Feb. 28, 2024

The Timeless Business of Steakhouses

Published May 26, 2023, 5:20 a.m. by Naomi Charles

There's something about a steakhouse that just oozes success. Maybe it's the sleek, dark wood interior or the menu full of juicy, expensive cuts of meat. Whatever the case may be, steakhouses have been around for centuries and continue to be some of the most popular restaurants in the world.

The first steakhouse is believed to have opened in 1660 in London, and since then, they've been a favorite among businessmen and women looking to seal a deal over a nice dinner. In the United States, some of the most famous steakhouses are Peter Luger in New York City and The Palm in Los Angeles.

A good steakhouse is the perfect place to impress a client or business partner. The setting is usually upscale and the service is top-notch. steakhouses are also great for celebrating a special occasion. Whether you're there for the food or the atmosphere, a steakhouse is sure to make you feel like a million bucks.

If you're thinking about opening a steakhouse, there are a few things you should keep in mind. First, you'll need to find the perfect location. steakhouses tend to do best in cities with a strong business presence. Second, your menu should feature high-quality, expensive cuts of meat. Finally, you'll need to hire a talented chef who knows how to cook a mean steak.

With careful planning and execution, you can have a successful steakhouse that will be the talk of the town. So what are you waiting for? It's time to get in the business of steaks!

You may also like to read about:

