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906A34
RUTH’S CHRIS: THE HIGH STAKES OF INTERNATIONAL EXPANSION
Allen H. Kupetz and Professor Ilan Alon wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
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Copyright © 2006, Richard Ivey School of Business Foundation
Version: 2017-05-18
“Well, I was so lucky that I fell into something that I really, really love. And I think that if
you ever go into business, you better find something you really love, because you spend so
many hours with it … it almost becomes your life.”
Ruth Fertel, 1927-2002
Founder of Ruth’s Chris Steak House
In 2006, Ruth’s Chris Steak House (Ruth’s Chris) was fresh off a sizzling initial public offering (IPO).
Dan Hannah, vice-president for business development since June 2004, was responsible for the
development of a new business strategy focused on continued growth of franchise and company-operated
restaurants. He also oversaw franchisee relations. Now a public company, Ruth’s Chris had to meet Wall
Street’s expectations for revenue growth. Current stores were seeing consistent incremental revenue
growth, but new restaurants were critical and Hannah knew that the international opportunities offered a
tremendous upside.
With restaurants in just five countries, including the United States, the challenge for Hannah was to decide
where to go to next. Ruth’s Chris regularly received inquiries from would-be franchisees all over the
world, but strict criteria — liquid net worth of at least US$1 million, verifiable experience within the
hospitality industry, and an ability and desire to develop multiple locations — eliminated many of the
prospects. And the cost of a franchise — a US$100,000 per restaurant franchise fee, a five per cent of
gross sales royalty fee, and a two per cent of gross sales fee as a contribution to the national advertising
campaign — eliminated some qualified prospects. All this was coupled with a debate within Ruth’s Chris
senior management team about the need and desire to grow its international business. So where was
Hannah to look for new international franchisees and what countries would be best suited for the fine
dining that made Ruth’s Chris famous?
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THE HOUSE THAT RUTH BUILT
Ruth Fertel, the founder of Ruth’s Chris, was born in New Orleans in 1927. She skipped several grades in
grammar school, and later entered Louisiana State University in Baton Rouge at the age of 15 to pursue
degrees in chemistry and physics. After graduation, Fertel landed a job teaching at McNeese State
University. The majority of her students were football players who not only towered over her, but were
actually older than she was. Fertel taught for two semesters. In 1948, the former Ruth Ann Adstad
married Rodney Fertel, who lived in Baton Rouge and shared her love of horses. They had two sons, Jerry
and Randy. They opened a racing stable in Baton Rouge. Ruth Fertel earned a thoroughbred trainer’s
license, making her the first female horse trainer in Louisiana. Ruth and Rodney Fertel divorced in 1958.
In 1965, Ruth Fertel spotted an ad in the New Orleans Times-Picayune selling a steak house. She
mortgaged her home for US$22,000 to purchase Chris Steak House, a 60-seat restaurant on the corner of
Broad and Ursuline in New Orleans, near the fairgrounds racetrack. In September of 1965, the city of New
Orleans was ravaged by Hurricane Betsy just a few months after Fertel purchased Chris Steak House. The
restaurant was left without power, so she cooked everything she had and brought it to her brother in
devastated Plaquemines Parish to aid in the relief effort.
In 1976, the thriving restaurant was destroyed in a kitchen fire. Fertel bought a new property a few blocks
away on Broad Street and soon opened under a new name, “Ruth’s Chris Steak House,” since her original
contract with former owner, Chris Matulich, precluded her from using the name Chris Steak House in a
different location. After years of failed attempts, Tom Moran, a regular customer and business owner from
Baton Rouge, convinced a hesitant Fertel to let him open the first Ruth’s Chris franchise in 1976. It
opened on Airline Highway in Baton Rouge. Fertel reluctantly began awarding more and more franchises.
In the 1980s, the little corner steak house grew into a global phenomenon with restaurants opening every
year in cities around the nation and the world. Fertel became something of an icon herself and was dubbed
by her peers The First Lady of American Restaurants.
