550 North Reo Street
Tampa, Florida 33609
Telephone: (813) 282-1225
Fax: (813) 282-1209
Sales: $271 million
Stock Exchanges: NASDAQ
SICs: 5812 Eating Places; 6794 Patent Owners Lessors
Outback Steakhouse, Inc., runs a chain of casual restaurants with and Australian theme based in the South and the Midwest, and owns substantial interest in a second chain, Carrabba's Italian Grill, which serves Italian food in a casual atmosphere.
The enterprise was founded in Florida in 1987 by three partners, Tim Gannon, Bob Basham, and Chris Sullivan, all of whom had experience in the restaurant industry. Both Sullivan and Basham had worked at the Steak & Ale restaurant chain, which pioneered the salad bar and other popular concepts in the American restaurant industry. Following this experience, the two moved to a Steak & Ale's competitor, Bennigan's, and then returned to work with Steak & Ale's founder to open outlets of his new chain, Chili's, in Florida. Gannon also worked at Steak & Ale and in other restaurants in New Orleans.
By the late 1980s, all three men were anxious to launch a new endeavor. "Here are three guys who have always worked for other people and always said, 'God, if we had our own, we would do it a little bit different," Gannon later recounted to Restaurants and Institutions magazine.
Despite conventional wisdom, which said that Americans were moving away from meat and toward healthier, lighter food, Gannon, Sullivan, and Basham observed that restaurants specializing in steak, from inexpensive eateries like Ponderosa to high-priced restaurants like Ruth's Chris, were doing well. "Our research had really showed us that beef and prime rib were still the No. 1 thing people went out to eat," Basham remarked to Restaurants and Institutions magazine. He and his partners decided to open a steak restaurant that served the middle of the market, featuring high-quality food, a casual atmosphere, and an average dinner bill of $15 to $20.
All the partners needed was a theme that would give their restaurant concept a memorable identity. At the time, the 1986 movie Crocodile Dundee had recently been released and become a big hit. Despite the fact that none of the restaurant's founders had ever been to Australia, the trio decided to give their venture an Australian theme. In this way, they would be tapping into the traditional "western" association with steak, but with a twist. "Most Australians are fun-loving and gregarious people, and very casual people," Basham later told F&B Magazine. "We thought, 'That's exactly the kind of friendliness and atmosphere we want to have in our restaurants.' Then it was just a matter of coming up with an Australian name that worked for us. The Outback was kind of the wild, wild west of Australia. So there you go for the western theme. But instead of United States western, it's Australian western."
Initially, the group had modest plans for their venture. Rather than planning nationwide expansion, they hoped to open half a dozen outlets, and earn a nice living. "We figured if we divided up the profits with what we thought we could make out of five or six restaurants, we could have a very nice lifestyle and play a lot of golf," Basham told F&B.
However, opening night for the first Outback restaurant, in March 1988, did not look promising. In keeping with the Australian theme, the restaurant's decor featured boomerangs hung on paneled walls, kangaroo posters, shark jaws, stuffed koalas, and surfboards. The menu, however, was free of Australian influence, containing all American food, with specially seasoned steaks as its centerpiece. This split was deliberate, as was the group's refusal to visit Australia in the course of developing the restaurant's theme. "I might have tried to bring back authentic Australian food, which Americans don't generally like," Sullivan told Fortune. "Our company sells American food and Australian fun."
The company wasn't selling either on Outback's debut night. "We opened our doors, and it was very quiet," Gannon later told F&B. "Hardly anybody came. We had to call people over for dinner. No one had ever heard of Outback except our friends. And they were our only customer base."
Business began to pick up as the partners increased promotion--including cooking at radio stations and other local events--and as they received favorable reviews from restaurant critics. Outback's timing coincided with growing interest in more traditional, so-called "comfort" foods such as beef. Within 15 months, five more restaurants had been opened, and the chain was off to a fast start.