the restaurant industry is one of the

most romanticized and ruthless markets

few Industries have suffered as much as

restaurants in the past years with the

pandemic inflation and soaring food

costs the failure rates and thin margins

that restaurants endure are Infamous

with alleged profits of Less Than 3

percent and that 60 to 80 percent of

restaurants reportedly never make it

past five years

lobbyists like the National Restaurant

Association who are incentivized to

reshape narratives have fought back

stating that such statistics are

exaggerated and that the true failure

rate is much lower at 17 percent but the

one universal truth that everyone agrees

on is that the restaurant business is

ruthless achieving profitability is hard

returns are unforgiving upfront Capital

requirements are high and scaling is


as restaurants go there's Italian

Mexican Chinese American Japanese and so

on but there is one type of restaurant

that's considered to be the most

lucrative and makes up over half of the

top 100 highest grossing restaurants in

the United States every year that is the


in America the steakhouse is as much a

cultural rite of passage as it is a fine

dining establishment

when people go to steakhouses it's for

the experience as much as the food they

dress up they expect quality service and

the meal serves as a platform for

business or celebration all steakhouses

offer standard fare like the New York

strip the porterhouse the filet mignon

alongside mashed potatoes brussels

sprouts Caesar salad and chocolate cake

While most restaurants aim to specialize

in certain foods or offer unique items

for differentiation steakhouses thrive

in Conformity their goal is to serve

tried and true Classics with good

ingredients good execution good service

and good Ambiance for steakhouses the

more predictable the menu and experience

is the better

compared to fast casual restaurants

where people look to dip in and out

quickly and get as much bang for their

buck as possible customers go to

steakhouses ready to splurge While most

restaurants optimize for high volume low

margin steakhouses have higher margins

built in as they charge premium prices

to an audience that has high willingness

to pay

a single stake depending on the cut can

cost 50 to 100 at a steakhouse with the

expectation that each Diner orders their


side dishes like mashed potatoes salad

fries and asparagus are simple low-cost

items that are always heavily marked up

if a takeout shop charge 10 to 15

dollars for fries or mashed potatoes

alone that would raise eyebrows but at a

steakhouse no one would question such a


alcohol is another high margin item that

adds to the bottom line the fancier of

the steakhouse the more they invest in

their wine making it part of the decor

with Sellers and displays right when

diners walk in

the focus on ingredients service

execution and Ambiance along with a

high-end target market make steakhouses

inherently difficult to scale as there

are few ways to automate or streamline a

business that requires so much human


at the same time people don't dine on

steakhouses every week which means

demand can be met with a handful of

steakhouses in any given area in this

episode we'll cover the business of

steakhouses and cover the strategies of

the three of the biggest chains in the

world who each have their own strategy

and go after diners at very different

price points Outback Steakhouse Texas

Roadhouse and Ruth Chris

Ruth Chris is the classic high-end

Steakhouse that charges top dollar and

Prides itself on its service and USDA

prime beef Ruth Chris's target audience

is the 35 to 65 year old

business-centric high-paying upper

middle class individual or couple their

menu features traditional culinary

opulence priced from 35 to 100 with

Prime and choice grade Cuts alongside

shrimp Chops Lobster chilled Seafood

towers and desserts like bread pudding

and cheesecake Ruth Chris's

differentiation is its signature

sizzling fashion where Stakes are served

on 500 degree plates in pools of boiling

butter each location carries over 250

options for wine for customers to choose

from that range from 50 to a thousand

dollars a bottle alongside cocktail beer

and liquor options

when customers walk into Ruth Chris they

drop on average ninety dollars for their

meal the average check for Ruth Chris

has grown in the past decade from

seventy dollars to ninety dollars not

necessarily ahead of inflation but still

at a healthy rate in the past four years

on average 18 of that ninety dollars is

spent on Beverages and the remaining 72

dollars is spent on food red wine and

steak is a classic pairing and while the

company no longer reports how much wine

it sells historical data shows that wine

made up sixty percent of all beverages

for a seven year period between 2010 and


with 150 restaurants spread across North

America and Asia Ruth Chris is the

largest upscale Steakhouse chain in the

world at first glance 150 locations is

not a lot to put it into perspective The

Cheesecake Factory has 330 restaurants

in North America alone double of what

Ruth Chris has in the entire world Olive

Garden has over 800 restaurants in North


IHOP and Chile each have over 1 600