Ruth’s Chris grew to become the largest fine dining steak house in the United States (see Exhibit 1) with
its focus on an unwavering commitment to customer satisfaction and its broad selection of USDA Prime
grade steaks (USDA Prime is a meat grade label that refers to evenly distributed marbling that enhances
the flavor of the steak). The menu also included premium quality lamb chops, veal chops, fish, chicken
and lobster. Steak and seafood combinations and a vegetable platter were also available at selected
restaurants. Dinner entrees were generally priced between US$18 to US$38. Three company-owned
restaurants were open for lunch and offered entrees generally ranging in price from US$11 to US$24. The
Ruth’s Chris core menu was similar at all of its restaurants. The company occasionally introduced new
items as specials that allowed the restaurant to offer its guests additional choices, such as items inspired by
Ruth’s Chris New Orleans heritage.1
In 2005, Ruth’s Chris enjoyed a significant milestone, completing a successful IPO that raised more than
US$154 million in new equity capital. In its 2005 Annual Report, the company said it had plans “to
embark on an accelerated development plan and expand our footprint through both company-owned and
franchised locations.” 2005 restaurant sales grew to a record US$415.8 million from 82 locations in the
United States and 10 international locations, including Canada (1995, 2003), Hong Kong (1997, 2001),
Mexico (1993, 1996, 2001) and Taiwan (1993, 1996, 2001). As of December 2005, 41 of the 92 Ruth’s
Chris restaurants were company-owned and 51 were franchisee-owned, including all 10 of the international
restaurants (see Exhibit 2).
1
Ruth’s Chris Steak House 2005 Annual Report, pg. 7.
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9B06A034
Figure 1
RUTH’S CHRIS RESTAURANT GROWTH BY DECADE
New Restaurants
New Restaurants
New Restaurants
Decade
(total)
(company-owned)
(franchises)
1965-1969
1
1
0
1970-1979
4
2
2
1980-1989
19
8
11
1990-1999
44
19
25
2000-2005
25
12
13
932
42
51
Source: Ruth’s Chris Steak House files.
Ruth’s Chris’s 51 franchisee-owned restaurants were owned by just 17 franchisees, with five new
franchisees having the rights to develop a new restaurant, and the three largest franchisees owning eight,
six and five restaurants, respectively. Prior to 2004, each franchisee entered into a 10-year franchise
agreement with three 10-year renewal options for each restaurant. Each agreement granted the franchisee
territorial protection, with the option to develop a certain number of restaurants in their territory. Ruth’s
Chris’s franchisee agreements generally included termination clauses in the event of nonperformance by
the franchisee.3
A WORLD OF OPPORTUNITIES
As part of the international market selection process, Hannah considered four standard models (see Figure
2):
1.
2.
3.
4.
Product development — new kinds of restaurants in existing markets
Diversification — new kinds of restaurants in new markets
Penetration — more of the same restaurants in the same market
Market development — more of the same restaurants in new markets
2
Due to damage caused by Hurricane Katrina, Ruth’s Chris was forced to temporarily close its restaurant in New Orleans,
Louisiana.
3
Ruth’s Chris Steak House 2005 Annual Report, pg. 10.
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Figure 2
RESTAURANT GROWTH PATHS4
Restaurant Brands
Existing
Existing
Market
New
New
Penetration
(more restaurants)
Same market,
same product
Product development
(new brands)
Same market,
new product
Market development
(new markets)
New market,
same product
Diversification
(new brands for new market)
New product,
new market
The product development model (new kinds of restaurants in existing markets) was never seriously
considered by Ruth’s Chris. It had built a brand based on fine dining steak houses and, with only 92 stores,
the company saw little need and no value in diversifying with new kinds of restaurants.
The diversification model (new kinds of restaurants in new markets) was also never considered by Ruth’s
Chris. In only four international markets, Hannah knew that the current fine dining steak house model
would work in new markets without the risk of brand dilution or brand confusion.
The penetration model (more of the same restaurants in the same market) was already underway in a small
way with new restaurants opening up in Canada. The limiting factor was simply that fine dining
establishments would never be as ubiquitous as quick-service restaurants (i.e. fast food) like McDonald’s.
