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The fishy death of Red Lobster

123 points by qsi 2y ago

9cb14c1ec0 2y ago
Looks like a prime market opportunity for a competing chain with competent management. The PE firm's loss can now be someone else's long-term gain.
- s1artibartfast 2y ago
  PE sold red lobster in 2016, so you are 8 years too late. The current owner (for the last 8 years) is the multinational seafood company Thai Union. They conducted a 150million stock buyback the same quarter they declared bankruptcy for Red Lobster, and are doing fine.
aklemm 2y ago
I'd like to see business schools codify "brand value extraction" or "enshittification" as explicitly unethical. Any activity that degrades a brand for short-term cashflow--and is reasonably know to decrease future business--is necessarily fraudulent. If that is codified and taught, then journalists can point to that in all cases (of which we are overrun). It's pathetic.
- tqi 2y ago
  What do you think "enshittification" means, exactly?
  - aklemm 2y ago
    https://en.wikipedia.org/wiki/Enshittification https://en.wikipedia.org/wiki/Enshittification In this context (the idea of making this unethical), a brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value. But I'm guessing you knew that and disagree. Care to be more forthright?
    - tqi 2y ago
      > brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value. Well for one, every new business is initially built on investor money, not profits, and "cashing out" is in the eye of the beholder, so I'm not sure how you're going to get everyone to agree on where the line is. Furthermore, I think cory (and many of the folks here who have fallen in love with the term) misunderstands why platforms decay. Facebook doesn't suck because it is trying to please business customers at the expense of its users. Facebook sucks because it is attempting to please 2B users all at once. Every new little feature or notification or ranking change is loved by millions of people and hated by millions more (and merely tolerated by the vast majority). If the former is greater than the latter, it gets shipped to production. Rinse and repeat for 10 years across a myriad of teams, and you get a muddled, confusing mess that has a wider audience but much worse experience for most. That is the root cause of the decay.
munificent 2y ago
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 companies don't end up getting bought by private equity in the first place. In this case, I think dining culture has just changed in a way that's incompatible with Red Lobster's brand. It used to be considered higher-class fare, but drifted down market like almost every large restaurant chain does (see also: Friday's, Applebee's, etc.). For a while, it survived on the unusual combination of being a nice-seeming sit-down seafood restaurant, but not actually that expensive or close to the sea. But, of course, the way they were able to do that was by cutting every possible corner (for example, calling langostino "lobster"). Diners today care more about their health and where their food is coming from. The post-WWII culture of "we can trust big companies because they're successful business" has been replaced by "we can't trust big companies because they must have grown by doing shady shit". Frankly, a cheap restaurant in the midwest that lets you eat unlimited lobster no longer seems a delightful treat and a hell of a lot more like a suspicious food poisoning trap.
- asdfman123 2y ago
  Seems like they exist to basically sell off a brand. People thinking that Red Lobster is a good place to eat is a valuable asset, which can be traded for short-term profits until they catch onto what's actually going on.
  - munificent 2y ago
    Yeah, that's a good point. One way to look at private equity is that they are playing an arbitrage game between the perceived value of a brand and the actual worth of the products the brand produces. In a world where people had better access to true, recent information, perceived brand value wouldn't lag actual product value as much and there would be less opportunity to exploit the arbitrage.
- JumpCrisscross 2y ago
wwarner 2y ago
They keep saying all-you-can-eat shrimp was a bad idea and I don’t understand how that’s possible.
FuriouslyAdrift 2y ago
We'll always have Long John Silver's. All hail the hush puppy!
- WesleyJohnson 2y ago
  LJS was always an extravagant treat when I was a kid as it was seemingly more expensive than McDonald's or Taco Bell, and further away from where we lived. When I started making my own money, it was one of my regular indulgences. As an adult, I rarely ever see them anymore. And when I do go (it's been years), I'm always left feeling sick to my stomach, and yet still hungry. The portions sizes have shrunk considerably, even more shrinkflation. The greasiness, while expected with that kind of food, it so much worse. The fries are soggy, and you hardly ever get any crunchies anymore! I missed the late 90's LJS something terrible. :)
  - quercusa 2y ago
    "The food is so bad and the portions are so small!" - Woody Allen
  - gwbas1c 2y ago
    Maybe your standards are refined now that you're older? My kids love crap food, and I sometimes have to sigh and go to places I'd rather not go because my kids think it's the best thing since sliced bread. Granted, my only experience with LJS are stories from https://en.wikipedia.org/wiki/Wayne_Coyne https://en.wikipedia.org/wiki/Wayne_Coyne (2nd paragraph, "Early Life" section.)
    - WesleyJohnson 2y ago
      That's certainly possible - and likely. I hadn't thought about it from that perspective.
asow92 2y ago
Company Man on YouTube did a great job breaking this down about a week ago: https://www.youtube.com/watch?v=I17aERAQPfc&pp=ygUXY29tcGFueSBtYW4gcmVkIGxvYnN0ZXI%3D https://www.youtube.com/watch?v=I17aERAQPfc&pp=ygUXY29tcGFue...
- jere 2y ago
  Did he?? He expanded a bullet list of the different owners to fit a 12 minute video, started and ended the video with an ad, literally said he "didn't have too much to say about Golden Gate Capital", and shares the insight that "Red lobster just needs to get to a point financially where they can be themselves..." OK.
  - asow92 2y ago
    Like Red Lobster, maybe it’s not for everyone, I guess?
syngrog66 2y ago
both Red Lobster and McDonald's are on the front page of Hacker News currently ownersip here should wake up before it worsens further
pfdietz 2y ago
One can blame the private equity investors buying it, but every sale requires not just a buyer, but also a seller. The owner of RL sold it to this private equity firm for an amount they felt was proper. The PE firm got more money out than they put in, so they increased the value of the assets. If this meant (in effect) shutting down RL in slow motion, then so be it. Sometimes it's best to just put a pillow over a company's face and say that's it.
hammock 2y ago
Red Lobster did not go bankrupt because of Endless Shrimp. On the revenue side, customers generally have been turning away in favor of competing dining options. On the expenses side, the company has to deal with high labor costs, expensive restaurant leases - and meddlesome PE investors that have led to high leadership turnover. Going into bankruptcy might actually allow them to address their debt and operational losses
heisgone 2y ago
"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.
RockyMcNuts 2y ago
https://prospect.org/health/2023-05-23-quackonomics-medical-properties-trust/ https://prospect.org/health/2023-05-23-quackonomics-medical-... Interesting story of how some private equity guys would - buy hospitals - sell the real estate for more than they paid for the hospital, signing a long-term lease at a high rent - pay themselves an immediate huge profit. the higher the rent the hospital promised, the bigger the sale/leaseback deal, so the bigger the profit. - default, hospital goes bankrupt, the community and the dumb patsy who bought the hospital gets left holding the bag. classic bustout from Goodfellas or The Sopranos, but mobsters get investigated, PE guys don't.
486sx33 2y ago
Not sure about the expensive lease angle. The red lobster in my home town has had the same physical location longer than I’ve been alive. I assume many other red lobster locations are in the same situation.
ethanholt1 2y ago
I haven’t been to Red Lobster since 2019, and even during that trip the quality of the food was severely degraded from what I remembered it to be. Their garlicky biscuits were quite nice, though. What baffles me about this story is the fact that they’re continuing to sell the endless shrimp, despite the fact that it lost them 11 million dollars. Old habits die hard, I guess.
tyroneBray 2y ago
[flagged]
billyvandory 2y ago
Red Lobster has cheapened out its products all over the place. Pennywise, dollar stupid. - Got rid of Thousand Islands and Raspberry vinaigrette dressing - Got rid of the lobster and the fake lobster from the "lobster" bisque - You only get 1 bread per person now - Sweet chilli shrimp that used to be battered and fried at the restaurant replaced with some no name brand microwavable chilli scrimp - To save money, they purchase the runt of the crab and lobster, the ones that barely make legal length, that no one wants to buy - Mushroom caps mushrooms are now bottom of the barrel white mushrooms This "restaurant" is now pure garbage.. used to go all the time, but quit going about a year ago. I'm not interested in spending 100$ per person for fast food
neom 2y ago
I went to red lobster in Toronto yesterday as a "lets save red lobster Canada" idea I had in my head, they came to Canada the year I was born and my dad was obsessed so I have a lot of nostalgia. Came out thinking: let em burn. Worse than mediocre rubber for $200 after tip and tax.
- hnthrowaway0328 2y ago
  Is it the same sh* like Tim Hortons? RIP then...
  - neom 2y ago
    Overpriced bad food? Bingo!
  - jjice 2y ago
    Very tangential to the quality of chain restaurants that have decline in quality: I'm from the US, but on the Canadian border, and Timmy's was the dominant coffee shop growing up. Even if you didn't drink coffee, that was the hang out. We had a Dunkin that was probably less than 100 meters away from it that had a fire and never reopened. I definitely think it was a ploy for insurance money because they never had _any_ business. Tim Horton's dominated. Then something happened around 2017 and their coffee became awful (it was never incredible, but it got much worse). Then their prices began to rise significantly. Whenever I go home, I get a cup of Timmy's coffee, but it's never good. Turns out having nostalgia for a large food company doesn't play well in the long run. I'm sure the same applies to Red Lobster, but those kinds of places become part of your memories growing up and you want them to do well, maybe as a way of preserving those memories. Probably half of my friends and I had their first dates at Tim Horton's growing up. As much as I wish I didn't feel the need to drink their swill a few times a year, there's something that still draws me.
