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The fishy death of Red Lobster

businessinsider.com

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Re: The fishy death of Red Lobster

#101

Post by bombcar »

rendang wrote: post #88
TheMagicHorsey wrote: post #57

Earlier quoted context omitted.

I never understood how PE firms get blamed for rising costs in doctor's offices and vets. If a PE firm can just unilaterally raise prices, then why didn't he mom n pop practices do the same? Where is the competition? Why is there a barrier to entry that prevents some new young doctor or vet from coming in and undercutting the PE business?

Presumably because mom n pop businesses are not perfect optimizers and end up charging below the profit-maximizing price

This is exactly it - mom and pop businesses will charge enough for a comfortable lifestyle for themselves, but not really feel pressure to charge above that.

And if you have a vet, say, who is near the end of his career, he's already amortized all the training/educational expenses, and so can run out until retirement at relatively low rates compared to a brand new one.

The companies take advantage of this, but the customers also like it, too, because the offices will be fancy and feel new and they can schedule an appointment online.

Same thing that Great Clips et al did to barber shops.

Re: The fishy death of Red Lobster

#102

Post by bigstrat2003 »

rl3 wrote: post #22
loutre wrote: post #2

Watching private equity take over and subsequently destroy businesses is so frustrating! This is a story that comes up again and again and there isn’t yet the overwhelming backlash that’s necessary to stop it. I highly recommend the book “Plunder: private equity’s plan to pillage America” for an extremely cogent overview of the entire situation. https://www.goodreads.com/book/show/62874267

> Watching private equity take over and subsequently destroy businesses is so frustrating! I agree. I uh, hope they don't do the same thing to Olive Garden, or Applebee's. That would be tragic..

You keep your hands off Olive Garden.

Re: The fishy death of Red Lobster

#103

Post by andrewla »

These private equity deals are the convergence of a couple of phenomena.

The most obvious is low interest rates, which is fortunately dying off. The ability to borrow lots of money is something that smaller, well-run companies, are reluctant to do. Why bring in a bunch of cash to expand and take on debt when you are operating at a reasonable profit?

The secondary is the undervaluing of customer goodwill -- what PE firms can do is directly monetize that goodwill by squeezing those customers. The income stream from a reliable customer can be translated into present value, and prices and quality can be adjusted to the point where you can drive a customer's goodwill down to zero while extracting something that approximates the present value of the lifetime income stream from that customer.

Inflation plays a role -- businesses are reluctant to raise prices because they don't want to sacrifice goodwill, but the supply chain costs keep going up. They have to somehow maintain margins, but they do so by raising prices slowly. PE has no such scruples.

Re: The fishy death of Red Lobster

#104

Post by rangerelf »

swampthinker wrote: post #33
red_trumpet wrote: post #20

Earlier quoted context omitted.

From the article: > To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company called American Realty Capital Properties — and then immediately leased the restaurants back. So private equity didn't try to make Red Lobster profitable before stripping it of its assets. That was literally their first move.

That's pretty standard, even for well-run chains. Gives the primary business (making food profitably) a huge cash infusion, and removes a distraction. Obviously deal terms are important, but that action on its own isn't stripping for the sake of stripping.

"Gives the primary business (making food profitably) a huge cash infusion, and removes a distraction"

This is so suspiciously MBA-esque: - Owning real estate (and responsibilities associated with it) are not distractions: they are the cost (and responsibilities) associated with running a business. - "a huge cash infusion" followed by [correspondingly] huge rent payments; the business becomes a prisoner.

There certainly are distractions when running a business, but owning the spot of land where it's installed is not one of them.

Re: The fishy death of Red Lobster

#105

Post by bluGill »

coldtea wrote: post #46
Xcelerate wrote: post #32

Earlier quoted context omitted.

> Perhaps because the latter are associated with aspirational working class, which is to be mocked. No, what’s being mocked is the quality of the food. The “aspirational working class” in Europe has much better food options for even better prices—has nothing to do with classism and everything to do with the development of an American culture that ruined food in this country. My grandparents grew up in rural Appalachi…

> No, what’s being mocked is the quality of the food If that was the case the "quality of the food" would be mocked elsewhere, in tons of brands with crap quality. But those seem to be particular targets in the way that say McDonalds and other fast food or higher tier but still crappy brands are not. Besides, most references/parodies I've seen (like online, on SNL, movies, and so on) always seem to mock the working c…

McDonalds is constantly mocked for low quality food. Olive Garden is much higher prices, but not much better in quality.