Even the largest cities in the world would be unlikely to host more than five to six Ruth’s Chris steak
houses.
The market development model (more of the same restaurants in new markets) appeared the most obvious
path to increased revenue. Franchisees in the four international markets — Canada, Hong Kong, Mexico
and Taiwan — were profitable and could offer testimony to would-be franchisees of the value of a Ruth’s
Chris franchise.
With the management team agreed on a model, the challenge shifted to market selection criteria. The key
success factors were well-defined:
Beef-eaters: Ruth’s Chris was a steak house (though there were several fish items on the menu) and,
thus, its primary customers were people who enjoy beef. According to the World Resources Institute,
in 2002, there were 17 countries above the mean per capita of annual beef consumption for highincome countries (93.5 kilograms — see Exhibit 3).5
4
This diagram is based on Ansoff’s Product/Market Matrix, first published in “Strategies for Diversification,” Harvard
Business Review, 1957.
5
World Resources Institute, “Meat Consumption: Per Capita (1984-2002),” retrieved on June 7, 2006 from
http://earthtrends.wri.org/text/agriculture-food/variable-193.html.
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9B06A034
Legal to import U.S. beef: The current Ruth’s Chris model used only USDA Prime beef, thus it had to
be exportable to the target country. In some cases, Australian beef was able to meet the same high
U.S. standard.
Population/high urbanization rates: With the target customer being a well-to-do beef-eater, restaurants
needed to be in densely populated areas to have a large enough pool. Most large centers probably met
this requirement.
High disposable income: Ruth’s Chris is a fine dining experience and the average cost of a meal for a
customer ordering an entrée was over US$70 at a Ruth’s Chris in the United States. While this might
seem to eliminate many countries quickly, there are countries (e.g. China) that have such large
populations that even a very small percentage of high disposable income people could create an
appropriate pool of potential customers.
Do people go out to eat? This was a critical factor. If well-to-do beef-eaters did not go out to eat,
these countries had to be removed from the target list.
Affinity for U.S. brands: The name “Ruth’s Chris” was uniquely American as was the Ruth Fertel
story. Countries that were overtly anti-United States would be eliminated from — or at least pushed
down — the target list. One measure of affinity could be the presence of existing U.S. restaurants and
successful franchises.
WHAT SHOULD RUTH’S CHRIS DO NEXT?
Hannah had many years of experience in the restaurant franchising business, and thus had both personal
preferences and good instincts about where Ruth’s Chris should be looking for new markets. “Which
markets should we enter first?” he thought to himself. Market entry was critical, but there were other
issues too. Should franchising continue to be Ruth’s Chris exclusive international mode of entry? Were
there opportunities for joint ventures or company-owned stores in certain markets? How could he identify
and evaluate new potential franchisees? Was there an opportunity to find a global partner/brand with
which to partner?
Hannah gathered information from several reliable U.S. government and related websites and created the
table in Exhibit 4. He noted that many of his top prospects currently did not allow the importation of U.S.
beef, but he felt that this was a political (rather than a cultural) variable and thus could change quickly
under the right circumstances and with what he felt was the trend toward ever more free trade. He could
not find any data on how often people went out to eat or a measure of their affinity toward U.S. brands.
Maybe the success of U.S. casual dining restaurants in a country might be a good indicator of how its
citizens felt toward U.S. restaurants. With his spreadsheet open, he went to work on the numbers and
began contemplating the future global expansion of the company.
“If you’ve ever had a filet this good, welcome back.”
Ruth Fertel, 1927-2002
Founder of Ruth’s Chris Steak House
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Exhibit 1
FINE DINING STEAK HOUSES BY BRAND IN THE UNITED STATES
(2005)
Company
Name
Number of
Restaurants
Ruth’s Chris
Morton’s
Fleming’s
Palm
Capital Grille
Shula’s
Sullivan’s
Smith & Wollensky
Del Frisco
92
66
32
28
22
16
15
11
6
Source: Ruth’s Chris Steak House files.
