IvEy Ruth’s Chris: The High Stakes of International Expansion Allen H. Kupetz and ln Alon The Univerityof Wester Ontario tae ky hat lint serehing at ey rey Tv. Aik i900 ‘erg usb, oer int ematig Yue ore YU sen 0 my ou ints enor tome yur = uth Fert, 1927-2002 Founder of Ruth Csi Steak Howse tf Bunhise and company-opersed resaurans. He also oversaw franchisee relations ‘Now a public company, Rus Cis bd to meet Wall Stet expectations fr revenue frowth, Current sore were seing costa incremental revene growth bat new ‘Eemurnts wee criseal and Hannah knew atte international opportunies ore a tremendous psi “Win etarens in js fie countries including the United Stes, the challenge for ‘Haooah was fo devi where to goto next. Ruths Chris eguaty received inguiis Source: lan apts nd Presa lan an woe hae sey ore mate oss ‘Sete, Tou dora td ta mre tere orale banding ot» ‘pene anon Th hoa ave use cota res nor eth ‘ramatan ort ner. fy Meroe eves pray fom fret, Hoge rua ou ten ae cr fmt covend de auonaton yay odin rae pension ‘3 oneness ord hy Scho fe, The Unvay ef exer Oar, (Sidon ns Cad Nok 7 phone (1) 66-3208 fx 19) 6-882; al ceva uea opyigh © 706, ey Menger Sve, laeer a Oe hep Serf neato penn 281 fom wouldte fancises all over the word but sist ritera—liguid net worth ofa least US. $: millon, verfabe experience win the hospitality indus, and an ability and desire develop multiple loctions—eliminated many ofthe prospets. And the tofu finchise—a US, $100,000 pe restaurant franchise fe, a5 percent of gross sles royalty fe, and 2 percent of gross sales fee asa conbution tothe national advertising sampaige—eliminated some qualified prospects, All this was coupled with ‘debate wihin Euh’s Chri senor managemeet tam abou the nod and desir to grW it internation busines. So where was Tanah to lok for new iteraaionl fra ‘hieos and what countries would be bet euted forte fin dining tat made Ruth's (Chris famous? \USE THAT RUTH BUILT "uth ere he dr of Cri, a ino rain 97. Shipped fore pasn pt shoo dence! Loi Sate Une a Bn Tonge beagetS pune Sapes chy py At aon ea Ned spacing MeN Ste Us Te sry of tries we {Stal po ony ted ert ar cy ls an he ue Forel ‘Su fate senses no fe Ar stad rd Ry Pte Irena Rog sd ar ie fc Thy bad sn, ry sod Ray ‘ey opt rng salen Base Rog uh Pee! cee ose Wears Teco ling int ee ser naa Rat and ody Soca Tn 6, uh tl pte en in he vee Tne Penis e soar Se ated es $2,000 prs Ca Sea Hor St ‘sunt re Bod ul Us iNew Oe ew apes Caan Spero 9 tn yee Oot soi Hac Bay a 1 ae sr eel puree Chr Se HT et or lt fom oihecoked eying nnd opt be bom ae Siuranwalabraelctoe T1975 ang rota we essed in ica ir. Felon a prety ek Brad Std so ped tae nn“ ESE tatoo se frog cont i eso Cr Mack pe Shtd er om ig nae Chr Sak Hoe ins lec ean Afr ec of {te tag, om on repr cmon tn bs me om Das Rae rvs sa Pra stan ge i eae ane Spr Aine Highy Stn Rage Fee any gun serge nd ‘Sas actes in 50 ie cosa pe ns pene, ‘ne page) yin cmt ae sa oo pe Feeltecars wan of et ested Bro Te Pt Tay mart" Years Crs gor oben he ges Foe ding weak house in Unie Sea (ces) wa noo en ereg commen cuter ton (Soren tan of USDA Pine pce seals (RDA Pine bee pd at ‘eno debi tt oes fr et Themen IScnnd eta gully atc el cp uta otto: Sa sl ‘ated oho nt panes wel i etl etna Do carr wae pry pl wes 1610398 Tt peyote tm woe Mac eter pel mages psf 11 4 {Honsih Caen vera ala ears icone8 Cop Mate Opa drs 1 ws vant Dy tocce New Redawrants——~—«NewResaunmts =e Retort eexde (ua (Company omned) Chancho) 1965-1968 1 1900-1909 » & ” inuoduced new items speci that allowed the resturant ofr it guts adlonl hoje, such sets ingpied by Rus Cris New Ones heitage? Ts 2005, Rat Cri enjoyed significant milestone, completing a succesfl IPO tht ied mor ha $154 million in zw equity cpt In ts 205 ann rept the company ‘Sidi plan "no embark on an aseeated development plan and expand our footprint ‘teoaphboth company-owned nd fancied locations" In 2005 eure gre t ‘cord $15.8 milion om §2lcatloas inthe Uited States and 10 interatonl locations Fecutng Canada (1995, 203), Hong Kong (1997, 201), Mexico (1993, 196, 200! and “Taiwan 1993, 1996, 201), As of December 