    - maxsilver 2y ago
      > Then something happened around 2017 and their coffee became awful (it was never incredible, but it got much worse) Tim Hortons got acquired by Burger King (Restaurant Brands International / QSR) in December 2014, and the quality started to decline over the next year or two
yakk0 2y ago
Just like Toys 'R Us. Same playbook.
schmidtleonard 2y ago
The white-collar version of walking out of a failing company with the chairs and coffee machine. 1000x more damaging, 1000x less punished. Business.
- deleted 2y ago
  [deleted]
revscat 2y ago
Private equity seems to have a high rate of taking something beloved and successful, and then killing it.
- ajmurmann 2y ago
  It's unclear to me how much is private equity "ruining" the business and how much is making it visible. Here in Portland a private equity firm bought a bunch of local restaurants and mini chains during the pandemic. Now they struggle paying workers and rent and are closing a lot of these businesses. My suspicion is that they bought these businesses when they were distressed and otherwise wouldn't have survived at all. Now the pandemic recovery here has been famously bad and these businesses aren't recovering. I suspect the play here was to buy for cheap, help them through the pandemic and have a bunch of guys businesses. Honestly everyone would IMO have been a winner. Employees, customers, investors and even the founders who lost their business but at least got done money for it and see it continue. I don't think we can blame this particular private equity firm in this situation. As a customer the transition was not noticeable. How many private equity acquisitions are like this but circumstances are less obvious and the measurers to rescue need to be more involved than just waiting for a pandemic to end? I genuinely don't know. But I suspect that it's very easy, looking in from the outside as a customer, to come to the conclusion that the business went bad when private equity came in when the business was already struggling but prior leadership was avoiding dramatic changes.
- deleted 2y ago
  [deleted]
johngladtj 2y ago
I'm continually amazed by how much outrage normal and perfectly reasonable business strategies generate in the general public. None of this is unusual or in any way wrong. Red lobster (and olive garden) were mismanaged, and the investment funds were right about that. Their attempts at salvaging the situation were perfectly reasonable, even if they were ultimately unsuccessful. You're welcome to be outraged, but that doesn't mean there was anything untoward happening here.
- fasteo 2y ago
  Have you actually read the article ? It tells a different story: They wanted Darden to liquidate all of Olive Garden's real-estate holdings and declare a one-off dividend that would net investors a billion dollars, while literally yanking the floor out from beneath Olive Garden, converting it from owner to tenant, subject to rent-shocks and other nasty surprises. They wanted to asset-strip the company, in other words ("asset strip" is what they call it in hedge-fund land; the mafia calls it a "bust-out," famous to anyone who watched the twenty-third episode of The Sopranos) The giant slide-deck making fun of Olive Garden's food was just a PR campaign to help it sell the bust-out by creating a narrative that they were being activists* to save this badly managed disaster of a restaurant chain
  - s1artibartfast 2y ago
    I think that is the point. That is considered mismanagement. If I'm using a gold as the foundation of a hotdog stand, someone will come along and say that the gold is mismanaged, and worth more as jewelry. They would be right!
  - johngladtj 2y ago
    Yes, I did. Sale-leasebacks are common and perfectly reasonable business strategies. Generally speaking lease liabilities have a lower cost of capital than other types of debt, so making such a deal can help the company. None of the decisions described in the post are either unusual or unreasonable from a management team trying to save a troubled company. They were just unsuccessful.
hnthrowaway0328 2y ago
Unfortunately in the late Capitalism that reads more like Feudal than Capitalism, there is not much we can do, and so be it. There is a time that all shall burn and rot and a new world may come forth.
- WarOnPrivacy 2y ago
  > Unfortunately in the late Capitalism...all shall burn and rot and a new world may come forth. What if VC and shareholders are just fulfilling their purpose in the capitalist circle of life? We can think of them as jackals, buzzards and bacteria combined into a superform. They cull herds, piece off the carrion and decompose what's left. They are bringers and eaters of death, working as one.
- tracker1 2y ago
  I think that if ever founding another company, will definitely have corporate bylaws that resist similar strategies, as well as cap executive pay per year to a max multiplier of lowest and average salaries in the company.
- autoexec 2y ago
  It isn't just late stage capitalism. Robber barons became a glaring issue with capitalism very early on. People eventually realized that it took regulation and government intervention to correct for that, but the wealthy who wanted to keep peasants doing all the work in their fiefdoms have spent a very long time demonizing and weakening the kinds of government interventions that could keep them in check. They've managed to con a huge number of people into agreeing that they should have unchecked power and that government (that thing 'we the people' have direct influence on) is the real problem. It's shocking to me how many people fell for it and would rather be ruled over by corporations than government even through they don't get any kind of vote for who their corporate masters are, while we can (ostensibly) vote for our government officials and vote them out if they displease us, replacing them with someone more aligned with our interest. Increasingly government is either bribed into letting corporations do whatever they want, sabotaged by regulatory capture, or stripped of their power by the people who have either been suckered into voting against their own interests or who fantasize about one day being able to carve out their own fiefdoms full of peasants they can chain and exploit
xyst 2y ago
Private equity is also getting into professional American football. https://bleacherreport.com/articles/10122183-report-nfl-owners-establish-framework-to-allow-private-equity-investment-in-teams https://bleacherreport.com/articles/10122183-report-nfl-owne...
- screye 2y ago
  Chelsea FC the football club, was acquired by a PE firm in 2022. It's been a grand mess from day 1. All of PE's common failings are on display for the 100s of millions of premier league viewers. * Arrogantly uprooting working structures because PE knows better * Lack of domain knowledge means over reliance on flimsy statistics * a general sense of discomfort for every working member of the club * Optimisticly dumping money to exploit so called loopholes that somehow every other team had missed (they hadn't, the loopholes were double edged swords) * Destruction of legacy, eliminating the emotional aspect that keeps someone supporting a team. * Haphazard changes with large impact that get touted as reform, but come across as cluelessness. And this a *good* PE firm who is pouring money into an asset that is likely grow as the market grows. So not exactly a pclueless best. _____ I've supported Chelsea for 20 years now, and 2022-24 was the only time my love for it has diminished.
MontagFTB 2y ago
“Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for our shareholders.”
thrance 2y ago
I've seen many people saying, on this site and others, that they "believe in markets", as if it was their profession of faith. When markets are allowed to work "normally", this is what always happens: regulations are lobbied to the ground, resources get depleted, profitable companies get destroyed to make a quick buck and everyone is worse off in the long term. Having a strong economy is sadly harder than letting the markets "work their magic".
- ninininino 2y ago
  Market economies destroyed the wildlife fauna of North America. It's incredible when you see photographs of what used to exist here.
  - Yujf 2y ago
    At least north america has some wild places and animals left. In most of europe there is almost nothing left. We destroyed everything.
    - ninininino 2y ago
      Yes, if I were European I'd be prioritizing the hell out of protecting the remaining Old Growth forest in Europe in the south east, even if it means having the EU fund nature preserves / paying those host governments big bucks to have a ton of rangers there to stop logging.
    - kjkjadksj 2y ago
      Its mostly stuff in the west anyhow. Eastern half of the US is a lot like europe where if there was any ground fit to drag a plow it was plowed. States like Iowa are totally plowed. The idea of the federal government sitting on empty land for recreation is a new thing, really started with yellowstone after the US expanded west of the mississippi. Even yellowstone was almost dammed like the hetch hetchy.
  - s1artibartfast 2y ago
    Go look at parts of China, Russia, North Korea, and Vietnam and compare. You also might be shocked to find that Native Americans also had a market economy.
twiddling 2y ago
Some viewed the Wall Street movie as a tutorial
habitue 2y ago
I think the author has a hard time trying to put a "why should we care?" spin on this at the end: Middle class families need a nice night out, and red lobster is the best way to do that! Totally agree that this is vicious jackal like behavior by the PE funds. But as others have said, this is the lifecycle of a dying company. If red lobster's share prices were high because they were extremely profitable and everyone loved the restaurants: A) it'd be too expensive for PE to buy up a controlling share B) The smart move wouldn't be to strip the company for parts, the smart move would be to keep running the business well and soaking up the cashflows This stuff happens to a limping company and the PEs are the wild dogs picking off the old weak corporations. I think articles like this are pulling a switcheroo where it gets you to engage your moral indignation emotions and aim them in defense of a corporation. Those emotions are appropriate if we're talking about a human being, but aren't when we talking about a company. Imagine a PE fund doing some equivalent to an elderly person, that would actually be outrage worthy! This is just corporate finance, don't let it get to you.
- lesuorac 2y ago
  You have a wonky definition of a dieing company. If a company makes $X in reveune and has $X - Y (Y<X) in costs that doesn't seem to me like a dieing company. Of course if you use PE to purchase that company and add in $2X in costs then it sounds like a dieing company. However, it was perfectly fine until you came along and strangled it. The price of RL share prices is pretty irrelevant to whether PE can kill it or not. Honestly the higher the price the better it is. If you can spend $100M to buy a company and gut it for $300M that sounds a lot more attractive then buying 100 $1M companies to gut for $3M a peice.