Exhibit 2
RUTH’S CHRIS LOCATIONS IN THE UNITED STATES
(2005)
Company - owned
Franchisee - owned
Source: Ruth’s Chris Steak House files.
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9B06A034
Exhibit 3
MEAT CONSUMPTION PER CAPITA1
(in kilograms)
Region/Classification
World
Asia (excluding Middle East)
Central America/Caribbean
Europe
Middle East/North Africa
North America
South America
Sub-Saharan Africa
Developed Countries
Developing Countries
High-Income Countries
Low-Income Countries
Middle-Income Countries
2002
39.7
27.8
46.9
74.3
25.7
123.2
69.7
13.0
80.0
28.9
93.5
8.8
46.1
2001
38.8
26.9
45.7
72.5
25.7
119.1
68.4
12.9
78.0
28.1
91.9
8.6
44.6
2000
38.6
26.6
44.8
70.5
26.0
120.5
69.1
13.1
77.2
28.0
92.0
8.4
43.9
1999
38.0
25.7
42.9
70.6
25.1
122.2
67.6
12.8
77.3
27.1
92.2
8.3
42.7
1998
37.7
25.4
41.3
73.1
24.7
118.3
64.2
12.6
77.6
26.6
90.9
8.2
42.3
Growth Rate
1998-2002
5.31%
9.45%
13.56%
1.64%
4.05%
4.14%
8.57%
3.17%
3.09%
8.65%
2.86%
7.32%
8.98%
1
World Resources Institute, “Meat Consumption: Per Capita (1984-2002),” retrieved on June 7, 2006 from
http://earthtrends.wri.org/text/agriculture-food/variable-193.html.
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Exhibit 4
DATA TABLE
Country
Argentina
Bahamas
Belgium
Brazil
Chile
China
Costa Rica
Czech Rep
France
Germany
Greece
Hungary
Ireland
Israel
Italy
Japan
Kuwait
Malaysia
Netherlands
Panama
Poland
Portugal
Russia
Singapore
South Africa
South Korea
Spain
Switzerland
Turkey
UAE/Dubai
U.K.
United States
Vietnam
Per Capita Beef
Consumption (kg)
97.6
123.6
86.1
82.4
66.4
52.4
40.4
77.3
101.1
82.1
78.7
100.7
106.3
97.1
90.4
43.9
60.2
50.9
89.3
54.5
78.1
91.1
51
71.1
39
48
118.6
72.9
19.3
74.4
79.6
124.8
28.6
Population
(1,000s)
39,921
303
10,379
188,078
16,134
1,313,973
4,075
10,235
60,876
82,422
10,688
9,981
4,062
6,352
58,133
127,463
2,418
24,385
16,491
3,191
38,536
10,605
142,893
4,492
44,187
48,846
40,397
7,523
70,413
2,602
60,609
298,444
84,402
Urbanization
Rate (%)
90%
89%
97%
83%
87%
39%
61%
74%
76%
88%
61%
65%
60%
92%
67%
65%
96%
64%
66%
57%
62%
55%
73%
100%
57%
80%
77%
68%
66%
85%
89%
80%
26%
Per Capita GDP
(PPP in US$)
$13,100
$20,200
$31,400
$8,400
$11,300
$6,800
$11,100
$19,500
$29,900
$30,400
$22,200
$16,300
$41,000
$24,600
$29,200
$31,500
$19,200
$12,100
$30,500
$7,200
$13,300
$19,300
$11,100
$28,100
$12,000
$20,400
$25,500
$32,300
$8,200
$43,400
$30,300
$41,800
$2,800
Source: World Resources Institute, “Meat Consumption: Per Capita (1984-2002),” retrieved on June 7, 2006 from
http://earthtrends.wri.org/text/agriculture-food/variable-193.html and World Bank Key Development Data & Statistics,
http://web.worldbank.org/WBSITE/EXTERNAL/DATASTATISTICS/0,,contentMDK:20535285~menuPK:232599~pagePK:641
33150~piPK:64133175~theSitePK:239419,00.html, retrieved on June 7, 2006.
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