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May 16, 2014 08:30 AM

Darden selling Red Lobster chain

to Golden Gate Capital. $2.1 billion for 700 stores. $3 million per restaurant. Seems like a beefy price for a chain that has been losing customers. Someone must have ambitious plans, we'll see.

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  1. Does this mean that Red Lobster and Olive Garden will no longer be built next to each other?

    8 Replies
    1. re: jpc8015

      Probably. Darden plans to concentrate on improving performance of the Olive Garden brand. Whatever the new Red Lobster owners do will be interesting to watch.

      1. re: jpc8015

        They've already closed or are closing the joint/combo stores and it sure seems unlikely they will be sharing real estate in the future.

        1. re: acgold7

          I've never seen Red Lobster and Olive Garden in the same building. Does that happen? I see them sharing parking lots all the time but they have distinctly separate buildings.

          1. re: jpc8015

            Yes, it happens. Or at least it did.


            "Orlando, Fla.-based Darden, which also owns LongHorn Steakhouse and other casual-dining brands, closed two dual-branded units this past weekend in Thomasville, Ga., and Beaufort, S.C.

            "Four remaining dual-branded units will be converted to standalone Olive Gardens, said Rich Jeffers, director of communications for Darden. Those are the original “synergy” unit in Palm Coast, Fla., which debuted in March 2011, and three others in Brunswick, Ga.; Waycross, Ga.; and Wilkesboro, N.C."

        2. re: jpc8015

          Do you suppose there will be any new Red Lobsters built? I think this thing will be a big loser.

          1. re: yayadave

            They were very successful for a very long time. If the new owners can upgrade the food (possible) at reasonable prices (more difficult) then they have a very good chance of success. Obviously they think so.

            1. re: acgold7

              Per my local fish shack guy, wholesale midlevel to premium fish and shrimp prices have been spiking in the past year and a half, and you can only increase prices so much before customers opt for a burger instead. Even with RL's ability to buy at lower prices because of high volume, the margins they can get have to be a lot less than what they can get with Olive Garden's cheap starch, tomato sauce, small amount of beef or chicken menu.

              Not surprising to see Daren dump what's going to continue to be the low margin part of the company as demand for fish continues to rise, natural fisheries stock gets depleted, and issues with aquaculture continue.

        3. $3 mil per store seems high, but when you consider the value of the physical facilities alone, rather nicely built-out large complete stores with full kitchens and permits, it's not that much.

          7 Replies
          1. re: acgold7

            I wonder what percentage of the stores were actually profitable.

            1. re: jpc8015

              Should be easy to find this data, as their annual reports usually show which % of stores were showing year to year increases or losses.

              Not exactly the same but would give you an idea.

              1. re: acgold7

                I haven't been to a Red Lobster in well over a decade. I am not interested enough to put that much effort into it. :-)

            2. re: acgold7

              That's a really astute observation. The newly built Red Lobster in my town is a very nicely built building and the kitchen is pretty impressive. Given it's location it must be worth quite a lot completely apart from the fact of being a Red Lobster.

              1. re: ccbweb

                Free standing restaurants are valued on the operational profitability, not on the cost or attractiveness of the building. There is no easy adaptive reuse of a restaurant building, and the real estate of a failing restaurant is very difficult to appraise, sometimes no more than the value of the plot of land it is on.

                1. re: Veggo

                  Unless they are selling off locations, which they've announced their plans to do. Then all that becomes very important and their "profitablility" is not a factor at all.

                  Businesses are sold based on profitablility. Buildings are not.


                  "Two activist funds, Starboard Value and Barington Capital Group, had pressed Darden to keep Red Lobster and monetize its real estate, and both expressed outrage over the proposed deal. In an e-mailed statement, Starboard CEO Jeffrey Smith said the sale “woefully undervalues Red Lobster and its real estate assets.” Barington’s chairman and CEO, James Mitarotonda, agreed that Darden’s transaction “amounts to a ‘fire sale’ price... Golden Gate has already made plans to sell 500 Red Lobster locations for $1.5 billion..."


                  "While it may sound strange to call a chain with such a high price tag "dying," much of that $2.1 billion covers Red Lobster's real estate. What's left of the brand's value is "fairly minimal," Sterne Agee analyst Lynne Collier wrote in a note."

                  1. re: Veggo

                    Actually the real estate part is the easier of the two to value. Doesn't matter whether the particular business is failing or not.

              2. Ugh! I don't love Darden but I can get plain steamed lobster with the gift cards we always get from family for Olive Garden where I refuse to dine. I wonder if we can convince them to buy a different brand?

                1. How do you figure that $3M/store is "a beefy price"?

                  Given the sausage-like methods of restaurant valuation (asset-based, capitalization rates, cash-flow, goodwill, etc.) and not to mention the supposed "synergy" of Red Lobster with the other assets in GGC's portfolio, looking in from the outside it's near impossible to say whether GGC over/under valued the Red Lobster chain and brand.

                  1 Reply
                  1. re: ipsedixit

                    I deliberately used the adjective 'beefy' to describe a potentially high price, only because it is a seafood themed restaurant. Time will tell, Ipse. Actually I figured you alone would catch that one..:)

                  2. Imagine a world without chain restaurants. A better world of mom & pop restaurants sourced from local organic farms. Everything made fresh, no prepared foods, no frozen fish. Everything fresh and tasty. Higher wages for staff. Would be paradise on earth.

                    9 Replies
                    1. re: smoledman

                      Don't we already have that? - It's call choice.

                      While I don't see any advantage for "organic", I'd be hard pressed to name a half dozen visits to chain restaurants over the past few years. Bottom line for us is ... why bother?

                      1. re: smoledman

                        I don't think all mom & pop restaurants would source entirely from local organic farms. Places like that are usually supplied by Sysco, and vary greatly in their approaches to food. Most moms and pops have loan payments to make, payroll to meet, and inspections to pass. Their main concern is making money and staying in business.

                        1. re: Tripeler

                          Enough with the Sysco bashing. Sysco will provide whatever quality product you're willing to pay for, organic and high-end included.

                          1. re: ferret

                            I wasn't bashing Sysco, I was just pointing out to the OP that it is a certain definite part of his otherwise romantic view of things.

                        2. re: smoledman

                          Imagine a world where everything is exactly as I want it.

                          1. re: jpc8015

                            That world wouldn't be anywhere near as good as a world where everything is exactly as *I* want it, of course.

                            1. re: jpc8015

                              Yeah, but would you like it once you had it?

                            2. re: smoledman

                              Mom & pop doesn't necessarily equate to local sourcing and good quality. There are many shitty moms (and pops) out there.

                              1. re: smoledman

                                There is absolutely nothing to suggest that the elimination of chains (how? By Government Fiat?) would result in any of those other things you mentioned, ridiculous screeds like those of Eric Schlosser and Michael Pollan notwithstanding.

                                If the same number of people are eating the same number of the same meals, even if only supplied by M&P stores, the same amount of that stuff still has to be produced. Nothing would change at all.

                                Right now everyone has the choice of being an all-organic locavore if they want, and those who don't want to waste money for absolutely no real benefit can do that too. It has nothing to do with the existence of chains.