  - s1artibartfast 2y ago
    The company wasn't dying, but it was undervalued on the market. It also sounds like the component parts of the company were more valuable separate than together. >Honestly the higher the price the better it is. IF you have to buy at $300M, and can only sell for $100, then higher prices are not better.
  - everforward 2y ago
anon291 2y ago
Realistically, Red Lobster and most chain restaurants are... just not that good.
snakeyjake 2y ago
PE is currently in the process of destroying my employer, a nearly 100-year-old engineering firm. Two PE firms teamed up to do some kind of financial voodoo debt transfer reverse mortgage buyout takeover and are slowing inserting their claws inch-by-inch into the management structure of the company. We've been profitable every single quarter of every single year for almost a century. We're a money-printing machine that nobody has heard of unless you build nuclear reactors and satellites and need something only we make. But we are not profitable enough. We are relatively vertically integrated in our niche field and are very, very, slightly less profitable than our competimates, within 1% of places like Northorp and Boeing (uhh.. when they, you know, make money) who outsource practically everything. So fat needs to be trimmed to get that 1%. I am moving on, going 1099 as a consultant, after 17 years at the same desk in the same office in the same building, as is practically everyone else and we're spending precisely 0% of our remaining time passing on our institutional knowledge.
Gud 2y ago
GOOD! I celebrate the death of the restaurant chains!
rufus_foreman 2y ago
>> Angry that your favorite Red Lobster closed down Can't really say that I am.
romafirst3 2y ago
They sold their real estate for 1.5 billion and then red lobster paid 200 million a year in rent. That’s insane. In 7.5 years they would pay back the purchase price. That just seems like a massively bad deal for red lobster, I wonder was there another way the private equity firm made out on that deal ?
- richk449 2y ago
  What’s most weird to me is that the PE firm owns Red Lobster. So if a deal is bad for Red Lobster, the deal is also bad for the PE firm. I guess the reason that isn’t true is differing time horizons. If the consequences of the deal only become apparent years later, then the PE firm can sell the business before the chickens come home to roost. But how do they sell Red Lobster without the buyer realizing what is going to happen? Who would be dumb enough to buy from a company that has a history of crippling companies it owns then selling them to suckers?
  - vundercind 2y ago
    … who’d PE sell the land to? Was it… themselves, in some roundabout way?
    - romafirst3 2y ago
      That’s what I’m wondering, or if they got some other compensation that isn’t mentioned.
  - skeeter2020 2y ago
    The hit from above-market leases vs. owning the land might be clearly visible in hindsight, but that's not necessarily true looking into the future. A buyer could have focused on the economies of scale from being in the seafood business and actually thought "we're not a real estate companye, and rentals are preferable in this inflated market". The got all that current debt off the books in exchange for future liabilities; that could also have looked good. >> PE firm can sell the business before the chickens come home to roost. It's really no different from pump and dump. Founders love it because it unlocks a huge pay-out without the hassle, costs and reporting obligations from going public, but if you've worked at a company before and then after a major PE investment it's universally worse IME.
Cheer2171 2y ago
Private equity firm wants to buy Red Lobster, but they don't have enough money. So to afford the sale, they make a deal to sell the land every Red Lobster sits on to a firm that will charge Red Lobster above-market rate rent to stay in business. This doesn't seem like it should be legal.
- skeeter2020 2y ago
  Well, they DID have to scrape together a few % of the purchase price </s> Isn't this what Gordon Gecko did in the movie Wall Street? Look for asset-rich companies, buy a controlling interest of the stock (the equivalent of the PE leveraged buyout) then strip them for parts? Also, wasn't that a cautionary tale of the worst of the 80's vs. a "how to" manual?
- jaredklewis 2y ago
  Why would it be illegal? When the PE firm took over red lobster, it wasn't a thriving business. They made a gamble: if we sell the land, we can pay down the debt to reduce interest payments and restructure it into a profitable business. It was always a risky proposition, but the alternative was probably slow decline. The PE firm lost their gamble and they suffered the losses for it. If the PE firm sold the land to a landlord they owned at discount prices, then yea, that would be a conflict of interest but that isn't what happened.
- seattle_spring 2y ago
  Reminds me of payday loan companies, except for billion dollar businesses instead of poor people struggling to pay for groceries.
civilized 2y ago
I have the same question every time I see one of these articles. I think I've even posted the question in previous HN threads on private equity shenanigans. The question is: Why is this profitable? If the land is worth $1.5 billion, it should have cost PE more than $1.5 billion to buy the company. Then there would be no way to make a profit by selling the land, paying yourself, and letting the company go belly-up. Why does PE keep doing this? Presumably because it works? But why does it work? Are the sellers less sophisticated at asset valuation than the buyers, and frequently lowball themselves? Or maybe owners/stockholders are sometimes just tired of holding this asset, want cash to reinvest somewhere else, and are willing to cash out at a discount?
- MarkMarine 2y ago
  I thought the PE model was to buy one of these companies, leverage them with many multiples of debt while paying themselves out massive fees and bonuses, then letting the huge interest and debt load take its toll on the husk of the company.
  - renewiltord 2y ago
    So the sucker here is the bank? Can't say that I care that much about that. It's just business and the banks apparently suck at it. They can foreclose on the business and sell it off to someone who relaunches it.
    - s1artibartfast 2y ago
      Yep, and banks come out ahead on average too. That's why they choose to lend to PE. Some mortgages and credit cards end in bankruptcy too. They set their interest rate according and it is a cost of doing business.
    - MarkMarine 2y ago
      I think the sucker is always regular people. The ones that worked at these companies, and the collective us that the banks pass these costs down to
    - 2y ago
microtherion 2y ago
The real estate deal seems rather tame, compared to the "Endless Shrimp" deal perpetrated later by their new owner: https://www.bloomberg.com/opinion/articles/2024-05-20/the-endless-shrimp-investigation https://www.bloomberg.com/opinion/articles/2024-05-20/the-en...
1024core 2y ago
So GG Capital paid $2.1B for Red Lobster, and sold the land for $1.5B. They still owe $600M on their purchase! Did they sell the remnants to Thai Union for > $600M? Only then this whole thing makes sense.
- s1artibartfast 2y ago
  Yes. Thai union bought a 25% partial stake from GG capital in 2016 for 575 million. Thai union must have been happy, because they bought 24% more to become the primary owner in 2020 for an undisclosed amount.
deleted 2y ago
[deleted]
loutre 2y ago
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 https://www.goodreads.com/book/show/62874267
- readthenotes1 2y ago
  Similar story with Sears. Bought by a real estate investor who didn't care about running the stores that much...
  - gadders 2y ago
    Wait until you hear about Thames Water and Maquarrie in the UK. https://www.theguardian.com/business/2023/jul/10/as-thames-water-sinks-macquarie-group-continues-its-unstoppable-rise https://www.theguardian.com/business/2023/jul/10/as-thames-w...
- ars 2y ago
  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 these steps that are "obviously" bad?
  - gadders 2y ago
    Not certain, but I would guess it is to do with investment horizons and getting a 10x return on the money they put in to return to their fund, rather than 1x revenue per year.
  - johnrgrace 2y ago
    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.
tibbydudeza 2y ago
Shrimp - the cockroaches of the ocean. I never eat the stuff including lobster (non allergic) but one time I was relocated to Germany to help ship a new software release (English technical documentation) and was invited to a meal with my colleagues and his family. Out comes a big bowl of shrimp for everybody with the skins and feet and antlers on - think we had a language misunderstanding. Not wanting to offend and send it back - did not even know how to disassemble it - ate a few and back at the hotel you know what happened :).
- savoytruffle 2y ago
  you fondly reminisced about a wonderful meal?
- forgetfreeman 2y ago
  Now if you'd said there was no Old Bay on the table I'd say you had a serious issue on your hands, but I'm guessing you don't know what that is?
- CannisterFlux 2y ago
  For future reference, say you are allergic. It's not like they would have asked for a doctor's note. Oh it was in Germany? They probably would...
- coldtea 2y ago
  >Shrimp - the cockroaches of the ocean Ah, culinary wisdom based on internet memes and bro quotes: the cockroach of the mind! >ate a few and back at the hotel you know what happened :) Reverted to the fast-food baseline?
  - Broken_Hippo 2y ago
    Sorry, but no. I've thought that shrimp and lobsters were simply ocean bugs since I was a child in the 80s. It isn't quite accurate in science terms, but still holds out as a thing in my brain. Even if I happen to eat them (Not disgusting, not delicious either) I'll also mention that folks allergic to shellfish also have to be careful with crickets and other land insects. They have their similarities.
gadders 2y ago
I need to resurrect my idea of a list of companies (especially ones that manufacture goods) that are owned by Private Equity so people can avoid them. In most cases, the brand name stays the same but the quality falls off a cliff.
- aklemm 2y ago
  That's an excellent idea. I posted in the thread another angle I'd love to see get traction: https://news.ycombinator.com/item?id=40238807 https://news.ycombinator.com/item?id=40238807
- pigeons 2y ago
  For products it would be good to include a date so people can obtain the quality items second-hand.
- rwmj 2y ago
  Instant Pot was one ...
- sevagh 2y ago
  Travis CI
- m2f2 2y ago
  VMWARE CA (Computer Associates) CITRIX ...
  - erikerikson 2y ago
    CA was where innovation went to die far before Broadcom. It's main business process was buying popular products, "enterprising" but mostly selling them, and then selling them off as they went out of fashion.
