Quiz for the day: What struggling restaurant chain recently sparked a media pile-on by the Los Angeles Times, Fast Company Magazine, The New York Post, and John Oliver, host of Last Week Tonight?
If you guessed Red Lobster, you’re right. Numerous media outlets criticized Red Lobster ownership for management moves that helped drive the chain into Chapter 11 bankruptcy proceedings in May.
Oliver had a memorable backdrop for his attack on Red Lobster’s past owners. When equipment from 50 closed Red Lobster locations went up for sale at auction, Oliver’s crew bought the entire contents of a restaurant and rebuilt a simulated Red Lobster dining room in the Last Week Tonight studio.
The Emmy-winning TV host called out Golden Gate Capital, a private equity firm, for using a $1.5-billion sale leaseback of Red Lobster’s real estate to help finance its purchase of the business in 2014. That required Red Lobster to start paying rent on properties it once owned, benefiting Golden Gate’s bottom line. “That private equity firm did exactly what private equity firms always do: Immediately try and suck the value out of the company,” Oliver said.
A slow and steady death…
Pressured by escalating leasing costs, the chain has closed at least 99 locations and marked hundreds more for closure unless leasing concessions can be reached, court papers show.
Media commentators are actually late to the pile-on party, industry expert John Hamburger writes in Restaurant Finance Monitor, an industry newsletter. Red Lobster’s slow-mo meltdown started well before Golden Gate arrived on the scene. All of these “armchair quarterbacks … conveniently forgot it wasn’t a rocket ship business back in 2014 when Darden unloaded it,” Hamburger wrote in his June newsletter. By that time, Hamburger had already coined a phrase, “Red Lobster Syndrome,” to represent the problems that arise when a chain steadily raises menu prices in the face of weak customer traffic and sales.
Thai Union Group, a seafood company, bought a large stake in Red Lobster in 2020 and dug it into a deeper hole by expanding a one- day “endless shrimp” promotion to seven days a week, contributing to an $11 million operating loss.
The takeaway: While escalating leasing costs inflicted a potentially fatal wound on the seafood chain, mismanagement had already weakened the patient.
