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Outback's loss shows bloom is off casual dining

Outback Steakhouse has sold enough fried Bloomin' Onions — joy of the palate, bane of dieters at over 2,000 calories (with dip) — since it was introduced 21 years ago to feed every other person in the United States.

Apparently, that's not enough. On Monday, Outback's Tampa-based parent company, OSI Restaurants Inc., reported a more than half-billion-dollar loss in the three months ending 2008. Most of that big number involved writedowns of stuff called goodwill, but let's boil it all down to this:

In this severe recession, too few people are dining at casual restaurants, including the popular ones OSI owns — Carrabba's Italian Grill, Bonefish Grill, Fleming's, Roy's and Cheeseburger in Paradise.

"The fourth quarter was very challenging," says OSI chief financial officer Dirk Montgomery, in a modern classic of understatement.

In 2008, Outback sales drooped 9.5 percent. So now there's a new and simplified menu being rolled out with 15 entrees under $15, a marketing message stressing affordability and sprucing of decor.

Carrabba's dipped 7.5 percent last year, which disappoints OSI after the chain showed earlier momentum.

Bonefish was financially filleted, falling 14 percent. It proved vulnerable because it's concentrated in Florida where the economic downturn is severe. Bonefish recently dumped ad agency Cliff Freeman & Partners — known for Wendy's "Where's the beef?" campaign — for fresher ideas.

And fancier Fleming's? It tanked, down 19.6 percent — a victim of the ravaged upscale steak niche that includes the Ruth's Chris and Morton's chains. Fleming's also is concentrated in states such as Florida, California and Arizona, where economies are most pummeled.

So, dear readers, if you ran OSI amid such tempests, what would you do to survive or even prosper?

Cut costs? OSI's doing it, though it's wary to trim only fat and not muscle.

Become more efficient? OSI's saving millions by fine-tuning its food orders and opening new restaurants more selectively.

Market more effectively? OSI's trying, though there may be only so many ways to say Costs less! Tastes great!

CFO Montgomery on Monday said OSI's strategy in 2009 is to sell hard and get lots of customers into its restaurants. He uses the phrase "Outback brand revitalization" as a candid admission that the aging image of the casual dining steak chain needs a re-do.

For OSI, the good news is that the once-public company was taken private several years ago and has avoided the stock market's pain and humiliation inflicted on the share prices of its competitors.

The bad news is taking Outback private required taking on a lot of debt.

A Reuters analysis says the bonds of restaurants ranging from OSI to Chili's parent Brinker International are trading at "distressed levels."

Private equity capital firm Bain Capital, which helped along with Catterton Management to take OSI private, discounted Outback on its books to reflect the chain's weaker value.

OSI's got gobs of management talent. But can it digest this fried economy?

Robert Trigaux can be reached at trigaux@sptimes.com.

Outback's loss shows bloom is off casual dining 02/23/09 [Last modified: Wednesday, February 25, 2009 4:45pm]

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