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The fishy death of Red Lobster

businessinsider.com

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Re: The fishy death of Red Lobster

#121

Post by TheGlav »

phkahler wrote: post #85

>> 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 I wonder if the Golden Gate investors also own American Realty, or are good friends of theirs. Sure GG made their money, but owning the real estate seems like a second good investment so long as the chain doesn't go under and the lease te…

What a short sighted, money grubbing decision by people that didn't actually care about the wellbeing of the company. Keeping the land the restaurants are on means higher margins of profit long term and the ability to weather problems. Selling it off and then leasing it back does...exactly what happened here.

Re: The fishy death of Red Lobster

#122

Post by tempsy »

tonymet wrote: post #118

Can 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?

You should look at Chipotle's stock.

Re: The fishy death of Red Lobster

#123

Post by HeyLaughingBoy »

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.

Too late. How much worse can they get at this point?

Re: The fishy death of Red Lobster

#124

Post by mason55 »

tonymet wrote: post #118

Can 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?

Option a, you stay small, don't chase trends, and you bring in decent profits year after year. Eventually maybe you close but not after paying back the investments plus more.

Option b, you grow super fast, you have a lot locations, each one barely profitable, but you make it up on scale. You scale quickly enough that you make a lot of money before trends change. They key is that you accept that you're chasing a trend and move as quickly as possible to extract as much as you can.

Option c, you come up with the core concept, and you create a franchise program. You make your money off franchise fees & shadier stuff like making the franchisers use suppliers that you own. The franchises die when trends change but some made a profit, and your capital outlays were never very high, so you make a lot of profit.

Re: The fishy death of Red Lobster

#125

Post by HeyLaughingBoy »

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..

The really sad thing is that both of those used to be not so bad. Not good, mind you, but at least palatable. Now they're just nasty.

Re: The fishy death of Red Lobster

#126

Post by bluGill »

rangerelf wrote: post #104
swampthinker wrote: post #33

Earlier 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…

You are thinking about distraction wrong. Owning real estate isn't so difficult/time consuming that the managers lose much time/energy deal with it instead of running the business.

However it is an accounting distraction. If you own real estate you need to figure out which share of your profits comes from rent of real estate and which from the restaurant. If you cannot make both business profitable that means you should get rid of one. (sometimes that means sell the real estate and rent, sometimes it means close the business and rent the real estate to someone else). If both work out profitable, then keep going as is. (don't forget about intangibles, if real estate is a small loser it might be worth it just because you don't have to move and so can get loyal customers - but you should be intentionalable about accepting this loss)

Re: The fishy death of Red Lobster

#127

Post by bachmeier »

To me this is not even slightly surprising. Red Lobster used to be at the top of our list of restaurants. Then in recent years the quality of both the food and service deteriorated. One visit the food was so bad I couldn't even eat it. That was compounded by not having a server to talk to. Took our order and never returned - even had someone else bring out the order.

The thing about a restaurant is that you'll always have business if the food and service are good. You can talk about how the market changed or whatever, but no restaurant can survive at that price point while offering so little.

We had a chain BBQ restaurant in town that had a booming business for more than a decade. Then the quality of the food went downhill and they shut down, citing lack of a market. They had a market for years but there's no market for crap. Red Lobster's situation is no different.

Re: The fishy death of Red Lobster

#128

Post by bluGill »

kstrauser wrote: post #110
threemux wrote: post #87

Earlier quoted context omitted.

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.

People who don't know how to tip bad for bad service (most of us!) are why tipping is bad. When you get a bill you should have a discussion about service quality with everyone and then decide what to tip (if you are solo is can be just you but still think). If you don't do that then you failed to use your tipping power.

Re: The fishy death of Red Lobster

#129

Post by singleshot_ »

maerF0x0 wrote: post #67
ars wrote: post #4

Earlier quoted context omitted.

Something I don't understand is why private equity would destroy a business they themselves own. It doesn't make any sense - they paid billions for Red Lobster, they made some money, they could make even more by having a viable business. If this were a publicly owned company I could understand outrage, but it's privately owned, the owner presumably isn't interested in losing money. What's his motivation for taking th…

It's rooted in societal culture and what people incentivize (ie assign the highest multiple to). Until Americans take on a mindset of longterm/family (as I've seen many Chinese families express), they'll be doomed to make short term decisions. Right now very few Americans are able to accept an optimization that looks like "I invest today, and my grandkids will get the returns". So America is stuck in that local maxim…

It’s very interesting that you seem to be making a dichotomy between Chinese and American people instead of one between rich and poor mindsets.

Re: The fishy death of Red Lobster

#130

Post by duped »

tonymet wrote: post #118

Can 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?

More than half close within a year and it's closer to 80% after five years, but the ones that make it past that point are a lot more likely to thrive. Kinda like turtles going out to sea.

> Tons of capital investment

I mean it's not that much capital, compared to most businesses. You need way more money to start a software shop than a restaurant.

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