OSI Restaurant Partners, Inc.
OSI Restaurant Partners, Inc.
Type: Public Company
Address: 2202 North Westshore Boulevard, 5th Floor, Tampa, Florida, 33607, U.S.A.
Telephone: (813) 282-1225
Fax: (813) 282-1209
Sales: $3.94 billion (2006)
Stock Exchanges: New York
Ticker Symbol: OSI
Incorporated: 1987 as Multi-Venture Partners, Inc.
NAIC: 722110 Full-Service Restaurants
SIC: 5812 Eating Places
Best known for its Australian-themed Outback Steakhouse chain, Tampa, Florida-based OSI Restaurant Partners, Inc., operates seven other casual dining concepts: Carrabba's Italian Grill; Fleming's Prime Steakhouse & Wine Bar, more upscale than Outback; Bonefish Grill, specializing in market-fresh fish; Roy's, founded by celebrated chef Roy Yamaguchi and featuring Hawaiian Fusion Cuisine; Lee Roy Selmon's, a Southern cooking concept built around a Hall-of-Fame National Football League player of the Tampa Bay Buccaneers; Cheeseburger in Paradise, a tropical island concept inspired by the Jimmy Buffett song of the same name; and Blue Coral Seafood & Spirits, an upscale seafood dining concept. All told, the company operates more the 1,400 locations in the United States and 21 other countries, the bulk of which, about 950, are Outback Steakhouse units, making OSI the third largest operator of casual-dining restaurants in the United States.
Creating the Concept and Achieving Quick Success
The enterprise, originally called Multi-Venture Partners, Inc., 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 such as Ponderosa to high-priced restaurants such as 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 in Tampa, Florida, 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, adding, "Our company sells American food and Australian fun."
The company was not selling either on Outback's debut night. "We opened our doors, and it was very quiet," Gannon later told F&B. He explained: "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.
1991: Expansion As a Newly Public Company
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 $23.5 million raised by Outback's offering on the NASDAQ, the company began a gradual process of consolidating its ownership of the Outback locations. At this time, the company's name was changed to Outback Steakhouse, Inc.
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 told 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 10 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, adding, "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 codeveloped 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 oversized 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 systemwide 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.
Adding Carrabba's and Other Concepts to the Menu and Expanding Internationally: 1993
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 open 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 restaurateur to a national presence in the hospitality industry. By the end of 1995 there were a total of 297 Outback steakhouses and 23 Carrabba's. Revenues for 1995 reached $664 million, more than double the figure of two years earlier. Net income stood at $53.7 million, a 37 percent increase over the previous year.
International expansion of the Outback concept began in 1996 with the opening of the first unit in Canada. Over the next few years, Outbacks were opened in Aruba, Brazil, China, Guam, Mexico, the Philippines, and South Korea. By decade's end, there were about 40 of the steakhouses operating outside the United States. The results were mixed, with Brazil and Asia showing the most promise; the company therefore planned to add 20 to 30 international restaurants per year in the early 21st century, focusing mainly on those two markets. At the same time, the Outback chain neared its maturity in the U.S. market; at the end of the 1990s there were about 575 domestic units, with the company projecting a ceiling of 700 to 750. Domestic expansion, therefore, was slowed; rather than adding 60 to 70 units per year, the company planned for an additional 40 to 50. The late 1990s also saw the rollout of the Curbside Take-Away program, a takeout concept conceived by an Outback restaurant manager in Florida that involved running orders out to cars as they pulled into the parking lot. After some fine-tuning, the program proved quite successful.
The Carrabba's chain, meantime, was not doing nearly as well as the company flagship, and was suffering from the fierce competition in the casual Italian dining sector. In late 1997 nine underperforming Carrabba's were closed, and the expansion of the chain was slowed to six to eight units per year (there were 72 chainwide by the end of the decade). This pullback was followed by a reconceptualizing of the Carrabba's concept and the launching of a chainwide remodeling effort.
As it became clearer that the Carrabba's chain would not be the growth vehicle the company's management had hoped for, Outback Steakhouse began searching for new opportunities. Realizing it would be difficult to develop another breakout concept like Outback, the company began looking for upscale--but casual--concepts with higher per-person checks than Outback and the potential to eventually generate about $500 million in annual revenue from a smaller number of units than the Outback chain.
