is between 15 and 20 $, so, we can deduce that the target of the chain is middle and upper middle classes. However, most of restaurants share this idea, particularly for this highly competitive domestic market. Outback found enough distinctive competencies to reach its actual level. Outback has different key strategies, which explain the success of the company. The experience accumulated by the three creators permits to develop an entrepreneurial spirit and to increase the acknowledge on the steackhouse chain market. These abilities have given to the top managers the capacity to create relevant strategies.
– Positioning of the company
Outback is a steakhouse’s chain, which decided first to respond at the demand of middle and upper classes basic American consumers. So, they have to afford good report price-quality, which depends first of all of the quality of the meal and the services provided by the personal. Meals are simple but correspond completely to the wishes of the American consumers. The quality of Outback is insured because of the fact they are only open during the night and not twice pro day, which corresponds to the expected target by Outback and the needs of the last one.
– Organisation structure
In five years, the network of franchises growth by 400 %. This fact pushed the company to develop a strong logistic network and also privilege the relationship with a few suppliers, which became real partners of the company. This gave us the opportunity to gain a high quality product and trustworthiness can be established. For the suppliers, the advantages are valuables because they know that they will continue their products if they still provide the same level of quality expected. For Outback, it gives the opportunity to obtain low prices and security of the food. The high number of restaurants asked for a relevant logistic structure in order to provide the best product on time for all franchises.
In order to gain economies of scale, Outback allowed a franchise system. This gives the opportunity to reduce costs and to be implemented in various areas without high investment departures. Following the growth of the company, Outback changed the organisational structure to be more efficient and have more control on the brand image. They are developing better relationship between the headquarter and the partners. These latter have now stock options. This salary plan gives them motivation and accuracy in their job, because it guarantees a real engagement from the employees.
– Human resource’s strategy
A real consideration of the human resource is done by Outback. The corporate estimate that better working conditions and working schedule give more motivation to the employees. They feel comfortable within the company and are readier to answer at the injection of the headquarter.
– Location strategy
After study of the location and demographics particularities of a county, it seems that all the restaurant are established in specific distribution area. They set up the restaurant near dynamic neighbourhood and easy to go, which remains middle class population.
– Communication policy
At the beginning, Outback privileged local target population. Then, they extend their communication network by sponsoring specific events, as sport or charity events. A lot of support as television, billboard and radio are used because it is the best way to touch an important number of potential consumers.
2- Can they be imitated ?
On the domestic market, Outback has many steakhouse chain competitors. Each brand is trying to find a niche. But some strategies can be easily imitated such as the geographic implementation and the target. The thematic of the restaurant was existing before the creation of Outback and the system of franchise is not adopt only by the restaurant chains. But Outback is able to put some entries barriers. The experience of the top manager is very helpful and contribute to create a trustworthiness from the employees. The synergy between the suppliers and the franchises gives at Outback more confidence on the future and more competitive.
3 – Are they transferable to the international markets ? Why ? Why not ?
The concept of steakhouse chain, as Outback, seems to be adaptable in foreign countries. The company has two choices. First of all, it can keep its concept of American steakhouse chain within foreigner culture. Or it can also adapt to the country culture and has the ability to modify its concept and integrate it completely in the country chosen. Outback has the opportunity to internationalise its strategy, but the company has to take care about the way to do it.
-The food habits is a first problem because a lot of Muslim countries cannot consume beef. Outback has to do a geographic selection
-According to the policy of a country, the American restaurant can or cannot be set up as in Irak or North Korea. The American corporate culture can be a barrier of establishment too.
– Outback has to think about the suppliers network. Some solutions appear as food exportation or licensing. But these strategies have a mean disadvantage: the local population may expect to eat local product
-Outback has to change the organisational structure in order to integrate an international division. The structure can add a foreign operations department to their existing structure and contribute to use the same control system.
3.- The countries, which Outback should enter, are in hierarchic descending order as follows:
1.- SOUTH KOREA
Advantages:1)Good economic development.2)Politically stable.3)Easy to import American style to South Korean.4)Infrastructures improvements.
Disadvantages: Obstacles for US firms (regulation for labeling, sanitary standards)
Modifications needed: Need to be financially sound company, because South Korea is an emergent market with big opportunities of growing and so that big investments will be needed. The firm will have to adapt to the sanitary standards, they will have to cope with occasional problems related with quarantine of some products.
Advantages: 1) Common language, business practices facilitates US entry 2) No restriction on foreign ownership and movement capital, labor flexibility. Free enterprise and open competition in UK. 3) UK find US goods and services very attractive.4) Abolition of internal trade barriers (UK as a gateway to the rest of EU).5) Very good communication network
Disadvantages: As UK is a gateway to the rest of European countries is of vital importance the role-play in UK, depending whether is successful or not the European adventure will be better or worst.
Modifications needed: Very low rate of modifications are needed to enter in the UK market, as we have said previously US and UK have common language and have very close culture.
Advantages:1)Business practices similar to US and US goods are well received in Canada. 2) Very good economic development.3) Very good communication network and very close to North America, which will reduce communications and transportation costs.
Disadvantages: The linguistic and cultural problems that are taking place in Canada make a tense situation.
Modifications needed: As a result of the disadvantages related before it would be necessary to have employees with knowledge of French and/or English.
Advantages: 1) They have improved infrastructures 2) Despite the economics problems there are opportunities for North American firms but they will provide low cost products, because of the low buying power of Mexican people. 3) Duty free to exports.4) It is geographically very close to North America, so that transportation as communications are easier.
Disadvantages: 1) Political reforms, which make of Mexico not a very stable country.2) No good economic development.
Modifications needed:1)As we have written is necessary to change the prices in order to adapt to the low buying power of the Mexican people.2)Related with the previous point it would be interesting to create a pool in order to avoid the possible devaluations in the national currency.
Germany and Japan are more difficult markets to enter into by the company. See appendix for advantages, disadvantages and changes needed.
4.- As result of the previous SWOT analysis we can observe that Outback has the opportunity, the intention and the necessity to expand the company into the international market.
Incomes have risen globally, so that there is more money to expend on, when primary needs are fed another kind of needs appear. Outback has to take advantage of this and enter into new markets. Related with that the increasing number of women entering the work force which means that if traditionally women have to cook, nowadays they don’t have too much time for it, and so that restaurants with good quality food and family oriented are highly valued by working women. In other side demographic concentrations of people in urban areas, which make necessary to have different offers of restaurants. A good opportunity is the willingness of younger generation to try new products, we have as an example the Japanese young people.
Although in Japan still remain some conservative customers, new generations are willing to try new kind of products coming for another countries. Also is very important to point out the improved international transportation, this is very important because can reduce the costs of export restaurant’s assets into another international country, as we have already said. Although there are very similar firms operating at the moment in the market, US food themes are very popular abroad. In order to reduce market saturation Outback has used joint ventures with an Italian chain (Canabba’s Italian Grills)
We see the will to expand when for example, in 1994 the firm didn’t pay dividends despite the good profit, the reason was to invest the money to be able to expand to international markets.
The saturation of the US fast-food chains make that Outback looks for new countries where it can operate and grow there are very similar firms operating at the moment but US food themes are very popular abroad. Although in order to reduce this market saturation Outback has used joint ventures with an Italian chain (Canabba’s Italian Grills)