Even without private equity's meddling, Red Lobster would have been in a rough spot. Family dining as a segment (lower end restaurants, but with table service) is being squeezed aggressively. Compared to Gen X and before, Millennials on average are valuing food quality over service experience, ballooning the fast casual (order at the counter, but nicer than fast food) segment. This is squeezing family dining from below, meanwhile their branding as ubiquitous and affordable prevents them from raising prices too much without bumping up against the fine dining segment (and who wants to bring a date to Olive Garden?).
The fishy death of Red Lobster
111–120 of 540 posts
Re: The fishy death of Red Lobster
#112Earlier quoted context omitted.
> The fundamental problem is that all of these businesses are devoid of soul, and the majority of the profits don't go to the people working them. That however is a problem of capitalism in general, not Olive Garden in particular. And I'd say class snobbism against lower class "taste" (independent of unhealthy fast food vs fine cuisine, since for example something like In and Out is totally acceptable by the same peo…
Don't conflate class with quality. Chain restaurants serve mass-produced, low quality fare. They have to.
Ruth's Chris is a chain. I don't think they're serving low quality food.
Re: The fishy death of Red Lobster
#113I need to resurrect my idea of a list of companies (especially ones that manufacture goods) that are owned by Private Equity so people can avoid them. In most cases, the brand name stays the same but the quality falls off a cliff.
Tim Hortons
Re: The fishy death of Red Lobster
#114Earlier quoted context omitted.
Because it was a dead man walking by the time PE bought it. The underlying assets were worth more than the sale price so it was never going to make sense to do anything other than what happened. With that said, the tax code and employee law could be improved so there are stronger guardrails to protect some stakeholders more.
> The underlying assets were worth more than the sale price That's not so clear to me. The real estate wouldn't have been worth so much without the existing restaurants having to pay rent.
Sure, but Red Lobster should be able to make ends meet paying that rent. Their accountants should run the numbers and have numbers for what the restaurant made after paying rent, and what the real estate investment made from rent. Even though the same entity owns both they still need to know where the money is. If a restaurant cannot make money except that the real estate is paid off and thus rent free (or maybe bought at lower than current prices and so payments are artificially low) then they should close and rent the real estate out to someone else.
The above is something people often fail to think of. If you (as is common) have something that could be two independent business with one supplying the other, then you should have your accountants figure out the numbers for each separately. (this is not easy, and eventually not worth it)
Re: The fishy death of Red Lobster
#115I need to resurrect my idea of a list of companies (especially ones that manufacture goods) that are owned by Private Equity so people can avoid them. In most cases, the brand name stays the same but the quality falls off a cliff.
Did this happen to Chipotle?
And then it was reversed, purchased back by the founder for less
Re: The fishy death of Red Lobster
#116Even without private equity's meddling, Red Lobster would have been in a rough spot. Family dining as a segment (lower end restaurants, but with table service) is being squeezed aggressively. Compared to Gen X and before, Millennials on average are valuing food quality over service experience, ballooning the fast casual (order at the counter, but nicer than fast food) segment. This is squeezing family dining from bel…
And speaking of food quality, restaurants like Olive Garden and Red Lobster are just terrible. I'd rather get a fast-food fish sandwich, or fish and chips at the local brewpub, than eat anything at Red Lobster.
Re: The fishy death of Red Lobster
#117I need to resurrect my idea of a list of companies (especially ones that manufacture goods) that are owned by Private Equity so people can avoid them. In most cases, the brand name stays the same but the quality falls off a cliff.
VMWARE CA (Computer Associates) CITRIX ...
CA was where innovation went to die far before Broadcom. It's main business process was buying popular products, "enterprising" but mostly selling them, and then selling them off as they went out of fashion.
Re: The fishy death of Red Lobster
#118Can someone help explain restaurant industry economics?
when the business starts out, it's high risk and low margin. Tons of capital investment. Labor intensive and hard to staff. If you are lucky you are pulling 15% margins
Besides some exceptions, if you are lucky you may get some growth for 5-10 years. Then your brand falls out of favor (trends) and you spiral into bankruptcy.
Who invests in this stuff?
Re: The fishy death of Red Lobster
#119Earlier quoted context omitted.
They're currently buying up veterinary practices in the UK and turning them into cash cows. This has the effect that pet insurance has gone through the roof, and general vet bills are much higher than they used to be. Pets suffer too if owners can't afford to treat them any longer. ( https://www.theguardian.com/business/2024/mar/12/uk-vet-pric... )
If the PE firm is charging more than a vet operating alone would, then why wouldn't a vet operating alone just undercut the PE firm's veterinary practice? There must be some barrier to entry in the market that prevents that, and that's what I would target. Because the PE firm isn't the root cause. After all, if you can't just enter a market and charge whatever you want as a standalone vet, what makes a PE firm differ…
> If the PE firm is charging more than a vet operating alone would, then why wouldn't a vet operating alone just undercut the PE firm's veterinary practice?
It takes capital to start a business and people don't have that.
> There must be some barrier to entry in the market that prevents that
People retiring are selling their brick and mortars and the next generation don't have the personal wealth to buy them because they're saddled with medical/education/credit card debt and stuck with bad rent terms that caused low savings.
The only people around to buy the places are private equity.
Re: The fishy death of Red Lobster
#120Earlier quoted context omitted.
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 certain…
Do you think every business owns the land and building it operates in? Real estate is expensive. Maintaining a building is expensive. There are plenty of businesses that rent to avoid the capital requirement and headache of property ownership.