Why nobody goes to Outback Steakhouse anymore

At its peak, Outback Steakhouse was running nearly 1,000 steakhouses nationwide. They had created basically the entire meme and category of a casual steakhouse in the United States. Aussie, Aussie, Aussie! But today it's a totally different picture. They are closing nearly 40% of those restaurants. Their stock, well, it's basically at the exact same place as it was nearly 15 years ago when they went public in 2012. This video is the rise and fall of Outback Steakhouse. Oh, and by the way, thanks to Merlin for sponsoring this video. More on them later. And if you're interested, for each and every one of these videos, I do a one-page summary cheat sheet you can download. girdley.com/youtube. The story of Outback actually starts back in 1987 in Tampa, Florida, by 4 people, or with 4 people who had no business opening an Australian-themed steakhouse. 4 partners had spent time in different restaurants. Some had worked at Steak and Ale. Another had failed at a couple of restaurants. And ironically, zero of them, exactly zero, had ever gone to Australia. This was 1986 and it was a different time. And the number one movie that most of us remember from that era was Crocodile Dundee. And your wallet. He's got a knife. That's not a knife. That's a knife. And suddenly everything manly and awesome and basically Australia was cool. So they named dishes after Australian slang, slapped boomerangs on the wall, and named it Outback Steakhouse. And that's when they opened the very first Outback Steakhouse on Henderson Avenue in Tampa, March 8th, 1988. By the way, 8 is an auspicious number in some societies, so maybe it worked out for these guys. And if you're wondering why the hell is Michael recording in front of just a random strip center, it's because we're on vacation. I don't know where to hike, so I'm wandering around trying to find a trail. And look, there are lots of downsides to opening a business in an industry you know nothing about or that you're a novice in. But one of the upsides is sometimes you just make decisions that industry veterans would never do. Sometimes those decisions turn out to be lucky. Those are the 3 things that— well, 3 decisions that the Outback Steakhouse guys did precisely at that moment. First decision they made was that Outback Steakhouse would not do lunch or breakfast. It was dinner only. They would open at 4:30 PM. And look, the typical deal with restaurants is you have a shitty work-life balance. You have to work long hours. And here Outback Steakhouse was saying, we're not going to do that. We're just going to let people be able to spend time with their kids and their family and have, well, a healthy life. And they did that by just being open for dinner. Finally, the people that could work there meant that if they didn't have to work lunch shifts, they could have just a better life. It also impacted a lot of other stuff. They could recruit higher quality managers. People wanted just a better experience than typical restaurant life. Decision 2 was that operating partners working inside of the restaurants would put up some of their own money so they'd have an investment, $25,000 plus or minus. And then in exchange, they get a percentage of the profits over the coming 5 years. Many of those managers, after being there for a while, would walk away with 6 figures or more for their time in trouble. What this did was absolute genius at the time. Your GM suddenly felt like an owner. And look, here's the reality of business. People who think they're an owner, they act differently than people who are just employees. The reason is they have skin in the game. And that's just human nature. Most people, when they see that they can make their output basically change how much money they're going to get, well, they tend to produce more and better output. They're just motivated. Decision 3 was on the menu. That was Tim Gannon's Bloomin' Onion. He got inspired by a dish he had seen back in his early days. In, uh, New Orleans. And Tim was one of the 4 founders, by the way. And nobody had ever seen anything like it. It was an entire onion chopped up and deep fried. It's delicious. It was such a unique invention that Outback trademarked the name. Heck, I'm a huge Chili's fan, and sometimes I still think that they do the Bloomin' Onion. That's how big the brand is. And look, I never go to Outback Steakhouse. For 30 years, this one item drove so much revenue for the chain that it basically printed money for them. What is that? Is that a Bloomin' Onion from Outback? Yeah, awesome. Yeah. The key of all three of those things was the making the business partners, the operating managers, feel like they were co-owners of the business. That was something that would scale hugely. This growth and high performance through IPOing in 1991, and throughout the '90s, the stock was a total darling. They took to what they'd learned there and they started to buy up other chains— Carrabba's, Fleming's, and others— Bonefish Grill. By the end of the decade of the 1990s, they were doing billions of dollars in sales. At its peak, the chain was operating over 1,200 restaurants, doing nearly $3.6 million per location. Best in class for casual dining chains. In November 2006, it would take just one phone call to unravel everything that the founders had built over the previous decades. But before we get into that, I wanna talk about today's video sponsor, Merlin. Merlin AI is an all-in-one AI tool, and they've given this audience a big discount. A lot of people use multiple AI tools because each one is good at something different. The problem is that paying for all of them separately gets expensive fast. Merlin puts ChatGPT, Claude, Gemini, and other leading models all in one place so you can pick the