1. Data & Insights

Red Lobster’s Short-Term Gain from lease-buybacks Results in Long-Term Pain


Hedge fund Heaven, take the money and run! While making a presentation the
other day Steven Johnson Grocerant Guru® at Tacoma, WA based Foodservice Solutions® was asked
if he knew what “Hedge fund Heaven was”, he answered from my mind-eye its, take
the money and run. Johnson noted consumers want meals, meal components, fresh,
fast, and flavorful.  They do not know or
care who owns or does not own buildings.

The stability of the brand comes from consistent brand messaging, pricing,
menus that evolve, and a constant focus on the consumer.  In the case of Red Lobster, Short-Term Gain vs.
Long-Term Burden: The sale of the real estate might have provided a
one-time cash infusion for Red Lobster, but it likely came at the cost of
higher long-term expenses through the lease payments. Now consider this:


1.       Higher Lease Costs: When Red Lobster sold its
properties, they then have to lease them back from the new owner. These leases
are typically set at a rate that generates a profit for the real estate owner,
meaning Red Lobster’s rent most likely is higher than the cost of owning the
property themselves. This translates to ongoing increased operational costs.

2.       Loss of Equity and Appreciation: By selling
the real estate, Red Lobster gave up the potential for appreciation in property
value. If the real estate market booms, they won’t benefit. Additionally, they
lose the ability to leverage the property as collateral for future loans.

Do you Want a 

Larger Share of Stomach?

There can be some advantages to sale-leaseback deals, such as freeing up
capital for other uses. However, in Red Lobster’s case, the ongoing lease
payments seem to be a burden on their finances. This financial strain makes it
harder for them to invest in improvements or marketing that could attract more
customers.  Here’s are additional points
to consider:

3.       Rising Costs: The restaurant industry has seen
increases in food and labor costs, squeezing Red Lobster’s profits [Restaurant
Business Online].

4.       Shifting Consumer Preferences: Diners may
be looking for more casual and trendy seafood options, or different dining
experiences altogether [Restaurant Business Online].

5.       Promotional Misfire: Red Lobster’s 2023
all-you-can-eat shrimp promotion backfired, leading to higher-than-expected
costs and an $11 million loss [Restaurant Business Online].

6.       Ownership Uncertainty: Thai
Union, the current owner, announced plans to sell Red Lobster in January 2024,
which can create instability and discourage investment [Seafood Source]

7.       Competition: The casual dining space is crowded,
and Red Lobster may be struggling to keep up with fresher concepts or more
targeted menus.

Larger Share of Stomach

Requires More Points of Distribution

There is some hope. Here are some ways Red Lobster could overcome these

Menu Innovation: Update the menu with more exciting and affordable options that
cater to current trends.

Focus on Experience: Enhance the overall dining experience with a focus on atmosphere,
service, or unique offerings.

Targeted Marketing: Attract new customers with targeted promotions and loyalty

Delivery and Takeout: Expand delivery and takeout options to cater to the growing demand
for convenience.

New Ownership: Finding a new owner who can invest in revitalizing the brand could
be a big help.

Whether Red Lobster can fully recover remains to be seen, but by addressing
these issues, they can take steps to attract customers back and improve their
financial health.

Invite Foodservice
Solutions® to complete a Grocerant ScoreCard, or for product positioning or
placement assistance, or call our Grocerant Guru®. 
Since 1991 Foodservice Solutions® of Tacoma, WA has been the
global leader in the Grocerant niche. Contact:
[email protected] or 253-759-7869

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