Ruth Chris Case

Executive Summary:
In 2004, Dan Hannah, vice-president for business development of Ruths Chris
Steak House, was put in charge of formulating a business strategy to ensure the
continued growth of the company, and as a franchise. Hannah believed a great
way to expand the company would be to establish restaurants over seas. The
problem was that many potential investors couldnt qualify to buy into the
franchise with the strict company policies, so Hannah had to brainstorm other
ideas for expansion.
After considering multiple models for growth, Hannah decided to go with a
market development approach to international expansion. He believed the best
idea for the company would be to offer the same products and services, but enter
new markets. In order to decide which countries to penetrate, the management
team compiled data of each countrys beef consumption, per capita GPD, and
population.
The problem the management team faced was whether to expand internationally
or within the United States, finding countries that could supply USDA Prime beef,
and which countries were good candidates for expansion. The alternative
solutions to these problems were to enter into the European market (specifically
Spain, France, and Italy), and enter giant tourist destinations. By entering the
tourist destinations, the countrys DPD numbers dont play a significant factor in
the outcome of the companys profits. Our recommendation to Dan Hannah and
Ruths Chris is to establish restaurants in Spain, France, and Italy. Each city
contains the attributes Ruths Chris is looking for in a market.
Intro:
In 2004, Dan Hannah, vice-president for business development of Ruths Chris
Stea House, was put in charge of formulating a business strategy to ensure the
continued growth of Ruths Chris as a franchise, and for company-owned
restaurants. Hannah knew that a great opportunity for the company to grow was
to expand overseas, considering they were only operating in five countries. The
company had received many inquiries from would-be franchisees all over the
world, but couldnt go through with these deals because the franchise fees were
unaffordable for many people, and strict policies were intact that potential
investors couldnt comply with. Many senior managers at Ruths Chris did not like
the idea of globally expanding the company, leaving Hannah in a tough position
to fulfill his assignment.
Background:
Ruth Fertel founded Ruths Chris in 1976. After many attempts, a local business
owner named Tom Moran convinced Fertel to open Ruths Chris first franchise in
1976. By the 1980s, the franchise grew globally, and was opening up new
restaurants regularly in cities around the nation and the world. Ruths Chris
became the biggest fine-dining steak house in the country. The restaurant was
recognized for its customer satisfaction, and its variety of USDA Prime grade

steaks. Ruths Chris had a vast menu, with the price of entrees ranging from $18$38. With its success in around the globe within its industry, Ruths Chris was
successful in completing its initial public offering raising more than $154 million
in new equity capital in 2005. In that same year, the company also hit record
restaurant sales at $415.8 million from 82 locations in the United States and 10
international locations.

Case Situation:
After considering the four basic models for growth the VP of product development
determined that Ruths Chris should pursue a market development approach
through international expansion. The company would expand into new markets
with its same product.

The management team defined selection criteria. They determined that they
would select from seventeen countries that could be classified as beefeaters.
They would only expand into countries that had access to USDA prime beef, or its
equivalent. They also needed to choose countries with large population centers.
An additional requirement was the need for populations with substantial
disposable income that were inclined to eat out. Finally, since the company was
intent on retaining its U.S centric brand, they need to select countries that were
not substantially anti-United States.

Managerial Problem:
To take decision for the Global expansion of the Ruth's Chris in the context of
1) Decision on target country for the expansion internationally and/or in US
2) Decision on whether to open Company owned or Franchisee owned
restaurants
3) Decision on business development model
Subject to
1) Main serve is beef
2) Use of USDA Prime beef (or alternatively Australian high standard beef can
be considered if required)
In consideration of following circumstances
1) Whether the population consumes beef
2) Whether the Trade conditions in favor to import US standard (USDA prime)
beef
3) High population and urbanization
4) High disposable income and per capita GDP
5) Affinity of US brands and people tendency to go out for dining and quality
of dining they prefer

Alternative Solutions and Evaluation of Alternatives:

The worlds markets were assessed against the key criteria. The starting point
was exhibit 4 from the case materials (Kutpetz, 2006). The top thirteen beef
consuming countries were extracted and ranked. The U.S. was included only as a
reference. The per capita GPD was also extracted and ranked for these thirteen
countries. Next the number of large metropolitan areas in each country was
noted and also ranked <www.geonames.org>. Finally, the rank was summed and
averaged to give a relative un-weighted rank of each countrys fit to the criteria.
Each country was also assessed to determine if there was a prevailing anti-U.S.
attitude that may impact reception of Ruths Chris U.S. centric brand. Each of the
thirteen countries has a substantial presence of Subway and Burger King
Restaurants implying no significant Anti-U.S.
Spain, France, and Italy had the best ranking and are worthy of careful
considerations.
The next tier of ranks: Netherlands, Ireland, Germany, Belgium, and the Bahamas
should be assessed further for the merits and risk of the items that garnered
them a lower score. The remaining countries would carry substantial risk and
would need compelling reasons to supersede the established criteria.
An alternative solution that could warrant further study would be tourist
destinations. These would need to be assessed as independent metropolitan
areas, irrespective of country. Tourists disposable income may out-strip the
reported national per capital GPD to make these cities highly profitable
possibilities.

Recommendation and Conclusion:

Our recommendation is to enter the European market (specifically Spain, France,
and Italy). Each of these countries rank very high in terms of their qualifications
for market penetration. Each of these countries contains attributes that make
expansion into these markets so inviting. Many other countries around the world
lack one or two significant qualities making expansion into these countries much
riskier. Spain, France, and Italy all have a high beef consumption rate, a high per
capita GPD, and highly populated cities, We believe Ruths Chris best option to
continue to grow as a company would be to enter these markets.

To meet Wall Streets expectations for revenue growth, Ruths Chris must expand.
The logically chosen model was Market Development Model, which dictated the
entry of Ruths Chris into new market with same product. The critical issues
facing Ruths Chris are:
1) Which market should Ruths Chris enter first?
2) Should franchising continue to be the exclusive international mode of entry?
3) Were there opportunities for joint ventures or company-owned stores in certain
markets?
4) How could new potential franchisees be identified and evaluated?

5) Was there an opportunity to find a global partner?

II. Analysis
There are three basic modes for entry into a new market Export Entry Mode,
Contractual Entry Mode, and Investment Entry Mode. Since the market entry
mode for international expansion of restaurant business is not conducive for
entry by export mode, Ruths Chris international expansion was limited to
transferring of knowledge and enterprise to local resources. In other words,
Ruths Chris entry strategy into any foreign market has to be the Contractual
Entry Mode, where franchising to local entrepreneurs made most sense. Also, the
current franchises in Taiwan and Mexico are doing well, proven the Contractual
Entry Mode as the correct one. Company-owned restaurants might be explored at
a later date, but for the initial entry into Japan, Ruths Chris should be the
exclusive mode. Which will be the next viable international market? The basic
selection criteria consisted of the following factors:
a) The potential country must have high beef consumption per capita.
b) It must be legal to import US beef.
c) It must be in densely populated areas to provide the customer pool.
d) It must have high disposable income and its citizens must enjoy dining out.
e) It must be US brand friendly.
From Data Table 4 (see Appendix), notable countries with the highest beef
consumption per capita, 90 kg/capita, after the United States are Bahamas,
Spain, Ireland, France, Hungary, Argentina, Israel, Portugal, and Italy. A research
found U.S. Department of Agriculture, Foreign Agricultural Services published
information, the top 20 beef export from the United States to other countries in
2006 were:
Sorting by per capita GDP, Japan became the country with highest income,
$61,500 per capita. Coincidentally, Japan is also the highest importer of USDA
fresh chilled beef:
Japan was also one of the countries with highest population, at 127 millions, and
a higher than average urbanization rate, at 65%. Although Japan was not ranked
very high in beef consumption per capita, its population and high income per
capita would make up the difference because a small percentage of this
population could still provide a significant pool of customers. Based on the
quantitative criteria, Japan appeared to be the most attractive foreign market for
Ruths Chris to enter. As a side note, Ruths Chris already has franchises in Taiwan
and Hong Kong, and it would also make logistical sense to consider an expansion
to Japan since there is already a products support network in place. Politically,
Japan is a pro-U.S. country, and with both countries enjoying relatively free
trading atmosphere, it appeared to be a perfect match. Culturally, Japans
business and marketing meetings are typically conducted over dinner, and fine
dining restaurants such as Ruths Chris would fit this scenario very well indeed.
With the market entry mode being contractual type, or franchising, a potential
problem is the strict financial criteria of a liquid net worth of 1 million US dollars.
Also, the upfront cost of US$100,000 for franchise fee plus a total of 7% gross