2005, 41 ofthe 92 Rubs Chis restaurants “were pny Sued and 5 were Smcbitee owned cudgel 10 ofthe nterasonl esturs(6= Exhbie). uihs Chriss 5]fanchisee onned restarts were ound by just 1 franchisees, with five nev fnnchisees having the rphs to develop nw restaurant, and the dee laces ffanchines owning eight, and five restaurants respectively Prior o 20), each fan- Chie eared ino 10-year anchite agreement wit dre 10-year reeval options for ‘ich cevtaurant Each agreement granted te franchisee terra protection, wi the ‘pti Is develop a cetain mmber of retarnisi hrwiary. Rus Ci’ fiachsee ‘presets generally eluded eration clases inthe event of nonpefomance bythe ‘ance? JRLD OF OPPORTUNITIES ‘As patof the internation make selection process, Hannah considered four stundaré models seo Pig 2) 1, Prods development—new kinds of restaurans in cxisting makes 2, Dveifieadon—new kind of restaurants in new mare's 2, Penettin more of he sme resturansin the sme market 44. Maret development—more ofthe sme resanrans in new markets ‘Ruths Chris never seriously considered te product evelopment model (new kinds of ‘esi in exiting markets) I bad bulls brand based on fine dining steakhouses ang "vet age cued y Haar atin, ahs Ch was led to tpn coe reumetinton Ora os huts histo 205 Anal ep, 7. Du hk sek Hae 205 Aral ep. 1. Hi ueCae our fut Cir: The gh kerf hear Bxgesin 283 etna ad ong ew Paneration Proc development (ore esr) (ote) Biting Some mat ‘mero dame peat ow pit Market ar detent renin (mw mane) (bd or row are) New Newmar New pea, sone crn vith only 92 stores, the company sau litle need and no vale in diversifying with new “nde of rtsran. Ruth’ Ci alo never sxiouly considered the diversification model new kinds of resturans in new mets). In only four iterations! markets, Hannah knew that he ‘eat fits ting stk house model woold workin tow markets witout the ik of band ‘tion orband confusion, “The peneaton model (more ofthe eame etarats inthe same marks) was already “underway eal wy with ew restaurants opening up in Canada. The itn factor ‘wes simp ta fie ding etabismeats woud never be at ubigutous as quick sevice ‘estou (ha, ft fod) like McDonald. Even the largest cites inthe weld woald te ules to hort mre tan five osx Rut’ Cris Steak Houses. ‘Theme developtent mode (more ofthe sme restaurants ia new mares) appeared the moat obvious pth incensed revenue, Panchses inthe fou intratonl muskes— Cena, Hong Kong, Metco, and Tivan were profitable en could offer testimony to “would-be franchises of he vale ofa Ruth Chris ache. "With management um agreed on model te challenge shifted to market election stern, Te ky soces factors wee well-defined + Reefer: Rat's Chris was a steak hows (ough thee were several fish items ‘onthe nen) ad thsi primary eosomers were peopl who enjoy bee. According {othe World Resource Inet, in 2002 tere were 17 coustries above the mean ca of annual bet consumption fr high-income couses 3.5 klgrams—see Enis) + Legal import US: bef: Te cures u's Cs model wed oly USDA Pre b= ‘titi to be export the tart county. In some cae, Ausialin beef ws able to mecthe ee high US. standard. + Populaton/high urbanization rate: Wit he target custorer being «well 1o-do bee ‘tr, resturnts onde to bein denoly populated areas to ve a are enough poo) Moet ye centers probably me thi requirement + High deposable income: Ruths Crisis» fine dining experience and the average ‘xt of meal fre customer ordering an enue was over 370 ata Ruth's Chri in he ited States, While this might seem to eliminate many counties qucky, some sot Reus on“ Consargn: er cap 984-2082)" ere on ne 7, 2006 fromnpeatieenonriten/rcare osha 13 Hnhtt Oper ote couric (6, China) have auch arg poplasions that ven avery smal peroentnge ‘ot people with igh diposle income could create an appropri pool of potential casos + People go out o eat: Tis wat asta factor: If wel-o- beaters di not go out toe hee couse Bad to be removed fom the rae ist + Affi for US: bron: Th ame “Rt Cris” vas wiguely American a was the Fh Pert! story. Countries tht were overly anti-United Sas would be eliminated fiom—r at lea pacbd