Outback's quick takeoff attracted the notice of other people in the restaurant industry. "We had guys who came to us and said: 'Listen--we're either going to franchise from you or we're going to rip you off. Take your choice.' Their point was they really loved our concept and they wanted to be a part of it," Gannon related to F&B. Faced with this kind of interest, Outback's founding partners agreed to an expansion of their concept.
Through franchise agreements and joint ventures, Outback's founders introduced their restaurant idea to areas outside Tampa in the late 1980s and early 1990s. After takeover talks with Chili's petered out in late 1989, Outback opened locations in Orlando and Jacksonville, Florida; Louisville, Kentucky; Houston and Dallas, Texas; Indianapolis, Indiana; and Washington, D.C. By the end of 1990, the company was operating 23 restaurants. In the following year 26 more locations opened for business, for a total of 49 restaurants.
Late in 1991, Outback's three founders, whose ownership stakes totaled 40 percent each for Sullivan and Basham, with the remaining 20 percent held by Gannon, decided to go public. With the capital raised by Outback's offering on the NASDAQ stock exchange, the company began a gradual process of consolidating its ownership of the Outback locations.
The number of Outback restaurants continued to expand in 1992, as a total of 36 new restaurants were opened. Overall, the company had 52 outlets that it owned outright, 15 joint-venture operations, and 18 franchised locations, for a total of 85 Outback restaurants. In May 1992, Outback was named the third best small company by Business Week magazine.
Outback's rapid growth was fueled by several key tenets held by the company's founders. As a result of their extensive experience in the restaurant industry, Outback's owners believed in decentralized management. "We've been in their shoes as regional supervisors," Gannon remarked to F&B. "We've worked for companies and said, 'If you guys would just leave us alone and let us do our jobs, we would be so much more efficient.' We know that." Outback required that certain standards be met and retained final approval over plans for expansion, but otherwise let local managers run things as they saw fit.
Outback also gave its managers a stake in the company's overall well-being by allowing them to purchase a ten percent interest in their stores, and other employees had the right to purchase stock in the company. In addition, the company took steps to maintain positive working conditions for its employees, so that they would provide cheerful service to the restaurant's patrons. "If you worry about your employees and their environment and their ability to do the job, and you make sure they're happy, you don't have to worry about the guest," Gannon said. Accordingly, wait staff were responsible for only three tables apiece, and the company devoted 40 percent of the space at each location to the kitchen so food preparers would not be crowded. "We understand from having been managers, waiters, cooks, what they feel like," Gannon told F&B. "We know what the heat of the kitchen is like--personally."
The Outback menu featured items such as "Kookaburra Wings," "Aussie Cheesefries," and "Jackaroo Chops," and the company's signature appetizer, the "Bloomin' Onion." This item, which Gannon co-developed with a chef in New Orleans, was a Spanish onion with its center removed, which had been sliced into wedges so that it fanned out like a flower, and deep-fried. The onion was served on a plate with a bowl of sauce at the center for dipping, as an alternative to onion rings. "We had to figure how to get the center out, how to fry it, how to make it work as an appetizer where each petal could be pulled out individually," Gannon recounted to F&B. "Then the idea was to apply New Orleans seasonings to the onion, so that not only did you have something pretty, but you also had something with an exciting flavor profile. And the recipe for the seasoning on ours, that's my recipe."
Outback's steaks, the centerpiece of its menu, also featured a New Orleans flavor, being seasoned with 18 herbs and spices. To help them cope with the enormous cuts of meat that the restaurant served, Outback gave its diners over-sized flatware as well, including a steak knife that more closely resembled a saber.
While American food ruled Outback's menu, the Australian theme reasserted itself at the bar, where each restaurant typically earned 17 percent of its revenues. About three-fifths of the company's beer sales, and four-fifths of its wine sales, were generated by Australian brands, including Foster's, Rosemount, and Black Opal. Much of the bar business came from customers waiting for tables--the restaurants were so popular that there was typically a 30-minute wait for dinner. To meet this demand, Outback began to build larger restaurants in the early 1990s, expanding from its prototype 160-seat design to a 200-seat design. The company also switched from paging waiting customers to a quieter beeper system, which helped cut down on the tumult that came to characterize the Outback experience.
