Outback Steakhouse, known for its American twist on Australian barbecue, has found an
unlikely home, Brazil.
The country generates a staggering 83% of Bloomin' Brands, nearly $500 million of its
international sales in the first half of 2023.
Outback Brazil saw sales grow 61%, traffic increased by 42%, and the average check by
19.2% compared to the same time in 2022.
Meanwhile, for the US operations, those numbers were 3.9%, -5% and 8.9% respectively.
Nearly half of its total international restaurants are located in Brazil.
So it's a little over 10% of their revenue that we're forecasting in 2023 will will come
from Brazil.
Thanks to Brazil's rising middle class and a food culture centered around beef.
The brand has amassed a huge following both on social media as well as in person.
So how did an Australian inspired steakhouse take over a country so famous for its local
barbecue? Outback Brazil opened its doors in 1997, less than ten years after its debut in
the US.
Australian Barbecue, it's a new experience, and consumers valuated with this kind of
space because it's a one typical experience of another culture.
At the time there were only 11 international Outback's in Canada, Korea, Mexico,
Philippines and Aruba.
By 2005, bloomin brands under its former name, Outback Steakhouse Inc, had about 140
international stores, of which 12 were in Brazil.
Quickly, the Latin American country proved to be crucial for the company's success.
A year later, Outback Steakhouse, then called Aussie Restaurant Partners, was
acquired by private equity firm Bain Capital and Catterton Partners for $3.5 billion, or
over $40 a share.
Forming Bloomin brands, The company went public in 2012, selling 16 million shares at
$11 each.
At that time, Brazil accounted for about one fifth of Outback's international footprint.
By 2017, that number had grown to 35% and sales to $377 million across 87 locations, a
massive jump from 2013.
However, in the years leading up to the pandemic Bloomin' Brands, overall sales
remained stagnant, seeing little growth in some years even declining.
At the start of 2020, reports started spreading that Blumin was divesting from the
Brazil market, partly to streamline its operations and bolster margins.
Companies started down the path of pursuing new ownership structures and potentially
finding a license partner that could operate the brand, and it would allow them to extract
some value and monetize the business while maintaining an ownership piece.
Outback's operations in the country were estimated to be worth $472 million.
However, those plans fell through.
CNBC reached out to Bloomin' Brands, but the company declined to participate.
For Bloomin' Brands, as with most restaurant chains, the pandemic hit hard with dropping
revenues and tumbling stock prices.
However, within a year, the Brazil segment had bounced back and thatrillioneturn
reflected in the company's stock.
Just to frame it in the US.
Most casual diners are per store sales volumes are up 8 to 10%.
Call it give or take.
If you look at their Brazilian units, they are up in the mid 20s.
Even with Covid and the economy recovering here, there's still a strong demand for these
restaurant chains.
Us exports of consumer oriented products, which some of these products are going to
these restaurant chains.
This number has increased.
It did not decrease during Covid in 2020.
While surprise to some, the American twist on Australian inspired barbecue has worked well
in a country well known for its traditional barbecue culture.
In the past decade, Brazil has witnessed a rise in purchasing power from an expanding
middle class. The country is the largest consumer market in Latin America, with about
50% of its over 213 million population considered middle class, a group which spends
considerably on dining out.
There's an increasing disposable income and purchasing power of the middle class, which
allows them to spend more on eating out.
And there's a positive reputation and brand recognition of US restaurant chains here,
which are seen as trendsetters and providers of high quality services and products.
Initially starting in major cities like Sao Paulo and Rio de Janeiro.
Today, outback Brazil is all over the country.
At the end of 2022, with 139 stores, the $405 million in sales accounted for about 16%
of Outback's global sales.
I think I think they still have a concentration of stores, pretty high
concentration. That's in Sao Paulo and Rio.
And so it would seem that there still is a unit growth opportunity.
Obviously those are the densest population centers there.
But it does seem that there's still an opportunity in some under-penetrated areas
within the country.
Outback success in Brazil isn't unique to just the American company.
Over the years, the country's full service and quick service restaurant penetration has
been prolific. While iconic American fast food brands like McDonald's, Burger King and
Subway have a large presence in Brazil.
They've struggled during high inflationary times.
In a survey conducted by Mintel, a market research company, 35% of Brazilian
respondents have used more promotional discounts in response to rising prices.
That number jumped to 52% for quick service restaurants like McDonald's, up to 66% at
American Dine in restaurants like Outback, which offer things like Billabong hour or
half price drinks and bundle entree meals starting at just $20.
But it's not just affordability driving locals to outback in Brazil, there's also a
shift amongst younger consumers to accommodate for a more modern lifestyle.
Talk about an energy that it's tapped into and sort of a weakness of the brand.
And, you know, in certain ways, that's how Outback was in the early days here in the US,
where they had very long lines in the 80s and 90s back in the day.
And Outback's footprint in Brazil is strategically placed in highly concentrated
areas such as shopping malls, downtowns and city centers.
Take its Sao Paulo location, home of the largest Outback steakhouse in the world.
Not only is it one of the most densely populated cities in the country, but it's
also in the southeast region of Brazil with some of the highest average earnings in the
country. Similar to Rio de Janeiro and Brasilia.
While location and menu promotions play a critical role in Outback's hold in the
Brazilian food zeitgeist, another factor is the chain's theming.
As local consumers have returned to dining out post-pandemic, they're looking for new
experiences like themed restaurants which have a mass appeal nationwide.
In south and southeast Brazil, themed restaurants are highly sought after by
younger consumers, such as university students.
When US restaurant chains can create an atmosphere that keeps people engaged and
wanting to stay within that environment, then they become successful because that the
the people that are eating at those restaurants can enjoy the company of their
families and friends.
Brazil's food service industry faces some challenges as it continues to recover from
the pandemic and price hikes from inflation in Q2 2023.
Same store sales at outback Brazil jumped over 18% from the quarter the year prior, and
traffic declined by -4% compared to its domestic counterpart.
The US saw a stark difference with little growth both in sales and traffic.
As for its parent company, Bloomin' Brands, it continues to see share prices recover from
its pandemic lows of just over $4 a share to over $28 a share as of late August 2023.
Share prices saw a rise earlier that month as activist investor Starboard Value, a
company involved in turnarounds such as Papa John's and Darden Restaurants acquired about
9.9% of Bloomin' shares.
The stock has been somewhat rangebound, and there's been different reasons for that.
That pre pandemic period.
It was one of challenged same store sales at times or inconsistent same store sales at
times a little bit below average margin profile as well.
Outback Brazil's vital to Bloomin' Brands.
And with that, the question remains, is the chain diversified enough?
83% of women's international sales is from Brazil and it's nearly half of its entire
global footprint.
There were also moments in time where there would be local events, say, in Brazil, that
caused disruption in the business and same store sales volatility.
It sort of had a at times it was a source of frustration.
They rarely got credit or the benefit of when things were going well and then when
there would be one of these disruptions or unexpected hit to the business, the stock
would often respond negatively to it.