best model for the task without switching platforms. Do you need to summarize a website? Use the browser extension. Need a report? Deep Research can help. Deep Research can pull from multiple sources and create a structured output. It also includes image and video generation tools. The pricing is where it gets interesting. If you pay separately, ChatGPT is $20, Claude is $20, Gemini is $20, and that all adds up fast. Instead of paying for multiple subscriptions, Merlin buys API access in bulk and passes those savings on to you, the customers. Right now they're offering 75% off. Go to the pricing page, select the annual plan, apply the promo code at checkout, and the price drops to about $60 for the entire year. The link is in the description. That phone call was important. Two private equity firms called, and if you've watched this channel a lot, you know where this story's going. L Catterton and Bain Capital. Were about to make an offer for the whole company and take it private. The deal would close in 2007 for $3.2 billion. The founders were suddenly very rich, and the chain had new owners— private equity. But one deal that was quietly not mentioned a lot in subsequent stories is what the private equity firms did. To fund the whole deal, they did a thing called a sale-leaseback, where they would take and basically sell all the land and the buildings that they owned as part of the chain, and then lease them back. This is smart if you're in private equity and your goal is to make quick returns. What you'll do is you basically have less capital invested because suddenly somebody else owns all that real estate. The downside is suddenly the business has a ton of debt and, uh, well, it's on the hook to pay that rent no matter what happens in the future. And one of the downsides about putting debt on a business is the opportunity cost it creates, which is suddenly you're not able to borrow money in the future if things get bad. And look, If banks love to loan against anything, it's real estate because they ain't making any more of it. And that's how banks are operated. But here you are setting the whole business up as a private equity firm to be very fragile in the future. That'll come back to bite them. And remember what's about to happen at this period of time in American economic history. It's June 2007. The 2008 Great Recession is just right around the corner. Lehman Brothers would collapse in about 15 months later. Great Recession started. Basically, Outback Steakhouse was not ready to weather the storm. Suddenly customers weren't coming in, interest rates were going through the roof, and they still had to make those lease payments. So what'd they do? They stopped investing in the business, including modernizing the stores and keeping them up to date. Even worse, they start to do shrinkflation back in the early days of it, cutting steak sizes, reducing portions, paying your staff less, and making customers less happy. And it had a never frozen promise. And basically private equity was just breaking that entire thing. Well, unfortunately, because they had to, there was just no way to keep up with the debt payments. But the next thing would be an even bigger mistake, in my opinion. Remember how one of the decisions One of the decisions the founders made was to make every general manager feel like a partner through an ownership model. Well, private equity killed all that. By throwing that away, suddenly there was nobody sitting inside the stores making sure everything ran, well, beautifully. This is very common in business. Decisions can look incredibly smart on a spreadsheet and, well, they look horrible in practice. Numbers will sometimes lie. Private equity firms did what private equity firms did and got out of the deal. In August 2012, when the stock market was ready, They took the company back public. But here was a problem with the deal. That was just money going straight to the private equity firms. It wasn't going into the stores or making the product better. As the 2010s started to go on, that's where one of the early decisions of the business would also come back to be very important. And that decision was not to do lunch. At this point, Outback was desperate for more revenue. Remember, they've got all this debt and lease payments, and suddenly they have public stockholders. They wanted to make sure that they maximize revenue. The first thing they're asking is, "Look, what are you guys doing about lunch? There's this whole part of the day that you're not even open." Customers, when the chain suddenly asked them to sell lunch were questioning why I would go to Outback Steakhouse for lunch. It's for a nice dinner out with my special ones, not about how do I get the better version or steak version of Chipotle. It just didn't feel right. But as the 2010s went on, something else would be a huge problem, and that problem was beef. 2010 and 2011, Texas, where I live and where a lot of beef comes out of, experienced its worst drought in, well, recent memory. That process where herds were cold because they couldn't be fed because they were too expensive and all that, basically created a decade-long death spiral in beef. Look today about the outcome of all that. In January 2024, America actually has the smallest beef herd basically since 1951. Oh, I turned around because I saw somebody and I thought I was walking into their private property. He invited me to walk across his land. People here are really nice. So if you just look at what's happening with beef prices, they're up 30% just in 2024 alone. See, there's a reason steakhouses are mostly done as fancy places for fancy dinners out? It's because beef is freaking expensive. At a steakhouse like Outback, 40 to 50% of your food costs might just be beef alone, which translates