Ruth’s Chris Steak house is a company that has just concluded a very successful IPO. They had made promises in their 2005 report to expand and increase their revenue. This assessment will help them make a decision on how to fulfill the above mentioned promise.
Ruth’s Chris steak house has just concluded a successful IPO. The IPO was able to raise an equity capital of more than one hundred and fifty four dollars. Although the existing stores are experiencing an increase in revenue growth the company is finding it necessary to expand by entering the international market. These will enable them fulfill the commitment they made in the 2005 annual report. They promised to grow the company by setting up both company owned steak houses and also by selling franchises. While this is still possible they must be careful not to disappoint the shareholders because after such a successful IPO they expect an increase in share prices. This can only be achieved by maximizing the amount of profit.
Though Ruth’s Chris steak house intends to increase its profits through expansion to the international market, there are several issues that are making it difficult. One of the issues is that though the senior management is committed to the idea of expanding the business not all of them think that international expansion is the way to go. Secondly, there are some market barriers they may have to deal with for example some countries do not accept the use of beef from the United States. They also do not have enough data about market trends. Finally, their franchising conditions are not very favorable and may discourage many potential partners. These are;
- A liquid net worth of One million USD,
- verifiable experience within the hospitality industry,
- desire and ability to develop multiple locations,
- 100 USD per restaurant franchise fee
- 5% gross sales royalty fee
- and finally 2% gross sales fee.
These might be considered as too many conditions.
It is also important to note the countries that have successfully set up franchises they include; Canada, Mexico, Hong Kong and Taiwan. In these countries instead of setting up company owned restaurants they should consider continuing with franchising. This is because people are generally skeptical about foreign owned restaurants.
Another way of dealing with the above mentioned issues would be to reconsider the franchising conditions. This will enable more people to be interested in the business without feeling like they are selling their should to the business. They should use this as a marketing strategy. They can do these by looking at what conditions are required by fellow competitors.
To deal with the issue of people not accepting the use of US beef. They may consider allowing the franchises to use beef from the local community. As long as the meat is properly inspected and meets their standards. By doing so, they will become popular in the particular country since they will be supporting the local businesses.
As for the lack of market data they will have to collect all relevant information before entering any new country. This will enable then to know how to market their products. They will also be able to find out which countries have the greatest risk and which ones will be a walk through the park. Once they have established this they will know which countries to go to first.
The selecting decision criteria should be based on which decision will enable them to fulfill the promises they made in the 2005 annual report. There are several alternatives to these they may consider continuing to sell franchises to the countries that they have already done so. They may also consider relaxing the franchising conditions. Another alternative would be to set up company owned restaurants.
By expanding in the already successful countries, that is Canada, Hong Kong, Mexico and Taiwan, they have a better chance of achieving the above mentioned goal. This is because they already have avenues into these markets and the research has already been done. The Cons of doing these are that it could limit the growth potential of going to other countries.
In conclusion, Ruth’s Chris steak house should do the following. They should first expand franchises in Canada, Hong Kong, Mexico and Taiwan. This is because they already have inlets into these markets. They also have an understanding on how to deal with partners from these countries. They can also attempt to encourage partners with existing franchises to open new restaurants. This can be done by giving discounts and offers.
They also need to look at their franchising agreement and relax some of the conditions so as to stop discouraging potential partners. Finally before they go into any country they need to do proper and complete market research, to avoid loss making investments by investing in the wrong country.
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