Note, but quality what we really mean is either health or taste. Both McDonalds and Olive Garden are extremely high quality in that everything is exactly the same and so you can go into any one around the country (and most of the world) and order something and be unable to tell the difference from any other.

Re: The fishy death of Red Lobster

#106

Post by kstrauser »

floren wrote: post #95
mindracer wrote: post #26

Earlier quoted context omitted.

A few years ago my cat needed his teeth cleaned my local vet charged me £125. The same vet, now owned by CVS, is now going to charge £250

Here in the Bay Area I've been quoted $800 to clean a dog's teeth.

Lucky! Our ancient Maltese has a heart murmur and was referred to, I kid you not, a canine cardiologist. The estimate started at $10K and went up from there.

The affected teeth got loose. We pulled them. The dog is happy and healthy. I would have liked for a professional to have done that for us in a more controlled and methodical manner, but there's no way I could justify spending at least ten thousand freaking dollars on a 13 year old dog who was at significant risk of dying on the table.

Re: The fishy death of Red Lobster

#107

Post by g_sch »

threemux wrote: post #87
dmurray wrote: post #16

Earlier quoted context omitted.

The "private equity kills beloved brand" stories are usually overcooked, as far as I can tell. They usually involve PE taking over firms that were already in financial trouble, which is what made them attractively priced to PE in the first place. The PE firm would also prefer to have a nice profitable business, but if they can't turn it around, they have options like asset stripping or selling the name to a different…

It's especially jarring to see a story like this with Red Lobster as its subject. I'm curious if anyone who has a negative reaction to this article has actually been to a Red Lobster in the last 10 years. They serve poor quality food for similar prices as other sit-down restaurants. You're as likely to get poor service as you are anywhere else (maybe more so), but you'll still have to tip the same amount and spend th…

> in the last 10 years.

From the article:

> In 2014, amid flagging sales and pressure from investors, Darden sold Red Lobster for $2.1 billion to Golden Gate Capital, a San Francisco private-equity firm.

Re: The fishy death of Red Lobster

#108

Post by sokoloff »

floren wrote: post #95
mindracer wrote: post #26

Earlier quoted context omitted.

A few years ago my cat needed his teeth cleaned my local vet charged me £125. The same vet, now owned by CVS, is now going to charge £250

Here in the Bay Area I've been quoted $800 to clean a dog's teeth.

That sounds like a "we're not in the teeth cleaning business; go away!" price.

I love my dog and spend pretty freely on him, but no way is he getting an $800 teeth cleaning. At that point, you might as well locate your practice on the airport and cater only to people who fly their dog in on a private jet.

Re: The fishy death of Red Lobster

#109

Post by rangerelf »

bigstrat2003 wrote: post #102
rl3 wrote: post #22

Earlier quoted context omitted.

> Watching private equity take over and subsequently destroy businesses is so frustrating! I agree. I uh, hope they don't do the same thing to Olive Garden, or Applebee's. That would be tragic..

You keep your hands off Olive Garden.

Olive Garden is garbage, why would I want to put my hands on it?

Only Olive Garden and Chipotle have managed to give me a stomach ache.

Re: The fishy death of Red Lobster

#110

Post by kstrauser »

threemux wrote: post #87
dmurray wrote: post #16

Earlier quoted context omitted.

The "private equity kills beloved brand" stories are usually overcooked, as far as I can tell. They usually involve PE taking over firms that were already in financial trouble, which is what made them attractively priced to PE in the first place. The PE firm would also prefer to have a nice profitable business, but if they can't turn it around, they have options like asset stripping or selling the name to a different…

It's especially jarring to see a story like this with Red Lobster as its subject. I'm curious if anyone who has a negative reaction to this article has actually been to a Red Lobster in the last 10 years. They serve poor quality food for similar prices as other sit-down restaurants. You're as likely to get poor service as you are anywhere else (maybe more so), but you'll still have to tip the same amount and spend th…

> but you'll still have to tip the same amount

Nitpick: You'll have to tip the same amount as another restaurant with bad service. If it's awful enough, that works out to about a 20% discount on the meal.

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