restaurants in the United States while

fast casual restaurants optimize for

volume broad appeal and actively invest

in simplifying their service or food as

a higher end establishment Ruth Chris

can't scale in the same fashion in the

past decade Ruth Chris has opened on

average just two restaurants every year

despite having such a small footprint

Ruth Chris has steadily grown total

revenue earning from 285 million dollars

a year in 2010 to over 400 million

dollars in 2021. over 90 percent of

Revenue comes from sales from

restaurants that it owns and operates

and only four percent comes from

franchise fees

looking at the numbers there's been no

significant effort to derive more income

from franchise fees this is in stark

contrast from the typical restaurant

Playbook which prescribes to expand

through franchises and to derive most

Revenue at maturity from franchise fees

this strategy is most apparent in fast

food and fast casual restaurants by

finding local operators to run the

restaurants companies expand faster with

significantly less risk and open up

locations without any responsibility for

day-to-day execution

earlier this season we covered KFC which

painted a picture of what happens in

over expansion local franchisees who run

the restaurants end up cutting Corners

in service and food quality customers

suffer and the brand starts declining in

popularity and appeal

it is this precise risk that makes Ruth

Chris take such a slow and methodical

Pace when it comes to expansion in a

Chase to reach and serve as many

customers as possible fast food and fast

casual companies will let just about

anyone with the money and interest to

franchise a location without too much

due diligence as a higher end Steakhouse

Ruth Chris believes its greatest asset

to be its brand the company performs due

diligence in every aspect of expansion

the location space the market the region

the geography and the franchisee to make

sure that the service and food in these

new locations are going to be at the

same standards as existing ones

so even if that means slower growth to

Ruth Chris that is a better outcome than

the irreparable harm to Goodwill that

comes with over expansion if people have

a bad experience at Ruth Chris then

people will simply take their money to

other upscale steakhouses and the brand

will lose its reputation and pricing

power that is carefully cultivated for

the past 50 years

like in the case of McDonald's or IHOP

or KFC these companies generally want to

make money from royalties and to get out

of the restaurant business it's normal

to see an inflection point as a

restaurant matures a rise in the number

of locations that are franchised and a

drop in the number of locations that are

owned and operated by the company over


yet Ruth Chris to this day has not shied

away from operating its own restaurants

or buying back its locations from

franchisees when the company thinks it

can do a better job than the local


the number of franchised Ruth Chris

steakhouses have remained consistent

over the past decade with Ebbs and flows

that move in both directions

half of Ruth Chris's steakhouses are

franchised and half are run by corporate

the company has never made more than 20

million dollars a year from royalties

and franchise freeze have grown on

average just six percent every year for

the past decade on a per location basis

the average Ruth Chris franchise pays up

just shy of a quarter of a million

dollars every year on royalties as a fun

comparison of just how different the

extremes are When comparing fast food

versus high-end restaurants the average

KFC franchise just pays sixty thousand

dollars a year in royalties

for customer acquisition Ruth Chris's

strategy is to win the 35 to 65 year old

segment of each generation the company

boils down each customer visit down to

one of three basic use cases the first

is for special occasions where people

come to celebrate the second is business

for company and client dinners and the

third is just cause that's when people

drop in for bar food and casual drinks

rather than a formal sit-down dinner

during Ruth Chris's rise to Fame in the

early 2000s their main customers were

Boomers now that Boomers are retiring

and nearing the end of their lifetime

value Ruth Chris is turning its

attention onto Millennials as the next

generation is now entering the Suites 35

to 65 year old age range

to pull in that younger audience Ruth

Chris has launched his taste maker

dinners which are a fixed priced four

course menus that include wine and cost

150 a person

set menus are nothing new for

steakhouses but perhaps this is a

response to the growing popularity

around Japanese Omakase and tasting


Sizzle Swizzle and swirl is another

recent addition in Ruth Chris for

value-oriented Millennials who don't

want to drop forty dollars on stake from

4 to 6 pm on weekdays you can dine at

the bar for a nine dollar cocktail or an

11 cheeseburger or steak sandwich

when we look at the numbers on a per

location basis we can uncover the unit

economics of a high-end Stakehouse the

average Ruth Chris Steakhouse grosses

5.5 million dollars a year and has grown