- gosub100 2y ago
  I would like this service but for vet clinics, apartment rental forms, and dentists.
- nicolas_t 2y ago
happytiger 2y ago
I can’t wait until private equity companies are exposed as the exploitive side of our current system that needs to be corrected. At the heart of so many good companies are bad decisions driven by PE structures and personalities, most of whom seem very toxic and short sighted. Surely there is a better model of capitalism — I am not so vapid as to turn against the obvious advantages of the system. But I am also not willing to endorse the current approach as anything but exploitation with extra steps.
- aklemm 2y ago
  There's a solution, I posted it in the thread. https://news.ycombinator.com/item?id=40238807 https://news.ycombinator.com/item?id=40238807
- organsnyder 2y ago
  It seems like they keep getting "exposed", yet nothing changes.
TheRealDunkirk 2y ago
Tiffany Cianci is at the dead center of a battle with private equity trying to monopolize young child development centers. Her horrific personal story will open your eyes as to just how depraved and soulless private equity can really be in their attempt to take over the world. (TL;DR: they literally forced her give a deposition while she was having a miscarriage.) The government should be writing laws to curtail these kinds of bloodsucking parasites. https://www.tiktok.com/@tiffanycianci https://www.tiktok.com/@tiffanycianci
- prepend 2y ago
  No one can force you to give a deposition during a miscarriage. I’ve been through a few depositions and anyone can leave for medical reasons. It’s not like there are bailiffs there forcing you to attend. Even with the most basic of cases, I can just walk out and tell my attorney to reschedule. I may have to pay other counsel’s fees, but I expect with the reason “I’m having a miscarriage” no judge is going to uphold their claim.
  - TheRealDunkirk 2y ago
    The other alternative was to violate her sacred beliefs. You clearly have no idea how nasty this litigation has been. https://www.washingtonian.com/2023/07/24/how-a-battle-over-a-kids-gym-turned-into-the-lawsuit-from-hell/ https://www.washingtonian.com/2023/07/24/how-a-battle-over-a...
phkahler 2y ago
>> 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 terms are favorable.
- TheGlav 2y ago
  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.
  - DiggyJohnson 2y ago
    You're responding as if the person you're replying to wasn't asking a question, but stating a fact. Do you know about the details or even a general outline of the considerations that went into this decision?
    - ink_13 2y ago
      Bluntly, they're irrelevant. Selling off the real estate is a short-term books-juicer that's tantamount to pillaging the contingency fund. Classic corporate raider move.
      - DiggyJohnson 2y ago
        It seems fine to me if the other outcome was an earlier and less-efficient bankruptcy and liquidation.
  - pfdietz 2y ago
    Why should anyone care about the wellbeing of a company? This sounds like an exercise in anthropomorphism.
pavovap 2y ago
tl;dr summary in 3 points: 1) Heavy debt from private equity deals and increased lease costs made Red Lobster financially vulnerable. 2) Customers drifted away to other dining options, and frequent leadership changes hindered a stable turnaround plan. 3) The Endless Shrimp promotion, while a poor decision, underscored the company's larger management issues.
froggertoaster 2y ago
https://archive.is/qarb5 https://archive.is/qarb5
andrewla 2y ago
These private equity deals are the convergence of a couple of phenomena. The most obvious is low interest rates, which is fortunately dying off. The ability to borrow lots of money is something that smaller, well-run companies, are reluctant to do. Why bring in a bunch of cash to expand and take on debt when you are operating at a reasonable profit? The secondary is the undervaluing of customer goodwill -- what PE firms can do is directly monetize that goodwill by squeezing those customers. The income stream from a reliable customer can be translated into present value, and prices and quality can be adjusted to the point where you can drive a customer's goodwill down to zero while extracting something that approximates the present value of the lifetime income stream from that customer. Inflation plays a role -- businesses are reluctant to raise prices because they don't want to sacrifice goodwill, but the supply chain costs keep going up. They have to somehow maintain margins, but they do so by raising prices slowly. PE has no such scruples.
- asdfman123 2y ago
  Private equity takeovers are often just scams to convert customer trust to short-term profits, but labeled as growth. You can get away with cutting quality for a little while, but eventually customers are going to lose trust and you're not going to get it back.
  - darth_avocado 2y ago
    But that is the PE playbook. Take businesses and squeeze as many profits out of them before they die. https://www.nytimes.com/2023/04/28/opinion/private-equity.html https://www.nytimes.com/2023/04/28/opinion/private-equity.ht...
  - wnc3141 2y ago
    the whole point is to flip the business in 5ish years.
    - rnd0 2y ago
      So goodfellas, basically: https://www.youtube.com/watch?v=ZPtjyqgZAUk https://www.youtube.com/watch?v=ZPtjyqgZAUk
OkayPhysicist 2y ago
Even without private equity's meddling, Red Lobster would have been in a rough spot. Family dining as a segment (lower end restaurants, but with table service) is being squeezed aggressively. Compared to Gen X and before, Millennials on average are valuing food quality over service experience, ballooning the fast casual (order at the counter, but nicer than fast food) segment. This is squeezing family dining from below, meanwhile their branding as ubiquitous and affordable prevents them from raising prices too much without bumping up against the fine dining segment (and who wants to bring a date to Olive Garden?).
- asdfman123 2y ago
  It's not even about quality. Honestly, much of it is just that megachains aren't cool. I'm not above eating at Red Lobster but if I have to pick where I'm going to spend my money it's hardly going to be the first choice.
- kube-system 2y ago
  I don't even really think it's food quality alone that is the issue. It's the total package doesn't match preferences. I think many millennials would be fine with Red Lobster quality food, if it were quick enough for lunch. But the format is slow, sit-down service. And the atmosphere in these restaurants is not what millennials are looking for to relax or entertain.
  - ghaff 2y ago
    That's actually sort of been a sort of a revolution with things like fast casual burgers and a lot of food in airports (at least those that serve upscale cities). A lot of people don't really want at least somewhat extended sitdown. They want fairly decent food that's served quickly. Individual preferences vary obviously but I'll basically never eat at McDonalds but some of the burger places like Shake Shack and In-and-Out hit the spot now and then.
    - kube-system 2y ago
      There's multiple reasons why people visit a restaurant and with different needs. I think the rise of fast casual is coincident with the rise in people visiting a restaurant when it isn't a treat. When someone is looking to just grab a quick bowl, they don't care as much about atmosphere or service, their priority is something quick, easy, and good value. But then when these same people go out to dinner when it is a special occasion, they're looking for something measurably better quality and better experience than the fast casual they had three times for lunch that week. It's the mediocre sit-down places that are caught in the middle. In the 90s these types of places were good enough to be considered a friday night treat. Because people weren't eating out during the middle of the week as much.
tonymet 2y ago
Can someone help explain restaurant industry economics? when the business starts out, it's high risk and low margin. Tons of capital investment. Labor intensive and hard to staff. If you are lucky you are pulling 15% margins Besides some exceptions, if you are lucky you may get some growth for 5-10 years. Then your brand falls out of favor (trends) and you spiral into bankruptcy. Who invests in this stuff?
- tithe 2y ago
  > Who invests in this stuff? Bill Ackman (founder of Pershing Square Capital Management), for one: https://lexfridman.com/bill-ackman-transcript#chapter4_investing_in_restaurants https://lexfridman.com/bill-ackman-transcript#chapter4_inves...
- laweijfmvo 2y ago
  Maybe not fast food / fast casual, but at least in a trendy area (NYC, SF, LA, etc.) if a restaurant catches on, they're making way more than 15% margins because they can charge whatever they want and people will go because it's cool... this would include coffee shops and other relatively low cost establishments
- MrFantastic 2y ago
  If I ever get rich, I would totally open a ghost pizza restaurant. Margins are good. Spoilage is a non-issue. Orders are pickup or delivery. I can bring 10 pizzas to every party.
- tempsy 2y ago
  You should look at Chipotle's stock.
  - tonymet 2y ago
    an exception that proves the rule
  - tonymet 2y ago
    also, stock prices aren't economics. In aggregate they can be useful indicators, but they are not a measure of a business' results (due to derivative factors)
bachmeier 2y ago
To me this is not even slightly surprising. Red Lobster used to be at the top of our list of restaurants. Then in recent years the quality of both the food and service deteriorated. One visit the food was so bad I couldn't even eat it. That was compounded by not having a server to talk to. Took our order and never returned - even had someone else bring out the order. The thing about a restaurant is that you'll always have business if the food and service are good. You can talk about how the market changed or whatever, but no restaurant can survive at that price point while offering so little. We had a chain BBQ restaurant in town that had a booming business for more than a decade. Then the quality of the food went downhill and they shut down, citing lack of a market. They had a market for years but there's no market for crap. Red Lobster's situation is no different.
- asdfman123 2y ago
  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 arguing how the video game Stardew Valley succeeded due to the way it was marketed. Marketing is important, but maybe the game succeeded because it was cute and had a soul and is fun to play. You can't measure that.
  - jncfhnb 2y ago
    But a lot of games are cute and fun to play that do not succeed
    - chiefalchemist 2y ago
      Sometimes it's just timing and/or luck. Think of some TV show that was big say 10 years ago, would it do the same today? Maybe. Maybe not. Product + Marketing + Timing + Luck = Maybe Successful The thing is, there's no VP of Timing. There's also no VP of Luck. These factors are ignored because there's no one to champion them. Yet they are very real. Unsuccessful Product !== Bad Product or Bad Marketing