into 12 to 20% of total cost, total revenue for an individual restaurant. As the 2010s into 2024 went along, beef basically doubled in price. So that meant that Outback Steakhouse either has to eat those cost increases or watch customers go eat chicken, you know, trade down to cheaper stuff. In this time, the Outback Special sirloin went from $10.99 to nearly $20. But that wasn't the only victim. The Bloomin' Onion. Early 2000s, the Bloomin' Onion was $5.99. By 2023, it would eventually reach $10.99 for an onion deep fried. But wait, it gets worse for the Bloomin' Onion. People started to recognize it's not very healthy. It's a fried onion and it's 800 to 1,000 calories for $11. Like, whoa. As the late 2010s came along, something else bad would happen to the chain. Which was the idea of casual dining, the one that Outback and places like Red Lobster also occupied. Well, it was in decline. And the reason was fast casual. In 2000, casual dining had been 30% of restaurant visits. Today it's in the teens, cut in half. Reason is simple. Fast casual. Shake Shack, Chipotle, guys like that are 60 to 70% the price. And you don't have to add a tip at the end of the meal. And it's even faster than fast casual when delivery comes in. You know, basically DoorDash and the like. Well, why even go out of your house if the food's going to get brought to you? And look, steak is one thing you don't want delivered. Just try eating a steak the next day. Doesn't taste quite the same as when you got it off the grill. As 2020 came along and entering the COVID era, something else would be bad, which was people were having fewer kids, which meant the number of people that would be available to be servers inside of a Texas Roadhouse or an Outback, well, there just weren't that many of them. Between 2019 and 2024, wages for these people would have to go up over 30%. Just to keep up with inflation, which, by the way, it wasn't. And as 2020 came, basically you see the situation for Outback Steakhouse. They have a balance sheet loaded with debt, locations they don't own, input cost of beef going up, input costs of staff going way up, and customers suddenly feeling not so wealthy anymore. Perhaps no business was more ill-prepared for the COVID pandemic than Outback Steakhouse. Remember, they were only doing dinner and rarely doing lunch. 6 months after the pandemic started, their sales were down 43%. They had the wrong product for COVID, basically in every single dimension. As 2023 and 2024 came along, basically the company that owned Outback Steakhouse was stuck with 4 separate zombie brands. Carrabias, Outback Steakhouse, obviously Bonefish Grill, all just places that none of us were interested in going to anymore. All the folks that own brands like Olive Garden and stuff like that, Darden Brands, have been able to sell off some underperforming brands because they were able to. Basically, the folks behind Outback Steakhouse were stuck. They couldn't do that. Why? Too much debt. Interestingly enough, there's a fascinating story about Outback Steakhouse. You know one country where it never worked at all? Australia. They don't like it. That's when basically a typical player in these videos shows up in August 2023. Starbird Value. Who is a basically value investor. They come in and they make activist moves to try to get the chain to make changes. The idea being if they make those changes, well, that'll improve the stock price and they'll make money on their ownership stake. So that's precisely what Starboard made them do— refranchise different areas and basically close stores and become profitable again. They also replaced the CEO, and then those store closures started to come. February 2024, they closed 41 of them, the first of many. Outback itself had peaked at 970 stores. Nearly 40% of those are gone now. They're down into the 600s. There was another CEO change in September 2024, the 4th since the founders left. And look, Outback is not dead. 675 stores is not nothing. And let's not forget the most interesting characters in this whole story, the 4 founders who were smart enough to sell out at the top. In the end, businesses exist to support their founders and shareholders. In the end, these guys made a pretty smart move. And unlike some other people we see on this channel, ended up selling out at the top. And man, they deserve the rewards as far as I'm concerned. The most important moment in this whole story is when those founders decided to make each and every one of their, like, GMs partners in the business and make them feel like they were part owners. I've seen chain and chain again where you basically make sure that the people who are working with you and working for you have an outcome that is tied to yours and everybody benefits together and, uh, magical things happen. If you take anything away from this video, it's that key insight. People who act like owners and have the outcome aligned with owners, they perform a lot better than people who feel like they're just cashing a paycheck. Oh, and there's one more bit of bad news for Outback Steakhouse, and that is the screwworm. If you're not following along with this, it's pretty freaking scary. Basically, there's this invasive worm that causes entire herds of cattle in Texas and places, you know, in South Texas, to have to be like quarantined. I have friends that are rancher friends, and they're scared. The government hasn't done a good enough job of keeping this thing at bay. And it's nothing new. We beat it once before, I think back in the 1950s, if memory is there. But it's back. And it's not gonna help Outback Steakhouse. Alright, thanks for being here. If you enjoyed this video about Outback Steakhouse, let me know in the comments below. And encourage me to make more. Catch you next time.