down the tre ist. One measure of init could be the resoeof exiting US. restaurants and succes ancises. D RUTH'S CHRIS DO NEXT? Hanh bad many years of experience in the estaorant flanchising busines, and ths ‘both persona preference and god intnets about where Rubs Css should be looking for nor market "Which markets should we exter Fs? be thought himself. Market ‘ny was eric but there wee ober sus op. Should faachising contin tobe Rus ‘Chris sexcusveinteration] mode of ea? Wise there opportunities fr joint vente fr conpany-ovoed stores in certain make? How could be ideatif and eva now pote anchibes? Wa here an oppartniy to finda global partoand with which foparter? HHemaeh gathered information ftom severe reisble US, govemment tnd rested Web site and eented the tebe in Exhibit 4 He noted tht many this top prospects aren id no allow the import of US. beet, but be elt baths was apolitical (Gahehan acura) variable apd hue cond change qully unde the right eroum> ‘ances eopecily with what ef was the ted tvard ever more fe ade. He could ‘ot finan data 0 how often people went oto ea oa measur of hei aint tvard US. binds, Maybe the avons of US. casual dang restaurans in county might be 3 00d idistr of hw is lens fet ovard US. estar. With hs spreahet open, be weno work one mumbers nd began contemplating the frre loalexpasion of | ‘he company. “Arye evra ft i pnd wel bak Rush Fee, 1927-2002 Founder of Ruth Chis Ses House ‘erpary name ace pat cen Sars Sentry 3 i | Ulavareeerarseeg |2over ah i high Bef hn Bp FRE 2 Pus Oi Location inthe United Sat 2008) camer sured @ arction ome $3 Most Consumption pe Cot th ogra) union woe Toes roma S77 sam wagminnn 7h STB bas feuicatien 87 Mtg See SU A ere te ast Ae 37 mye a coe v2 tts tmz ‘ wre or ak nase a Senatea mo al bir eins mo moat ao Fogcunes mo mi mo 8 as ome cous mss 20D 286“2A. Mas Opry nr ie ee a a a ccs) ia oa ‘a 7 Pa ® “oa a wo x eh i sons & wa 2 z § o * es & ne @ ma 1 2 « ‘no @ ae ® pe 2 eee rdMKT 514-600 Markoting Managenrent Dr. Efstathios (Stathis) Kefallonitis, ‘O Assistant Professor Ruth Chris; The High Stakes of International Expansion Synopsis. ‘The first crical question facing a company’s ability to grow ite business imtemationally is where it should go next this question is followed quickly by what mode of entry it should use and which partners ‘should take on. One company facing these important questions was Ruth's Cis Steak House (Ruth's (Chris, the largest fine dining steak house i the Urited Stats. Ruth Fre started Ruth's Cris in 1965 and over the next 40 years the company grew to more than 90 restaurants, abou balf of them franchises (Of these restaurants, only 10 were international locations, ‘The cate describes the challenge facing Dan Hannah, vice president for business development for Ruth's Curis, as the company starts to grow its international presence following a succesful initial public ‘offering (PO) in 2005. With restaurants in just five counties inchoding the United States, the challenge for Hannah was to decide where to goto next. osyectives This case introduces market entry strategy. It provides a prectical example for students to take quaniative (eg. per capita gross domestic product (GDP), population and wanizaion rates) and non ‘quantitative variables (eg, political and social issues) to create a shor ist of potential new markets. It ‘an also be used in sessions on international marketing, global franchising end business strategy. ‘STUDY QUESTIONS |, What did Hannah do co make a first cut in the ist of potential counties? How did he gt from 200 to Jess than 35 potential new markets? Which variables semed more importane i is decision-making? ‘Which unused variables might have been useful? 2. What would be your choice forthe top five opportunities? The top 107 What equation dd you use to reach that conclsion and why’? 3. Hannah was focused on franchising as his mode of entry. Do the crtcal variables change if a liferent mode of entry is employed? 4. What are some of the intertal and external challenges Hannah wil face in moving from a list to actually opening restaurants?