123 points by qsi 2y ago

Looks like a prime market opportunity for a competing chain with competent management. The PE firm's loss can now be someone else's long-term gain.

s1artibartfast 2y ago
PE sold red lobster in 2016, so you are 8 years too late. The current owner (for the last 8 years) is the multinational seafood company Thai Union. They conducted a 150million stock buyback the same quarter they declared bankruptcy for Red Lobster, and are doing fine.

aklemm 2y ago

I'd like to see business schools codify "brand value extraction" or "enshittification" as explicitly unethical. Any activity that degrades a brand for short-term cashflow--and is reasonably know to decrease future business--is necessarily fraudulent. If that is codified and taught, then journalists can point to that in all cases (of which we are overrun). It's pathetic.

tqi 2y ago
What do you think "enshittification" means, exactly?
- aklemm 2y ago
  https://en.wikipedia.org/wiki/Enshittification https://en.wikipedia.org/wiki/Enshittification In this context (the idea of making this unethical), a brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value. But I'm guessing you knew that and disagree. Care to be more forthright?
  - tqi 2y ago
    > brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value. Well for one, every new business is initially built on investor money, not profits, and "cashing out" is in the eye of the beholder, so I'm not sure how you're going to get everyone to agree on where the line is. Furthermore, I think cory (and many of the folks here who have fallen in love with the term) misunderstands why platforms decay. Facebook doesn't suck because it is trying to please business customers at the expense of its users. Facebook sucks because it is attempting to please 2B users all at once. Every new little feature or notification or ranking change is loved by millions of people and hated by millions more (and merely tolerated by the vast majority). If the former is greater than the latter, it gets shipped to production. Rinse and repeat for 10 years across a myriad of teams, and you get a muddled, confusing mess that has a wider audience but much worse experience for most. That is the root cause of the decay.

munificent 2y ago

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 companies don't end up getting bought by private equity in the first place. In this case, I think dining culture has just changed in a way that's incompatible with Red Lobster's brand. It used to be considered higher-class fare, but drifted down market like almost every large restaurant chain does (see also: Friday's, Applebee's, etc.). For a while, it survived on the unusual combination of being a nice-seeming sit-down seafood restaurant, but not actually that expensive or close to the sea. But, of course, the way they were able to do that was by cutting every possible corner (for example, calling langostino "lobster"). Diners today care more about their health and where their food is coming from. The post-WWII culture of "we can trust big companies because they're successful business" has been replaced by "we can't trust big companies because they must have grown by doing shady shit". Frankly, a cheap restaurant in the midwest that lets you eat unlimited lobster no longer seems a delightful treat and a hell of a lot more like a suspicious food poisoning trap.

asdfman123 2y ago
Seems like they exist to basically sell off a brand. People thinking that Red Lobster is a good place to eat is a valuable asset, which can be traded for short-term profits until they catch onto what's actually going on.
- munificent 2y ago
  Yeah, that's a good point. One way to look at private equity is that they are playing an arbitrage game between the perceived value of a brand and the actual worth of the products the brand produces. In a world where people had better access to true, recent information, perceived brand value wouldn't lag actual product value as much and there would be less opportunity to exploit the arbitrage.
JumpCrisscross 2y ago

wwarner 2y ago

They keep saying all-you-can-eat shrimp was a bad idea and I don’t understand how that’s possible.

FuriouslyAdrift 2y ago

We'll always have Long John Silver's. All hail the hush puppy!

WesleyJohnson 2y ago
LJS was always an extravagant treat when I was a kid as it was seemingly more expensive than McDonald's or Taco Bell, and further away from where we lived. When I started making my own money, it was one of my regular indulgences. As an adult, I rarely ever see them anymore. And when I do go (it's been years), I'm always left feeling sick to my stomach, and yet still hungry. The portions sizes have shrunk considerably, even more shrinkflation. The greasiness, while expected with that kind of food, it so much worse. The fries are soggy, and you hardly ever get any crunchies anymore! I missed the late 90's LJS something terrible. :)
- quercusa 2y ago
  "The food is so bad and the portions are so small!" - Woody Allen
- gwbas1c 2y ago
  Maybe your standards are refined now that you're older? My kids love crap food, and I sometimes have to sigh and go to places I'd rather not go because my kids think it's the best thing since sliced bread. Granted, my only experience with LJS are stories from https://en.wikipedia.org/wiki/Wayne_Coyne https://en.wikipedia.org/wiki/Wayne_Coyne (2nd paragraph, "Early Life" section.)
  - WesleyJohnson 2y ago
    That's certainly possible - and likely. I hadn't thought about it from that perspective.

asow92 2y ago

Company Man on YouTube did a great job breaking this down about a week ago: https://www.youtube.com/watch?v=I17aERAQPfc&pp=ygUXY29tcGFueSBtYW4gcmVkIGxvYnN0ZXI%3D https://www.youtube.com/watch?v=I17aERAQPfc&pp=ygUXY29tcGFue...

jere 2y ago
Did he?? He expanded a bullet list of the different owners to fit a 12 minute video, started and ended the video with an ad, literally said he "didn't have too much to say about Golden Gate Capital", and shares the insight that "Red lobster just needs to get to a point financially where they can be themselves..." OK.
- asow92 2y ago
  Like Red Lobster, maybe it’s not for everyone, I guess?

syngrog66 2y ago

both Red Lobster and McDonald's are on the front page of Hacker News currently ownersip here should wake up before it worsens further

pfdietz 2y ago

One can blame the private equity investors buying it, but every sale requires not just a buyer, but also a seller. The owner of RL sold it to this private equity firm for an amount they felt was proper. The PE firm got more money out than they put in, so they increased the value of the assets. If this meant (in effect) shutting down RL in slow motion, then so be it. Sometimes it's best to just put a pillow over a company's face and say that's it.

hammock 2y ago

Red Lobster did not go bankrupt because of Endless Shrimp. On the revenue side, customers generally have been turning away in favor of competing dining options. On the expenses side, the company has to deal with high labor costs, expensive restaurant leases - and meddlesome PE investors that have led to high leadership turnover. Going into bankruptcy might actually allow them to address their debt and operational losses

heisgone 2y ago

"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.

RockyMcNuts 2y ago

https://prospect.org/health/2023-05-23-quackonomics-medical-properties-trust/ https://prospect.org/health/2023-05-23-quackonomics-medical-... Interesting story of how some private equity guys would - buy hospitals - sell the real estate for more than they paid for the hospital, signing a long-term lease at a high rent - pay themselves an immediate huge profit. the higher the rent the hospital promised, the bigger the sale/leaseback deal, so the bigger the profit. - default, hospital goes bankrupt, the community and the dumb patsy who bought the hospital gets left holding the bag. classic bustout from Goodfellas or The Sopranos, but mobsters get investigated, PE guys don't.