Three concepts were emerging at the end of the 1990s, one of which was being developed in-house: a Creole restaurant called Zazarac. In August 1999 Outback Steakhouse entered into a joint venture with acclaimed chef-restaurateur Roy Yamaguchi for the further development of Roy's Restaurants, an upscale east-meets-west concept with a per-person check average of about $35. There were already 20 Roy's in Hawaii, California, New York, and Tokyo, and Outback agreed to help open and operate at least 100 new units worldwide. Outback went even further upscale one month later when it entered into another joint venture--for the operation and development of Fleming's Prime Steakhouse and Wine Bar, which had existing units in Newport Beach, California, and Scottsdale, Arizona; and a unit under development in La Jolla, California. Fleming's featured prime cuts of meat and a selection of 100 premium wines by the glass; its average per-person tab approached $50.
In 2000 Outback opened two Fleming's and three Roy's, as well as the first Zazarac and another internally developed concept, Lee Roy Selmon's, billed as "Southern Fare with a Flair," both of which opened in Tampa. Also of note during the year, Outback's stock moved from the NASDAQ to the New York Stock Exchange, which was not only more prestigious but also more volatile than the technology-heavy NASDAQ. Additional dining concepts were soon brought into the fold. In 2001 a partnership was formed with the owners of Bonefish Grill to take the two-year-old Tampa Bay restaurant nationwide. Another new concept was Cheeseburger in Paradise, developed with Jimmy Buffett's Margaritaville Holdings LLC, which received $1 million for the rights to the trademark Cheeseburger in Paradise song title and for consulting services. The first unit opened successfully in Indianapolis in 2002. The two Zazarac units, in the meantime, struggled, burdened by high menu prices. Outback considered downscaling the concept to what would be called Zaz Creole Café, but in the end decided the company's resources would be better served elsewhere and the units were closed down.
Despite the failure with Zazarac, Outback was still riding high enough to attract the attention of famed investor Warren Buffett, who bought about 1.9 million shares in the company in 2001, but by the end of the year the tide began to turn for the casual dining sector, which was hit hard by a souring economy. After a decade of double-digit earnings increases, Outback saw profits erode. Nevertheless, Outback continued to build up its new concepts so that in 2004 it cracked the 1,000 mark in units in operation. Although the company was less dependent on the Outback chain, there was still no doubt that the Australian steakhouse remained the engine that drove the corporate train.
The middle of the first decade of the 2000s became a time of change for Outback. In 2005 Sullivan and Basham decided the time had come for them to turn over the reins to new executives, although Sullivan remained chairman of the board. Both men had been involved in tawdry lawsuits, Basham with a divorce and Sullivan a paternity suit, but according to friends they stepped down to enjoy early retirement. They left Outback at a precarious moment, however. The company's emphasis on its new concepts led to a change in the corporate name to OSI Restaurant Partners, Inc., in April 2006. By this point, Outback Steakhouse accounted for about 69 percent of sales at company-owned restaurants, compared to 81 percent in 2003, but some of that shift was due to declining sales at Outback, which had become stale over time and management struggled to find a way to revitalize. Many shareholders were not pleased with so much attention being spent on concepts that still accounted for less than one-third of all revenues, and one in particular, hedge fund Pirate Capital LLC, threatened a proxy fight in 2006 if OSI did not divest some of its concepts, accusing the company of being an "undisciplined restaurant collector."
To free itself from such shareholder pressure, OSI in November 2006 reached a deal to go private, agreeing to a $40 a share bid, or $3.2 billion, from a pair of buyout firms, Bain Capital and Catterton Partners. The deal was contingent upon shareholder approval, and some shareholders were vocal in declaring the terms unfair and demanding a higher price. OSI struggled to gain support for the sale and twice in May 2007 postponed a special shareholder meeting to conduct a vote. The meeting was finally held in June 2007, approval was won and upon completion of the transaction OSI would become a private company.
Outback Steakhouse of Florida, Inc.; Carrabba's Italian Grill, Inc.; Outback Steakhouse International, Inc.; OS Pacific, Inc.; OS Prime, Inc.; Outback Sports LLC; Bonefish Grill, Inc.
Applebee's International, Inc.; Brinker International, Inc.; Darden Restaurants, Inc.
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— Elizabeth Rourke; Updated by David E. Salamie, Ed Dinger