on average four percent every year in

sales for the past decade

for an interesting comparison a fast

food chain like KFC or McDonald's on the

other hand grosses roughly 2 to 2.5

million dollars per location every year

because there's a greater emphasis on

quality ingredients food and beverage

costs for steakhouses are higher than

that of other restaurants a single Ruth

Chris Steakhouse spends on average 1.5

million dollars every year on

ingredients which accounts for nearly 30

percent of their gross sales in 2021 the

cost of ingredients for Ruth Chris

skyrocketed to a record 32 percent of

sales due to inflation and supply chain

issues the average Ruth Chris Steakhouse

spent nearly 2 million dollars on

ingredients in 2021 with 875 thousand

dollars of that 2 million dollars going

to beef alone

over the past decade beef has become the

single most expensive ingredient to

Source drought in farming areas labor

shortages higher fuel prices and higher

costs of soybean and corn which are used

to feed cattle are all keeping the price

of beef up the average Ruth Chris

Steakhouse spends 2.3 million dollars

every year on labor and rent and a

single Steakhouse employs a lot of

people each Ruth Chris location has one

general manager two front of house

supervisors to manage the guest

Experience One executive chef to run the

kitchen and 60 hourly employees

steakhouses particularly the fancy

upscale chains like Ruth Chris have

historically been so focused on the

human to human White Glove dining

experience that many of them never

supported e-commerce capabilities the

pandemic was a forcing function for Ruth

Chris where the off-premise to-go orders

overnight suddenly became the majority

of their business Ruth Chris transformed

its Legacy static website into a dynamic

online storefront where customers were

able to place orders online and get

Stakes delivered to their doorstep for

the first time in company history

eCommerce has become a necessity for

steakhouses these days and Shopify is a

leader in this space and the sponsor of

this episode

Shopify is a Commerce platform that's

easy to use and offers anyone the

ability to start grow and manage your

business Shopify helps companies scale

from first sale to full scale and allows

anyone to sell online through major

social platforms and in person if you're

a brick and mortar store you can use

shopify's point of sale system to manage

everything from inventory management to

reporting beyond that their ecosystem of

third-party apps can allow Merchants to

customize their stores to meet all of

their needs as a platform Shopify Powers

more entrepreneurs than anyone else in

the world with millions of businesses

and 175 countries and as a company

Shopify believes in a future where

Commerce has more voices and they're

reducing the barriers to business

ownership to make Commerce better for

everyone start your business today with

a free trial of Shopify go to

shopify.com Modern MBA to learn more

thank you to Shopify for supporting

modern MBA and making this episode


the company benefits in that a majority

of these 60 employees worked in tip

positions where they aren't paid minimum

wage if you're a server at a high-end

Steakhouse where the average bill is

ninety dollars a 10 to 15 tip for every

table you cover can quickly exceed

minimum wage this lowers labor costs and

reduces turnover volatility as servers

generally value working at higher end

restaurants when the average check sizes

make for high tip compensation

the average Ruth Chris Steakhouse seats

270 people and is roughly 8 500 square

feet while it's not reported how much

specifically goes towards rent it's fair

to assume that Ruth Chris's rent is not

cheap by targeting wealthy upper middle

class clientele Ruth Chris steakhouses

are generally located in high traffic

High income high profile areas like

upscale hotels convention centers

tourist destinations and even in casinos

factoring back in GNA overhead and all

operating expenses a single Ruth Chris

Steakhouse in its best years netted

nearly 900 000 in operating profit in

its Worst Years excluding covid a

location Nets roughly five hundred and

fifty thousand dollars every year this

means for the past decade each Ruth

Chris Steakhouse has netted on average

an annual operating profit of five

hundred and seventy thousand dollars on

a percentage basis Ruth Chris's

operating profit since 2001 hovers at 11

percent in 2019 the restaurant industry

reported that the average profit margin

for a single full-service restaurant sat

at 6.2 percent so even with higher rent

greater labor requirements and premium

ingredients Ruth Chris has a high-end

Steakhouse still wins out with a

double-digit profit margin nearly twice

the profit margin of the industry


Texas Roadhouse on the other hand takes

all the traditions of steakhouses as

bougie Posh elitist restaurants and

throws that playbook out the window with

the tagline legendary food legendary

service Texas Roadhouse sets its

differentiation as a uniquely fast

casual sit-down Steakhouse that's

designed to be affordable to all the

company makes no attempt to hide the

fact that their broad appeal lies in

their pricing quote we offer food and

