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What if a major mid-priced steak chain put a smaller version of their steakhouse in an area that was growing with hotels, condominiums and thousands of tourists annually all within a two mile range? The location was on a corner of a shopping strip at a traffic light with access from all directions and street parking as well as excess parking in a lot behind the restaurant. To make the package even more attractive was the fact that no other chains existed within at least four miles.

A “no-brainer” you say.

That’s what Outback Steakhouse thought about one of its locations. After five years and tens of thousands of marketing dollars, they closed the restaurant. They tried every marketing tool they knew from giving away steaks to charitable causes to sponsoring every event in the area. They even had their Hummers painted like four wheel off road vehicles with their logo parked up and down the street. Cute, but in-effective.

Placement of a restaurant is critical. Demographics and clear understanding of your potential guests’ demands and habits have to be part of the decision making process. Who are they? Where are they coming from? Why are they there? What can they spend? What are their expectations?

In the case of Outback, the location was on an island beach resort. There was a mix of residences within their target market, but not enough to sustain the location year round. A large part of the equation was that the thousands of tourists who visited the area were incorrectly counted heavily as potential customers. Outback failed to understand that a large contingent of travelers don’t want to go to a carbon copy restaurant they can visit at home. They want local unique restaurants that provide the travel experience they are seeking.

Another blunder was the fact that a gulf front island means a demand for seafood, not beef. To survive, Outback would have to change their menu, name and probably act more like a quaint independent than a cookie cutter chain. Big companies don’t do this very well except when looking for acquisitions and new concepts that someone else has successfully developed.

The final and perhaps ultimate operating mistake was Outback’s failure to understand the cyclical nature of a tourist based business. A restaurant located in the environment described above must be able to respond to weather, seasons, tourist peaks and valleys along with the whims of island living. If they can’t, their operating income will look like a Valentine’s card full of red.

The mistakes of this chain were very predictable. It is always sad to see people lose their jobs. However, maybe the lessons from Outback’s errors can give entrepreneurs cause for taking a better look at their location and escape a similar fate.

Larry Edger is the author of The Restaurant Ebook. The Restaurant Ebook also supports a blog that posts daily content on many subjects for the owners and managers in the hospitality business.

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