Wednesday, April 17, 2024

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 challenges:

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

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

3.        Targeted Marketing: Attract new customers with targeted promotions and loyalty programs.

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

5.        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: or 253-759-7869

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