beverage at price points that are as low

or lower than those offered by our

competitor in any given Market

Texas Roadhouse is in seat to compete on

quality or service but instead value at

Texas Roadhouse for less than fourteen

dollars you can get a six ounce sirloin

with two sides along with an unlimited

supply of hot bread rolls and cinnamon

butter for less than thirty dollars you

can order a 23 ounce bone and

porterhouse with two sides at Texas

Roadhouse the average check size is less

than twenty dollars in 2010 customers

spent just 14.63 and even with inflation

and the ryzen beef prices Nationwide in

2021 customers spent just 19.68

as a fast casual concept there are

likely many individuals who visit Texas

Roadhouse eat by themselves and then

leave for a higher end Steakhouse like

Ruth Chris that 90 average guest check

is more likely the bill for a party of

at least two people and not someone

dining alone

while Texas Roadhouse doesn't serve wine

by the bottle they do serve alcohol in

other forms like margaritas and other

cocktails alcohol makes up on average

just 11 percent of food and beverage


the quality of steak at Texas Roadhouse

is not the same USDA prime grade that

high-end steakhouses offer some cuts on

the menu are even below choice but no

one is going to Texas Roadhouse to eat

the best steak in town or expecting to

be served like royalty Texas Roadhouse

is all about low price low margin and

high volume and to achieve that it's

about packaging foods that would be weak

individually but are Great together in a

cheap casual dining experience a

tolerable piece of steak is elevated

when it's served with an acceptable side

of mashed potatoes unlimited bread rolls

and free cinnamon butter

despite being a fast casual play Texas

Roadhouse still incorporates a few

elements from the traditional Steakhouse

Playbook Texas Roadhouse is only open

for dinner and it limits lunch to

Fridays and weekends this allows for

labor efficiency and service

optimization as the company only needs

to hire train and have one set of

employees for a dinner shift four out of

seven days a week the company

consistently insists that opening for

lunch all week long would be

unprofitable as people spend even less

money at lunch ordering burgers and soda

over steak and margaritas

Texas Roadhouse has kept his foot on the

gas pedal when it comes to expansion

growing from 270 restaurants in 2010 to

over 600 locations in 2021 the company

opens on average 32 new restaurants

every year when it comes to the Top Line

Texas Roadhouse has been heads and

shoulders above Ruth Chris for the past

decade grossing over a billion dollars

in 2010 and nearly 3.5 billion dollars

in 2021 the high volume value

orientation and low price point is a

winning strategy even in a restaurant

category that doesn't traditionally

position itself as such 99 of Texas

Roadhouse's Revenue comes from food and

beverage sales from the restaurants that

it owns and operates even as a fast

casual concept most of its locations

remain corporate owned and operated less

than 20 percent of Texas Roadhouse

locations are franchised and as a result

franchise fees account for no more than

one percent of its overall Revenue but

having billions of dollars in Revenue

Isn't So meaningful if you're not able

to retain much of it as profit the

average Texas Roadhouse restaurant

grosses 3.9 million dollars food and

beverage sales at Texas Roadhouse

restaurants have grown at a measured

three percent year-over-year mean that

while value brings customers in the

quality and experience is understandably

not that exceptional to keep people

coming back in crowds what's interesting

is that despite using cheaper

ingredients and ordering in bigger

volume food and beverage costs for a

Texas Roadhouse restaurant on average in

2021 looks about the same as it is for

Ruth Chris even with USDA choice and

Select Cuts beef costs still make up

half of the food cost for Texas


because of their broad appeal Texas

Roadhouse restaurants can fit into a

variety of properties the average Texas

Roadhouse comes in at 7 400 square feet

which is smaller than Ruth Chris's

high-end Chain by a thousand square feet

despite this Texas Roadhouse is able to

have tighter seating arrangements so

they're able to see just as many people

as Ruth Chris even though they have

literally less space

the restaurant design of Texas Roadhouse

reinforces its fast casual atmosphere

each restaurant is built in the form of

a Southwest Wood lodge with murals neon

signs print rugs jukeboxes and Country

Music the average Texas Roadhouse spends

about 1.2 million dollars every year on

labor and eighty thousand dollars every

year on rent Texas Roadhouse is netted

on average a little over three hundred

thousand dollars per location for the

past decade in 2021 a single Texas

Roadhouse location netted nearly half a

million dollars on a percentage basis

Texas Roadhouse's operating margin has

hovered at eight percent on average for

the past 11 years two points above the

industry average for a full-service

restaurant but nowhere near Ruth Chris

so while Texas Roadhouse has Ruth Chris

beat on revenue and scale the high-end