486sx33 2y ago

Not sure about the expensive lease angle. The red lobster in my home town has had the same physical location longer than I’ve been alive. I assume many other red lobster locations are in the same situation.

ethanholt1 2y ago

I haven’t been to Red Lobster since 2019, and even during that trip the quality of the food was severely degraded from what I remembered it to be. Their garlicky biscuits were quite nice, though. What baffles me about this story is the fact that they’re continuing to sell the endless shrimp, despite the fact that it lost them 11 million dollars. Old habits die hard, I guess.

tyroneBray 2y ago

[flagged]

billyvandory 2y ago

Red Lobster has cheapened out its products all over the place. Pennywise, dollar stupid. - Got rid of Thousand Islands and Raspberry vinaigrette dressing - Got rid of the lobster and the fake lobster from the "lobster" bisque - You only get 1 bread per person now - Sweet chilli shrimp that used to be battered and fried at the restaurant replaced with some no name brand microwavable chilli scrimp - To save money, they purchase the runt of the crab and lobster, the ones that barely make legal length, that no one wants to buy - Mushroom caps mushrooms are now bottom of the barrel white mushrooms This "restaurant" is now pure garbage.. used to go all the time, but quit going about a year ago. I'm not interested in spending 100$ per person for fast food

neom 2y ago

I went to red lobster in Toronto yesterday as a "lets save red lobster Canada" idea I had in my head, they came to Canada the year I was born and my dad was obsessed so I have a lot of nostalgia. Came out thinking: let em burn. Worse than mediocre rubber for $200 after tip and tax.

hnthrowaway0328 2y ago
Is it the same sh* like Tim Hortons? RIP then...
- neom 2y ago
  Overpriced bad food? Bingo!
- jjice 2y ago
  Very tangential to the quality of chain restaurants that have decline in quality: I'm from the US, but on the Canadian border, and Timmy's was the dominant coffee shop growing up. Even if you didn't drink coffee, that was the hang out. We had a Dunkin that was probably less than 100 meters away from it that had a fire and never reopened. I definitely think it was a ploy for insurance money because they never had _any_ business. Tim Horton's dominated. Then something happened around 2017 and their coffee became awful (it was never incredible, but it got much worse). Then their prices began to rise significantly. Whenever I go home, I get a cup of Timmy's coffee, but it's never good. Turns out having nostalgia for a large food company doesn't play well in the long run. I'm sure the same applies to Red Lobster, but those kinds of places become part of your memories growing up and you want them to do well, maybe as a way of preserving those memories. Probably half of my friends and I had their first dates at Tim Horton's growing up. As much as I wish I didn't feel the need to drink their swill a few times a year, there's something that still draws me.
  - maxsilver 2y ago
    > Then something happened around 2017 and their coffee became awful (it was never incredible, but it got much worse) Tim Hortons got acquired by Burger King (Restaurant Brands International / QSR) in December 2014, and the quality started to decline over the next year or two

yakk0 2y ago

Just like Toys 'R Us. Same playbook.

schmidtleonard 2y ago

The white-collar version of walking out of a failing company with the chairs and coffee machine. 1000x more damaging, 1000x less punished. Business.

deleted 2y ago
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revscat 2y ago

Private equity seems to have a high rate of taking something beloved and successful, and then killing it.

ajmurmann 2y ago
It's unclear to me how much is private equity "ruining" the business and how much is making it visible. Here in Portland a private equity firm bought a bunch of local restaurants and mini chains during the pandemic. Now they struggle paying workers and rent and are closing a lot of these businesses. My suspicion is that they bought these businesses when they were distressed and otherwise wouldn't have survived at all. Now the pandemic recovery here has been famously bad and these businesses aren't recovering. I suspect the play here was to buy for cheap, help them through the pandemic and have a bunch of guys businesses. Honestly everyone would IMO have been a winner. Employees, customers, investors and even the founders who lost their business but at least got done money for it and see it continue. I don't think we can blame this particular private equity firm in this situation. As a customer the transition was not noticeable. How many private equity acquisitions are like this but circumstances are less obvious and the measurers to rescue need to be more involved than just waiting for a pandemic to end? I genuinely don't know. But I suspect that it's very easy, looking in from the outside as a customer, to come to the conclusion that the business went bad when private equity came in when the business was already struggling but prior leadership was avoiding dramatic changes.
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johngladtj 2y ago

I'm continually amazed by how much outrage normal and perfectly reasonable business strategies generate in the general public. None of this is unusual or in any way wrong. Red lobster (and olive garden) were mismanaged, and the investment funds were right about that. Their attempts at salvaging the situation were perfectly reasonable, even if they were ultimately unsuccessful. You're welcome to be outraged, but that doesn't mean there was anything untoward happening here.

fasteo 2y ago
Have you actually read the article ? It tells a different story: They wanted Darden to liquidate all of Olive Garden's real-estate holdings and declare a one-off dividend that would net investors a billion dollars, while literally yanking the floor out from beneath Olive Garden, converting it from owner to tenant, subject to rent-shocks and other nasty surprises. They wanted to asset-strip the company, in other words ("asset strip" is what they call it in hedge-fund land; the mafia calls it a "bust-out," famous to anyone who watched the twenty-third episode of The Sopranos) The giant slide-deck making fun of Olive Garden's food was just a PR campaign to help it sell the bust-out by creating a narrative that they were being activists* to save this badly managed disaster of a restaurant chain
- s1artibartfast 2y ago
  I think that is the point. That is considered mismanagement. If I'm using a gold as the foundation of a hotdog stand, someone will come along and say that the gold is mismanaged, and worth more as jewelry. They would be right!
- johngladtj 2y ago
  Yes, I did. Sale-leasebacks are common and perfectly reasonable business strategies. Generally speaking lease liabilities have a lower cost of capital than other types of debt, so making such a deal can help the company. None of the decisions described in the post are either unusual or unreasonable from a management team trying to save a troubled company. They were just unsuccessful.

hnthrowaway0328 2y ago

Unfortunately in the late Capitalism that reads more like Feudal than Capitalism, there is not much we can do, and so be it. There is a time that all shall burn and rot and a new world may come forth.

WarOnPrivacy 2y ago
> Unfortunately in the late Capitalism...all shall burn and rot and a new world may come forth. What if VC and shareholders are just fulfilling their purpose in the capitalist circle of life? We can think of them as jackals, buzzards and bacteria combined into a superform. They cull herds, piece off the carrion and decompose what's left. They are bringers and eaters of death, working as one.
tracker1 2y ago
I think that if ever founding another company, will definitely have corporate bylaws that resist similar strategies, as well as cap executive pay per year to a max multiplier of lowest and average salaries in the company.
autoexec 2y ago
It isn't just late stage capitalism. Robber barons became a glaring issue with capitalism very early on. People eventually realized that it took regulation and government intervention to correct for that, but the wealthy who wanted to keep peasants doing all the work in their fiefdoms have spent a very long time demonizing and weakening the kinds of government interventions that could keep them in check. They've managed to con a huge number of people into agreeing that they should have unchecked power and that government (that thing 'we the people' have direct influence on) is the real problem. It's shocking to me how many people fell for it and would rather be ruled over by corporations than government even through they don't get any kind of vote for who their corporate masters are, while we can (ostensibly) vote for our government officials and vote them out if they displease us, replacing them with someone more aligned with our interest. Increasingly government is either bribed into letting corporations do whatever they want, sabotaged by regulatory capture, or stripped of their power by the people who have either been suckered into voting against their own interests or who fantasize about one day being able to carve out their own fiefdoms full of peasants they can chain and exploit

xyst 2y ago

Private equity is also getting into professional American football. https://bleacherreport.com/articles/10122183-report-nfl-owners-establish-framework-to-allow-private-equity-investment-in-teams https://bleacherreport.com/articles/10122183-report-nfl-owne...

screye 2y ago
Chelsea FC the football club, was acquired by a PE firm in 2022. It's been a grand mess from day 1. All of PE's common failings are on display for the 100s of millions of premier league viewers. * Arrogantly uprooting working structures because PE knows better * Lack of domain knowledge means over reliance on flimsy statistics * a general sense of discomfort for every working member of the club * Optimisticly dumping money to exploit so called loopholes that somehow every other team had missed (they hadn't, the loopholes were double edged swords) * Destruction of legacy, eliminating the emotional aspect that keeps someone supporting a team. * Haphazard changes with large impact that get touted as reform, but come across as cluelessness. And this a *good* PE firm who is pouring money into an asset that is likely grow as the market grows. So not exactly a pclueless best. _____ I've supported Chelsea for 20 years now, and 2022-24 was the only time my love for it has diminished.