sales royalty and advertising fees are not small for an upstart restaurant.
However, it is possible that an existing and successful franchisee of Ruths Chris
restaurants would be a better fit for the Japan market entry since he would bring
valid operational expertise to the new location.
When expanding into a new market using franchising entry mode, the companys
initial investment would be minimal thus would preserve its financial position.
The only potential draw back would be a reevaluation of its share value if the new
market does not do well against the local establishments.
Next in line were Germany, United Kingdom, France, and Italy. All four of these
western European countries are fairly populated, high urbanization rate, and
good income per capita. All four were also beef-eater countries with very high
beef consumption per capita. Far down the list of potential markets, Singapore
was noted for having 100% urbanization rate and a significant importer of USDA
beef. This would be a potential secondary market to consider after Japan.
The current value of the U.S. Dollar is not very strong against the Euro, and it
might be beneficial to a market entry by Ruths Chris. Again, Contractual Entry
Mode is probably the most effective for starting a new Ruths Chris restaurant in
Europe. Out of the four western European countries listed, U.K probably has the
highest potential for American-style cuisine to succeed because of the English
palate is similar to Americans. A weak U.S. Dollar might also be beneficial.
In summary, Japan should be the next market for Ruths Chris to enter since it
has all the quantitative properties such as high population, high urbanization
rate, and high income per capita. Contractual Entry Mode would be the most
viable for a restaurant business to enter a foreign market and should remain as
the exclusive entry mode. Also, the existing franchisee in Taiwan should be
considered for expansion into the Japanese market since it would bring relevant
experience to a new market.

SWOT:
STRENGHTS

OPPORTUNITIES

Well established brand & identity

Multinational experience
High quality products
High quality perceived image
Highest market Share

Untapped international market

WEAKNESSES

THREATHS

Exclusive and limited target market:

high disposable income customers

Possible anti-American mindset

Competition (Steakhouses)
Economic and financial crisis
Cultural and religious restrictions on
meat consumptions
Mad Cow Disease People are less

willing to eat beef

MARKETING STRATEGIES:
PRODUCT DEVELOPMENT

DIVERSIFICATION

Advantages:
- bring new varieties to
customers
- allows the company to connect
with their customers changing
taste

Advantages:
- bring new varieties to
customers
- allows the company to adapt
their products to the locality of
the market

Disadvantages:
- innovation of new products are
expensive and risky
- could jeopardise Ruth Chris's
brand positioning
MARKET PENETRATION

Disadvantages:
- could lead to brand dilution or
brand confusion

Advantages:
- same strategies can be used for
all restaurants to serve the
market
- could bypass competitors by
being dominating the existing
market

Advantages:
- expands the customer base
leading to a sales increase
- increases visibility and gains a
greater name recognition

Disadvantages:
- each market can't support more
than a few restaurants as it
targets a small target group
- could be difficult to convert
customers who are loyal to
other brands

MARKET DEVELOPMENT

Disadvantages:
- leads to higher cost
- there will be political and
societal differences
- bad management could lead to
damaging its reputation
We have to use that strategy!

Variables taken into account to determine potential markets:

Beef-eaters
Legal to import U.S. beef
Population
Disposable income levels of consumers
Affinity for American brands
Consumer dining habits
Exhibit 4 displayed the use of these variables to narrow the 200 countries
to 33 countries.

Unused variables that would have been useful:

-

Political stability

Competition and ease of doing business

Regulations and bureaucratic procedures that may limit its growth

TOP 5 Opportunities:
Singapore
-

growing affinity for Western-products

per capita GDP of US$28,100 (5th wealthiest in the
world)
100% urbanisation rate
3rd most expensive Asian country to live in
Existence of rival Morton's Steakhouse

United Kingdom
-

developed country with high standard of living

comparable GDP with the U.S.
little political risk
similar eating habits as the U.S.
has affinity for American products

Germany
-

high standard of living

largest national economy in Europe
lesser affinity for American products than U.K.

Spain
-

third behind the U.S. and Bahamas in per capita beef consumption
a relatively large population of over 40 million
per capita GDP is 8th largest in the world