profit margins of traditional Posh

steakhouses are indeed still Superior to

that of fast casual steakhouses

Outback Steakhouse is the most

well-known and the largest Steakhouse

chain in the world with over a thousand

locations in North America South America

and Asia despite its presence and scale

Outback Steakhouse nowadays carries the

worst reputation of any chain it's more

accurate to call it a restaurant that

just happens to sell steak alongside

some very overpriced and mediocre

American food

Outback Steakhouse was popular in the

90s for its blooming onion and

Australian themes but giant deep fried

onions and Aussie accents just don't

conjure up the same excitement and

Intrigue with customers two decades


Outback steakhouse's sales have

flip-flopped around the past seven years

stagnating at around 2 billion dollars

every year with the way that its parent

Corporation blooming Brands sets up its

financials it's impossible to tell just

how profitable or unprofitable this

low-end Steakhouse chain really is

similar to Texas Roadhouse Outback

Steakhouse targets the low end the

average check of Outback Steakhouse

hovers at twenty four dollars alcohol

has contributed less over the years and

accounts for just eight percent of all

food and beverage sales at Outback a

single Outback Steakhouse grosses on

average roughly 3.1 million dollars a

year but the consistent criticism in

growing unpopularity seems to be

catching up with this once iconic


since 2016 Outback Steakhouse has been

shuttering doors closing down 12

locations every year

just like KFC its only bright spot is in

its International performance Koreans

for some reason have welcomed the

American brand with great enthusiasm as

South Korea is the only place in the

world where food and beverage sales for

Outback Steakhouse is growing sales in

South Korea have grown at double digits

every year for the past four years and

new locations continue to open up around

the country the clustering of

steakhouses around the low end and high

end have opened up room for new brands

Fogo de Chon is an emerging Brazilian

steakhouse chain best known for its fire

roasted beef fixed price menu and

continuous service Buffet model instead

of settling for a cheap 20 sirloin at a

Texas Roadhouse or Outback Steakhouse or

a 100 porterhouse at a fancy sit-down

place like Ruth Chris Fogo de Chon

believes that there's room between the

two in the middle of the market for a

steakhouse in the 50 to 60 dollar range

and that's not a Bad Bet to make as food

continues to change around the world as

customers become more sophisticated and

seek more unique flavors on the outside

traditional steakhouses look like Grand

prestigious businesses who are deeply

entrenched in their local communities

and enjoy High margins from charging

hundreds of dollars for Meats wine and

Ambiance but when we look inside the

human capital that gives high-end

steakhouses their pricing power and

Prestige also makes them inherently

difficult to scale

Ruth Chris is 11 operating margin is

strong from the conventional food and

labor cost standpoint of traditional

restaurants but in the grand scheme of

all big restaurants high-end steakhouses

don't come close to even the higher

overall operating margins that franchise

heavy establishments enjoy like

McDonald's or KFC who all reap in

Greater profits for far less work and at

less operational risk when we evaluate

on a pure Cash basis very few

restaurants can come close to the annual

income that Ruth Chris grosses at 5.5

million dollars per location every year

while McDonald's or KFC doesn't come

close in terms of gross sales per

restaurant what they lack in earnings

they make up twice over in scale the

comparison gets interesting when we add

in Chipotle as a fast casual comparable

Chipotle doesn't rely on franchising

which means that every Chipotle you go

to for your burrito bowl is owned and

operated by corporate a Chipotle

location earns roughly the same amount

as a McDonald's or KFC between two to

two and a half million dollars every

year at as a volume play Chipotle's

overall operating margins are much lower

as their earnings upside is restricted

to the traditional restaurant operating

Playbook with food and labor costs

without franchises but they still net

higher than the industry average at 6.2

percent Texas Roadhouse's overall

operating margins are slightly lower

compared to Chipotle and much closer to

the industry average due to their

aggressive discount pricing and higher

ingredient costs with stake accounting

for so much of the menu

steakhouses serve as an interesting

everyday example of how serving beef on

a plate can take on so many forms a high

margin low volume business that holds

tightly to tradition history and

opulence to maintain pricing power in a

competitive space or a low margin high

volume business that appeals to Modern

needs of convenience speed and value to

maintain relevance


Similar videos


Created in 2013, 2CUTURL has been on the forefront of entertainment and breaking news. Our editorial staff delivers high quality articles, video, documentary and live along with multi-platform content.

© 2CUTURL. All Rights Reserved.