MontagFTB 2y ago

“Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for our shareholders.”

thrance 2y ago

I've seen many people saying, on this site and others, that they "believe in markets", as if it was their profession of faith. When markets are allowed to work "normally", this is what always happens: regulations are lobbied to the ground, resources get depleted, profitable companies get destroyed to make a quick buck and everyone is worse off in the long term. Having a strong economy is sadly harder than letting the markets "work their magic".

ninininino 2y ago
Market economies destroyed the wildlife fauna of North America. It's incredible when you see photographs of what used to exist here.
- Yujf 2y ago
  At least north america has some wild places and animals left. In most of europe there is almost nothing left. We destroyed everything.
  - ninininino 2y ago
    Yes, if I were European I'd be prioritizing the hell out of protecting the remaining Old Growth forest in Europe in the south east, even if it means having the EU fund nature preserves / paying those host governments big bucks to have a ton of rangers there to stop logging.
  - kjkjadksj 2y ago
    Its mostly stuff in the west anyhow. Eastern half of the US is a lot like europe where if there was any ground fit to drag a plow it was plowed. States like Iowa are totally plowed. The idea of the federal government sitting on empty land for recreation is a new thing, really started with yellowstone after the US expanded west of the mississippi. Even yellowstone was almost dammed like the hetch hetchy.
- s1artibartfast 2y ago
  Go look at parts of China, Russia, North Korea, and Vietnam and compare. You also might be shocked to find that Native Americans also had a market economy.

twiddling 2y ago

Some viewed the Wall Street movie as a tutorial

habitue 2y ago

I think the author has a hard time trying to put a "why should we care?" spin on this at the end: Middle class families need a nice night out, and red lobster is the best way to do that! Totally agree that this is vicious jackal like behavior by the PE funds. But as others have said, this is the lifecycle of a dying company. If red lobster's share prices were high because they were extremely profitable and everyone loved the restaurants: A) it'd be too expensive for PE to buy up a controlling share B) The smart move wouldn't be to strip the company for parts, the smart move would be to keep running the business well and soaking up the cashflows This stuff happens to a limping company and the PEs are the wild dogs picking off the old weak corporations. I think articles like this are pulling a switcheroo where it gets you to engage your moral indignation emotions and aim them in defense of a corporation. Those emotions are appropriate if we're talking about a human being, but aren't when we talking about a company. Imagine a PE fund doing some equivalent to an elderly person, that would actually be outrage worthy! This is just corporate finance, don't let it get to you.

lesuorac 2y ago
You have a wonky definition of a dieing company. If a company makes $X in reveune and has $X - Y (Y<X) in costs that doesn't seem to me like a dieing company. Of course if you use PE to purchase that company and add in $2X in costs then it sounds like a dieing company. However, it was perfectly fine until you came along and strangled it. The price of RL share prices is pretty irrelevant to whether PE can kill it or not. Honestly the higher the price the better it is. If you can spend $100M to buy a company and gut it for $300M that sounds a lot more attractive then buying 100 $1M companies to gut for $3M a peice.
- s1artibartfast 2y ago
  The company wasn't dying, but it was undervalued on the market. It also sounds like the component parts of the company were more valuable separate than together. >Honestly the higher the price the better it is. IF you have to buy at $300M, and can only sell for $100, then higher prices are not better.
- everforward 2y ago

anon291 2y ago

Realistically, Red Lobster and most chain restaurants are... just not that good.

snakeyjake 2y ago

PE is currently in the process of destroying my employer, a nearly 100-year-old engineering firm. Two PE firms teamed up to do some kind of financial voodoo debt transfer reverse mortgage buyout takeover and are slowing inserting their claws inch-by-inch into the management structure of the company. We've been profitable every single quarter of every single year for almost a century. We're a money-printing machine that nobody has heard of unless you build nuclear reactors and satellites and need something only we make. But we are not profitable enough. We are relatively vertically integrated in our niche field and are very, very, slightly less profitable than our competimates, within 1% of places like Northorp and Boeing (uhh.. when they, you know, make money) who outsource practically everything. So fat needs to be trimmed to get that 1%. I am moving on, going 1099 as a consultant, after 17 years at the same desk in the same office in the same building, as is practically everyone else and we're spending precisely 0% of our remaining time passing on our institutional knowledge.

Gud 2y ago

GOOD! I celebrate the death of the restaurant chains!

rufus_foreman 2y ago

>> Angry that your favorite Red Lobster closed down Can't really say that I am.

romafirst3 2y ago

They sold their real estate for 1.5 billion and then red lobster paid 200 million a year in rent. That’s insane. In 7.5 years they would pay back the purchase price. That just seems like a massively bad deal for red lobster, I wonder was there another way the private equity firm made out on that deal ?

richk449 2y ago
What’s most weird to me is that the PE firm owns Red Lobster. So if a deal is bad for Red Lobster, the deal is also bad for the PE firm. I guess the reason that isn’t true is differing time horizons. If the consequences of the deal only become apparent years later, then the PE firm can sell the business before the chickens come home to roost. But how do they sell Red Lobster without the buyer realizing what is going to happen? Who would be dumb enough to buy from a company that has a history of crippling companies it owns then selling them to suckers?
- vundercind 2y ago
  … who’d PE sell the land to? Was it… themselves, in some roundabout way?
  - romafirst3 2y ago
    That’s what I’m wondering, or if they got some other compensation that isn’t mentioned.
- skeeter2020 2y ago
  The hit from above-market leases vs. owning the land might be clearly visible in hindsight, but that's not necessarily true looking into the future. A buyer could have focused on the economies of scale from being in the seafood business and actually thought "we're not a real estate companye, and rentals are preferable in this inflated market". The got all that current debt off the books in exchange for future liabilities; that could also have looked good. >> PE firm can sell the business before the chickens come home to roost. It's really no different from pump and dump. Founders love it because it unlocks a huge pay-out without the hassle, costs and reporting obligations from going public, but if you've worked at a company before and then after a major PE investment it's universally worse IME.

Cheer2171 2y ago

Private equity firm wants to buy Red Lobster, but they don't have enough money. So to afford the sale, they make a deal to sell the land every Red Lobster sits on to a firm that will charge Red Lobster above-market rate rent to stay in business. This doesn't seem like it should be legal.

skeeter2020 2y ago
Well, they DID have to scrape together a few % of the purchase price </s> Isn't this what Gordon Gecko did in the movie Wall Street? Look for asset-rich companies, buy a controlling interest of the stock (the equivalent of the PE leveraged buyout) then strip them for parts? Also, wasn't that a cautionary tale of the worst of the 80's vs. a "how to" manual?
jaredklewis 2y ago
Why would it be illegal? When the PE firm took over red lobster, it wasn't a thriving business. They made a gamble: if we sell the land, we can pay down the debt to reduce interest payments and restructure it into a profitable business. It was always a risky proposition, but the alternative was probably slow decline. The PE firm lost their gamble and they suffered the losses for it. If the PE firm sold the land to a landlord they owned at discount prices, then yea, that would be a conflict of interest but that isn't what happened.
seattle_spring 2y ago
Reminds me of payday loan companies, except for billion dollar businesses instead of poor people struggling to pay for groceries.

civilized 2y ago

I have the same question every time I see one of these articles. I think I've even posted the question in previous HN threads on private equity shenanigans. The question is: Why is this profitable? If the land is worth $1.5 billion, it should have cost PE more than $1.5 billion to buy the company. Then there would be no way to make a profit by selling the land, paying yourself, and letting the company go belly-up. Why does PE keep doing this? Presumably because it works? But why does it work? Are the sellers less sophisticated at asset valuation than the buyers, and frequently lowball themselves? Or maybe owners/stockholders are sometimes just tired of holding this asset, want cash to reinvest somewhere else, and are willing to cash out at a discount?

MarkMarine 2y ago
I thought the PE model was to buy one of these companies, leverage them with many multiples of debt while paying themselves out massive fees and bonuses, then letting the huge interest and debt load take its toll on the husk of the company.
- renewiltord 2y ago
  So the sucker here is the bank? Can't say that I care that much about that. It's just business and the banks apparently suck at it. They can foreclose on the business and sell it off to someone who relaunches it.
  - s1artibartfast 2y ago
    Yep, and banks come out ahead on average too. That's why they choose to lend to PE. Some mortgages and credit cards end in bankruptcy too. They set their interest rate according and it is a cost of doing business.
  - MarkMarine 2y ago
    I think the sucker is always regular people. The ones that worked at these companies, and the collective us that the banks pass these costs down to
  - 2y ago

microtherion 2y ago

The real estate deal seems rather tame, compared to the "Endless Shrimp" deal perpetrated later by their new owner: https://www.bloomberg.com/opinion/articles/2024-05-20/the-endless-shrimp-investigation https://www.bloomberg.com/opinion/articles/2024-05-20/the-en...

