Posted on 06/26/2024 4:06:39 PM PDT by Jonty30
Red Lobster, known for bringing all-you-can-eat shrimp to the average American and which was at on point the world’s largest seafood chain, filed for bankruptcy last month. Red Lobster now has more than one billion dollars in debt. They closed 50 locations about two months ago and just announced a list of 600 locations it plans to close.
What went wrong?
Same Old, Same Old
Remember going to Red Lobster as a kid? You might have tried your first lobster tail, or surf-n-turf there. That experience you had as a kid, would be hardly different if you went into one of their restaurants now. In the view of industry observers, that might be key to understanding an important part of their demise.
Other full-service chains have revised their menus and refreshed their looks over the last ten years in order to attract more traffic. After the pandemic, consumers started using more disposable income for travel. So fighting to retain customers and appeal to new demographics was essential. Meanwhile inflation from higher labor costs and goods hit restaurant menus.
(Excerpt) Read more at fastcilitycorp.com ...
I’d like to see the staffing or lack of it for the 50 locations that closed.
My guess is they were underperforming from a lack of customers as well as employees.
Probably some sort of sale leaseback took place, but we’re the restaurants all owned and operated by the company, or were there also franchise operations?
If corporately run, then the sale-leaseback makes sense. Not so much if there franchises as that would require much more effort and dollars.
Red Lobster also hasn’t done much to keep with the times. Basically the same menu for the past 20-30 years.
[Bascially, the land under the Red Lobster restaurants became valuable enough to buy the chain and charge the restaurants enough in rent to basically bankrupt them and then sell the land to developers.
Although their businesses also may have contributed to that, but apparently the primary cause was that a hedge fund saw enough value in the land to eliminate the restaurants on top.]
My understanding is that Red Lobster, prior to the sale, was owned by one company. I can see the company selling the business wholesale to the hedge fund because they are losing ground.
I’m willing to allow that the hedge fund company may have seen that there wasn’t any retooling that they could do, due to market changes and changing consumer tastes and all that. However, they saw an opportunity to sell the land out from the restaurants and then lease it back in a way that ensured they would go out of business anyway.
Actually, it’s still a fantastic business opportunity! Gather together a regional caregiver team of diabetes, cardiac and cancer treatment specialists, then debt finance and open an all you can eat seed oil based mac and cheese and pudding chain!
According to this article, they basically sold the debt from other companies to Red Lobster before selling the land.
So they used Red Lobster as a loss leader for themselves and saved other properties by doing that.
https://www.fastcompany.com/91129776/what-really-killed-red-lobster-bankruptcy-private-equity
Wouldn’t have happened if they’d borrowed a crapton of money for stock buybacks!
and land purchases...
Basically, it’s like they bought two houses and remortgaged one house to pay off the first house and then let the bank have the second house back.
That kind of thing, but with businesses.
Your waiter will be a 🤖.
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Robotic restaurants will “kill it” for awhile until the fad wears off.
The things I’ll be looking for will be the cost of the robots, the maintenance of robots, plus how well the robots perform their function.
Even at our current level of technological civilization, things are complex enough that when things go sideways, your business will pay a price if “robot repair company” takes a week to show up.
“Never offer all you can eat anything in the USA unless you wanna go broke !”
Agreed. Years back there was this restaurant that offered all you can eat buffet. The menu was fantastic and the food was fair. The turn off was these ultra fat slobs with rear ends that needed two chairs to sit on with food piled very high on their plates and going back for seconds and thirds. It was just disgusting how these pigs looked and ate.
The place went out of business.
Live by the scrimps, die by the scrimps.
So it wasn’t Big Shrimp after all?
I’m a little skeptical (the Shrimp King would have made a great supervillain), but something similar is happening with Sears/K-Mart and happened before that with Woolworths.
From the link I posted in #54, it had a lot to do with the shrimp.
Crappy food? Dude are you crazy?
Their salmon rivals that of fancy steakhouses and supper clubs.
It’s probably that as well. Sell your restaurant the shrimp you own at a steep mark-up.
It’s probably not just one thing, I can concede that.
Golden Gate bought the company for the land and sold the restaurants to this Thai company, who in turn bought it so it could sell its shrimp at a steep markup. Then you have changing market conditions and the company didn’t change fast enough. I can see all that working like a perfect storm.
They were previously pwned by Darden.
Darden owns numerous restaurant chains of note ranging the economic spectrum. They have been notably successful.
Red Lobster’s cxoncept was to bring seafood to the middle of the country.
I don’t remember why Red Lobster did not fit in Darden’s portfolio but it was up for sale for a while.
My understanding is that the new owners bought it, gave it a brief go and realized the titanic struggle it would be without the wherewithal of Darden.
Hence, selling off the real estate. I don’t know if they have positive or negative equity in the real estate. But many of the large chains have a ton of positive real estate equity. McD’s corp pwned stores and Walmart are two OTOH.
No one goes to red lobster anymore. Their customer base leaves low tips, dine and dash, complain to get free meals …. Their customer base has become epic jokes on the internet.
The FIRST thing businesses do when sales are dipping is cut hours of staffing it is a catch 22 because cutting staff just guarantees sales slipping more!! I understand completely BECAUSE labor is really the only cost that is flexible, HOWEVER especially today with the utter cost of going out to dinner BAD SERVICE guarantees customers not spending their hard earned dollars there again!! I owned 3 restaurants for 30 years it is draining I could NEVER have done it in today’s environment NEVER!! Customers are sue happy, employees are sue happy, labor laws are completely out of control, OSHA is out of control, the bottom line in restaurants is VERY LOW with all of the costs and regulations today I don’t know WHY ANYONE would go into the restaurant business you would have to be insane!! During Covid all I thought about were restaurant owners and what the hell they were going to do to survive and save their family businesses!!
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