Outback and over here
Outback Steakhouse has now arrived in the UK. Jessica Gunn investigates the unusual management structure which, the firm claims, is the secret of its global success.
Outback Steakhouse will not be a new name to those familiar with the casual dining sector. It is a brand which represents 650 restaurants in the USA and a further 71 restaurants in 42 countries. Annual turnover in the USA alone last year stood at $2b (about £1.38b).
Thirteen years after it was first conceived in the USA, Outback has reached the UK. Its 70th and 71st international restaurants opened in Britain in June and August of this year. But Outback's arrival does not just signify the import of yet another US brand, it brings a new type of business management, the partnership scheme, believed to be unique in the UK market (see below).
This system is unusual in several ways, not least the degree of devotion it seems to have inspired in the men who brought it to Britain. Phil Broad is managing director of Outback Steakhouse UK. Following him in the hierarchy are Rik Fyfe and Mike Palmer, both joint-venture partners. Mark Megannety is the first of Outback's UK "partners".
"We all felt that the steak market in the UK desperately needed re-energising," says Broad, "and we knew that Outback was the best in the casual dining market." Outback had been investigating a British partnership for some time but found that none of the big names could commit to its terms for remuneration or structure. Broad and an Irish partnership, Colum and Kieron Butler, were thus able to approach Outback and offer the flexibility required in return for the franchise rights.
The Britons and the Irish brothers have been friends and business associates since their beginnings in the industry 16 years ago. After years of experience at various branded restaurants, they all came to similar conclusions: that during their working years they had all made a lot of money for other people, but never very much for themselves.
It was not just the financial success of Outback that won them over, however. Outback's US founders, Chris Sullivan, Robert Basham and Timothy Gannon, were veterans of the casual dining industry themselves. Outback's motto is "People work for people", and the aims behind the brand were not just to earn more money, but to improve the lifestyle of those working in the casual dining industry.
Their solution is the partnership scheme. This puts an emphasis on managerial stability, high-quality food and more free time for staff. The idea is that by having a committed, long-term proprietor for each restaurant, standards and profits can be maintained.
Outbacks are also never open in the daytime. They can afford to do this by always siting in secondary locations. Rent must cost no more than 5% of turnover in order to avoid the often crippling financial pressures of primary-location sites. "We have a list of priority towns, based on demographics, which we plan to target," says Broad. "I think the UK could hold at least 100 Outbacks."
The first, which opened to the public on 5 June, is in Wandsworth, south London, in the middle of a new housing and office regeneration development. So far, it's doing 1,500 to 2,000 covers a week, with an average spend of £20 a head. "In our first week, we did 875 covers," says Megannety, who manages the premises. "Numbers have gone up every week since then."
The restaurant has 244 booth seats and 20 bar seats. It is spaciously designed, with wide aisles divided by high walls, to create a feeling of intimacy at each booth. To date, £650,000 has been invested in the restaurant.
None of the Outback team appears at all worried that the steak market in the UK may already be saturated, or at least suffering due to foot-and-mouth and BSE. "People are wary of beef," says Megannety, "but they are still eating it - 11% of our sales are steak."
They are also unperturbed by the competition. "We don't need gimmicks to bring people here," says Broad. "People will leave other similar restaurants because of the quality of the food we offer." Outback's meat is sourced from a particular herd in Ireland where the animals are grain-fed. All food is freshly delivered and prepared daily.
Each Outback launches with a charity night as a sign of its commitment to the local community, where it plans to source the majority of its customers. "There's close to a million people within a mile of this restaurant [in Wandsworth]," says Broad. The aim of the partner, whose name is written above the entrance, is to become a well-known local figure. "We like to think of Outback as an American version of the traditional English pub," he adds. "It's a place where you can go where you know the landlord because he's a part of the community."
The partnership scheme
Outback's founders invented the partnership scheme based on a desire for more free time and more profits for those running the restaurants.
To achieve this, they decided that there was no need for any head-office or central control. Headquarters, they argue, eat a large and unnecessary part of a restaurant franchise's profits. Instead, each restaurant is managed by a "partner" trained to follow Outback's methods but otherwise in total control.
Each partner is wholly responsible for the management and running of one Outback Steakhouse. He or she invests £15,000 (up front) into that restaurant for the right to be proprietor for five years. In return, he or she gets a salary of £30,000 plus 10% of monthly cash flow (restaurant earnings before depreciation and tax).
Partners must live in, or close by, the community where the restaurant is established. They also undergo a five- or six-month training programme in the USA, where they learn about every aspect of an Outback Steakhouse, from food prep to customer service. After that, the day-to-day running of the business is up to them.
The partner is also responsible for marketing the restaurant within the community. With no central marketing body, spreading the word is done through personal connections and word of mouth. Aside from the charity launch, partners must market the restaurant through local schemes, schools, etc.
At the end of the five years, in addition to the regular 10% of monthly cash flow, the partner receives a further sum equivalent to 2.5 times 10% of cash flow for the entire fifth year. He or she can then choose to invest another £15,000 and remain a partner, or move on.
Partners are appointed by joint-venture partners (JVPs). Each JVP is allocated a defined territory, where they can establish as many restaurants as they see fit. They do not oversee any particular restaurant directly. Their initial required investment is £30,000 for five years. In return, they receive a salary of £45,000 and 10% of monthly cash flow of every restaurant on their territory. At the end of their five years, they also receive a further sum arrived at through the same formula as above (2.5 times 10% of fifth-year cash flow of each restaurant in their territory).
This system means that 20% of the monthly cash flow of each restaurant goes to pay the partner and JVP. Outback can afford to do this, the partners argue, because they are not beholden to any shareholders or central management.
Wandsworth Outback Steakhouse
Dolphin House, Riverside West, Smugglers Way, Wandsworth, London SW18 1EG
Tel: 020 8877 1599
E-mail:ob1@outbackpom.com
Partner/proprietor: Mark Megannety
Investment to date: £650,000
Seats: 244
Covers per week: 1,500-2,000
Cover turn per night: 120-200
Average spend: £20
Average turnover of one US Outback: $3m (about £2.1m)
Number of US Outbacks: 650
Third planned UK restaurant: Enfield, 2002
