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The fishy death of Red Lobster

businessinsider.com

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Re: The fishy death of Red Lobster

#251

Post by johnrgrace »

ars wrote: post #4
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

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…

The private equity fund who makes the decisions about what to do is buying the company with other people's money. They get a % of the other peoples money they manage as revenue and slice of the profits on success.

Also they often engineer things so the money the fund put into the deal comes back very fast. In this case they sold the companies real estate which got a big chunk of their initial investment back ASAP.

the simplified view - red lobster they bought it for $2.1b - they sold off the real estate for $1.5b and 25% of the equity for $575m - so the PE fund has $25m of their original investment in the deal. They borrowed a bunch of money and then paid out dividends on that $25m that were multiples times that amount.

Re: The fishy death of Red Lobster

#252

Post by Zenzero »

TheGlav wrote: post #121
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.

The people in PE don't concern themselves with the wellbeing of a company in any sort of moral or sentimental sense. The company's future is dependent on what turns the highest profit on their time and investment. Sometimes the most money is made in value extraction and crippling the company long term. They are the vampires and vultures of the economy.

In fact you could argue that Red Lobster has suffered from a long term decline due to poor positioning in the marketplace, and the PE shops are accelerating what was likely to happen anyway.

Re: The fishy death of Red Lobster

#253

Post by papashell »

alfalfasprout wrote: post #184
asdfman123 wrote: post #158

Earlier quoted context omitted.

Increasingly I think the financialization of everything makes us less capable of understanding the world. "Red Lobster failed because of X corporate restructuring," "Red Lobster succeeded due to Y ad campaign." People go to restaurants for reasons completely unrelated to things like that. Those things are important, but just constitute the small slice of reality that can easily be measured. I saw a Twitter thread arg…

This is the reason I've always been a detractor of purely relying on "data driven decision making". Being data driven is great... if paired with intuition and common sense. But what ends up often happening is data-driven myopia. You see some statistic that doesn't seem optimal and you end up optimizing for that instead of figuring out how it fits into the big picture. Restaurants, at the end of the day boil down to f…

I call this metric fetishism

Re: The fishy death of Red Lobster

#254

Post by ImPostingOnHN »

outop wrote: post #246
asdfman123 wrote: post #158

Earlier quoted context omitted.

Increasingly I think the financialization of everything makes us less capable of understanding the world. "Red Lobster failed because of X corporate restructuring," "Red Lobster succeeded due to Y ad campaign." People go to restaurants for reasons completely unrelated to things like that. Those things are important, but just constitute the small slice of reality that can easily be measured. I saw a Twitter thread arg…

I think this is naive. When (for example) a private equity fund buys a casual dining chain, they will go through how the business is run in painstaking detail and try to understand exactly what makes the experience 'work' and what changes are possible or advisable. If the olives in the salad don't taste as good or there are fewer breadsticks or the lighting makes it feel more relaxed or the greeters have more time or…

> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim.

Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money".

Re: The fishy death of Red Lobster

#255

Post by Zenzero »

cityofdelusion wrote: post #249
Zenzero wrote: post #237

Earlier quoted context omitted.

You're spot on. I haven't been to any sort of Red Lobster owned property in years. The last time I went to Olive garden it was completely transparent how the microwaved Sysco food is the norm now. I sat there thinking how AI could have just bought the same thing from the frozen aisle at half the price and not had to deal with sitting in a dirty Olive garden.

It’s not limited to these big chains at all — the vast, vast majority of restaurants in the States are at the mercy of Sysco. The restaurant industry is absolutely brutal right now. They are barely profitable and the best restaurants survive from underpaid family labor or under-the-table undocumented immigrants. Rent costs are insanely high, labor isn’t there and is bottom of the barrel, and non Sysco food costs too…

I believe it. It seems to be a natural consequence of the wealth imbalance in the US. There is an obscene amount of money looking to be placed at the top, but nowhere great to put it. At the bottom all of the industries that relied on disposable income are struggling. The bottom will continue to fall out piece by piece until we reach a new equilibrium.

Re: The fishy death of Red Lobster

#256

Post by yifanl »

tensor wrote: post #177
jncfhnb wrote: post #169

Earlier quoted context omitted.

But a lot of games are cute and fun to play that do not succeed

I'm not convinced that is actually true. Can you think of an example? A game that has near universally good reviews but is not successful?

Arguably the best game of 2023, Alan Wake 2: https://wccftech.com/alan-wake-ii-recoup-expenses-tencent

Re: The fishy death of Red Lobster

#257

Post by heisgone »

"The thing that private equity does is just unload assets and monetize assets. And so they effectively paid for the purchase of Red Lobster by selling the real estate,"

They did the same thing with Sears and many others.They short sell the company, buy it, sell anything valuable and destroy it.

Re: The fishy death of Red Lobster

#258

Post by quantified »

ImPostingOnHN wrote: post #254
outop wrote: post #246

Earlier quoted context omitted.

I think this is naive. When (for example) a private equity fund buys a casual dining chain, they will go through how the business is run in painstaking detail and try to understand exactly what makes the experience 'work' and what changes are possible or advisable. If the olives in the salad don't taste as good or there are fewer breadsticks or the lighting makes it feel more relaxed or the greeters have more time or…

> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim. Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money" .

> that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there.

Evidently not really taking the factors into account. Would the limited partners eat there? More than once?

Re: The fishy death of Red Lobster

#259

Post by outop »

ImPostingOnHN wrote: post #254
outop wrote: post #246

Earlier quoted context omitted.

I think this is naive. When (for example) a private equity fund buys a casual dining chain, they will go through how the business is run in painstaking detail and try to understand exactly what makes the experience 'work' and what changes are possible or advisable. If the olives in the salad don't taste as good or there are fewer breadsticks or the lighting makes it feel more relaxed or the greeters have more time or…

> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim. Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money" .

What makes you think that PE equity owners have any different incentives to any other chain restaurant owners to cut costs and improve margins??

Why would you think that private equity owners would ever make things worse to improve margins without giving careful consideration to whether or not the changes will make people less likely to spend money at their restaurants??

Re: The fishy death of Red Lobster

#260

Post by kagakuninja »

munificent wrote: post #151

I look at private equity as sort of like a bacterial infection. The infection may be the thing that kills its host by sucking of all of its energy, but the reason the host was infected in the first place was because of some other problem that led to a weakened immune system. Private equity firms prey on companies that are already struggling. Yes, they take a struggling company and hasten its demise. But healthy compa…

I've been at 2 companies acquired by private equity firms. In one case, the company was totally healthy in the niche market of software for libraries. The company was sold because the owner wanted to retire.

The vampire capitalists did the standard playbook:

  leveraged buyout.  
  transfer debt to the once healthy company.  
  extract yearly management fees.  
  fire and/or encourage many employees to leave.  
  shift maintenance to low cost foreign outsourcing company.    
  skimp on R&D and customer support.
In the short term, profits go up. Long term, the once healthy company slowly dies, as customers get pissed to the point they are willing to incur the cost of transitioning to a new vendor.

Not only was this company once healthy, it had astonishing employee retention. We are talking many programmers and support people with 20+ years of specialized knowledge. People seem to forget how much productivity is lost with high turnover.

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