In marketing its concept, Outback targeted people between the ages of 35 and 54 with annual incomes exceeding $50,000. To distinguish its restaurants, Outback developed a huge red neon sign that fronted its buildings. In addition, the company signed on to sponsor the nationally televised college football Gator Bowl, which was played each year in Jacksonville, Florida. Outback also devised a "No Rules" advertising campaign, focusing on the theme that diners could get what they wanted--good food and prompt, cheerful service--at Outback. Customers were assured that they could order items not on the menu and that the kitchen would strive to fulfill their wishes.
One wish Outback did not set out to fulfill, however, was a diner's desire to eat there for lunch. Because a lunch shift complicated restaurant operations, and rarely brought in profits, the company opened only for dinner. "There's not much money in lunch, and it burns out employees," Sullivan explained to Fortune. This policy also allowed Outback to save on real estate for the restaurants it built, since locations near where people worked were more expensive than areas where people lived.
By the end of 1992, these policies had pushed Outback's system-wide restaurant sales to $195 million. Rapid growth both in revenues and number of restaurants continued in the following year. Outback added 35 company-owned outlets and 26 new franchised restaurants in 1993. The chain passed the 100-restaurant mark in March of that year, having expanded into 15 states. Overall, Outback had reported 147 percent annual growth over its first three years as a public company.
Outback began to test a second restaurant concept in March 1993, entering into a joint venture with a Houston restaurant group to develop Carrabba's Italian Grill restaurants, which featured Italian cuisine in a casual setting. For $2 million, Outback acquired a half interest in two existing restaurants, and the company agreed to invest an additional $8 million in the construction of new restaurants. The company added two new locations in Houston in 1993, and laid plans to add six to eight more in Texas and Florida in the following year.
The Carrabba's concept was similar to the original Outback restaurant in many ways. Its average diner's check was somewhat higher, and alcohol made up nearly one quarter of sales, versus 17 percent at Outback. Overall, however, food costs at Carrabba's were lower. By opening this second front in the restaurant wars, Outback hoped to guarantee continued growth as the market for Outback steakhouses became saturated.
Outback continued its brisk pace of expansion in 1994. The company opened 68 new Outback steakhouses and eight new Carrabba's Italian Grill locations. Financial returns also remained robust, as the company continued to report increasing sales and revenues. The company was making steady progress in its transformation from a regional restauranteur to a national presence in the hospitality industry.
"It's not a real complicated formula," Basham told F&B. "You just have to give great service and great food, and have a great price value in a comfortable atmosphere." With this philosophy, the group that had once wanted simply to guarantee itself ample time for golf had adjusted its sights a little higher. "We want to be the major player in the casual dining segment," Sullivan told Restaurants and Institutions. "We're headed in that direction. We understand our business. We don't have to go out and beat our chests. We just quietly want to win."
Principal Subsidiaries: Carrabba's Italian Grill.
Chaudhry, Rajan, "Outback's Bloomin' Success," Restaurants & Institutions, December 15, 1993, pp. 34-55.
George, Daniel P., "Australia, American-style," F&B Magazine, November/December 1993, pp. 20-24.
Janofsky, Michael, "On the Menu, Steak Bucks Trend," New York Times, January 25, 1993.
Kronsberg, Jane, "Outback's Specialties Outsized," Charleton Post and Courier, May 5, 1994, p. 14-D.
McLaughlin, Mary-Beth, "Toledo says 'G'day mate' to new Outback Steakhouse," Toledo Blade, March 13, 1993.
Michels, Antony J., and John Wyatt, "Managing," Fortune, August 9, 1993, p. 40.
"The Best Small Companies," Business Week, May 25, 1992, p. 97.
Source: International Directory of Company Histories, Vol. 12. St. James Press, 1996.