1024core 2y ago

So GG Capital paid $2.1B for Red Lobster, and sold the land for $1.5B. They still owe $600M on their purchase! Did they sell the remnants to Thai Union for > $600M? Only then this whole thing makes sense.

s1artibartfast 2y ago
Yes. Thai union bought a 25% partial stake from GG capital in 2016 for 575 million. Thai union must have been happy, because they bought 24% more to become the primary owner in 2020 for an undisclosed amount.

deleted 2y ago

[deleted]

loutre 2y ago

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 https://www.goodreads.com/book/show/62874267

readthenotes1 2y ago
Similar story with Sears. Bought by a real estate investor who didn't care about running the stores that much...
- gadders 2y ago
  Wait until you hear about Thames Water and Maquarrie in the UK. https://www.theguardian.com/business/2023/jul/10/as-thames-water-sinks-macquarie-group-continues-its-unstoppable-rise https://www.theguardian.com/business/2023/jul/10/as-thames-w...
ars 2y ago
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 these steps that are "obviously" bad?
- gadders 2y ago
  Not certain, but I would guess it is to do with investment horizons and getting a 10x return on the money they put in to return to their fund, rather than 1x revenue per year.
- johnrgrace 2y ago
  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.

tibbydudeza 2y ago

Shrimp - the cockroaches of the ocean. I never eat the stuff including lobster (non allergic) but one time I was relocated to Germany to help ship a new software release (English technical documentation) and was invited to a meal with my colleagues and his family. Out comes a big bowl of shrimp for everybody with the skins and feet and antlers on - think we had a language misunderstanding. Not wanting to offend and send it back - did not even know how to disassemble it - ate a few and back at the hotel you know what happened :).

savoytruffle 2y ago
you fondly reminisced about a wonderful meal?
forgetfreeman 2y ago
Now if you'd said there was no Old Bay on the table I'd say you had a serious issue on your hands, but I'm guessing you don't know what that is?
CannisterFlux 2y ago
For future reference, say you are allergic. It's not like they would have asked for a doctor's note. Oh it was in Germany? They probably would...
coldtea 2y ago
>Shrimp - the cockroaches of the ocean Ah, culinary wisdom based on internet memes and bro quotes: the cockroach of the mind! >ate a few and back at the hotel you know what happened :) Reverted to the fast-food baseline?
- Broken_Hippo 2y ago
  Sorry, but no. I've thought that shrimp and lobsters were simply ocean bugs since I was a child in the 80s. It isn't quite accurate in science terms, but still holds out as a thing in my brain. Even if I happen to eat them (Not disgusting, not delicious either) I'll also mention that folks allergic to shellfish also have to be careful with crickets and other land insects. They have their similarities.

gadders 2y ago

I need to resurrect my idea of a list of companies (especially ones that manufacture goods) that are owned by Private Equity so people can avoid them. In most cases, the brand name stays the same but the quality falls off a cliff.

aklemm 2y ago
That's an excellent idea. I posted in the thread another angle I'd love to see get traction: https://news.ycombinator.com/item?id=40238807 https://news.ycombinator.com/item?id=40238807
pigeons 2y ago
For products it would be good to include a date so people can obtain the quality items second-hand.
rwmj 2y ago
Instant Pot was one ...
sevagh 2y ago
Travis CI
m2f2 2y ago
VMWARE CA (Computer Associates) CITRIX ...
- erikerikson 2y ago
  CA was where innovation went to die far before Broadcom. It's main business process was buying popular products, "enterprising" but mostly selling them, and then selling them off as they went out of fashion.
gosub100 2y ago
I would like this service but for vet clinics, apartment rental forms, and dentists.
nicolas_t 2y ago

happytiger 2y ago

I can’t wait until private equity companies are exposed as the exploitive side of our current system that needs to be corrected. At the heart of so many good companies are bad decisions driven by PE structures and personalities, most of whom seem very toxic and short sighted. Surely there is a better model of capitalism — I am not so vapid as to turn against the obvious advantages of the system. But I am also not willing to endorse the current approach as anything but exploitation with extra steps.

aklemm 2y ago
There's a solution, I posted it in the thread. https://news.ycombinator.com/item?id=40238807 https://news.ycombinator.com/item?id=40238807
organsnyder 2y ago
It seems like they keep getting "exposed", yet nothing changes.

TheRealDunkirk 2y ago

Tiffany Cianci is at the dead center of a battle with private equity trying to monopolize young child development centers. Her horrific personal story will open your eyes as to just how depraved and soulless private equity can really be in their attempt to take over the world. (TL;DR: they literally forced her give a deposition while she was having a miscarriage.) The government should be writing laws to curtail these kinds of bloodsucking parasites. https://www.tiktok.com/@tiffanycianci https://www.tiktok.com/@tiffanycianci

prepend 2y ago
No one can force you to give a deposition during a miscarriage. I’ve been through a few depositions and anyone can leave for medical reasons. It’s not like there are bailiffs there forcing you to attend. Even with the most basic of cases, I can just walk out and tell my attorney to reschedule. I may have to pay other counsel’s fees, but I expect with the reason “I’m having a miscarriage” no judge is going to uphold their claim.
- TheRealDunkirk 2y ago
  The other alternative was to violate her sacred beliefs. You clearly have no idea how nasty this litigation has been. https://www.washingtonian.com/2023/07/24/how-a-battle-over-a-kids-gym-turned-into-the-lawsuit-from-hell/ https://www.washingtonian.com/2023/07/24/how-a-battle-over-a...

phkahler 2y ago

>> 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 terms are favorable.

TheGlav 2y ago
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.
- DiggyJohnson 2y ago
  You're responding as if the person you're replying to wasn't asking a question, but stating a fact. Do you know about the details or even a general outline of the considerations that went into this decision?
  - ink_13 2y ago
    Bluntly, they're irrelevant. Selling off the real estate is a short-term books-juicer that's tantamount to pillaging the contingency fund. Classic corporate raider move.
    - DiggyJohnson 2y ago
      It seems fine to me if the other outcome was an earlier and less-efficient bankruptcy and liquidation.
- pfdietz 2y ago
  Why should anyone care about the wellbeing of a company? This sounds like an exercise in anthropomorphism.

pavovap 2y ago

tl;dr summary in 3 points: 1) Heavy debt from private equity deals and increased lease costs made Red Lobster financially vulnerable. 2) Customers drifted away to other dining options, and frequent leadership changes hindered a stable turnaround plan. 3) The Endless Shrimp promotion, while a poor decision, underscored the company's larger management issues.

froggertoaster 2y ago

https://archive.is/qarb5 https://archive.is/qarb5

andrewla 2y ago

These private equity deals are the convergence of a couple of phenomena. The most obvious is low interest rates, which is fortunately dying off. The ability to borrow lots of money is something that smaller, well-run companies, are reluctant to do. Why bring in a bunch of cash to expand and take on debt when you are operating at a reasonable profit? The secondary is the undervaluing of customer goodwill -- what PE firms can do is directly monetize that goodwill by squeezing those customers. The income stream from a reliable customer can be translated into present value, and prices and quality can be adjusted to the point where you can drive a customer's goodwill down to zero while extracting something that approximates the present value of the lifetime income stream from that customer. Inflation plays a role -- businesses are reluctant to raise prices because they don't want to sacrifice goodwill, but the supply chain costs keep going up. They have to somehow maintain margins, but they do so by raising prices slowly. PE has no such scruples.

asdfman123 2y ago
Private equity takeovers are often just scams to convert customer trust to short-term profits, but labeled as growth. You can get away with cutting quality for a little while, but eventually customers are going to lose trust and you're not going to get it back.
- darth_avocado 2y ago
  But that is the PE playbook. Take businesses and squeeze as many profits out of them before they die. https://www.nytimes.com/2023/04/28/opinion/private-equity.html https://www.nytimes.com/2023/04/28/opinion/private-equity.ht...
- wnc3141 2y ago
  the whole point is to flip the business in 5ish years.
  - rnd0 2y ago
    So goodfellas, basically: https://www.youtube.com/watch?v=ZPtjyqgZAUk https://www.youtube.com/watch?v=ZPtjyqgZAUk

OkayPhysicist 2y ago

Even without private equity's meddling, Red Lobster would have been in a rough spot. Family dining as a segment (lower end restaurants, but with table service) is being squeezed aggressively. Compared to Gen X and before, Millennials on average are valuing food quality over service experience, ballooning the fast casual (order at the counter, but nicer than fast food) segment. This is squeezing family dining from below, meanwhile their branding as ubiquitous and affordable prevents them from raising prices too much without bumping up against the fine dining segment (and who wants to bring a date to Olive Garden?).

asdfman123 2y ago
It's not even about quality. Honestly, much of it is just that megachains aren't cool. I'm not above eating at Red Lobster but if I have to pick where I'm going to spend my money it's hardly going to be the first choice.
kube-system 2y ago
I don't even really think it's food quality alone that is the issue. It's the total package doesn't match preferences. I think many millennials would be fine with Red Lobster quality food, if it were quick enough for lunch. But the format is slow, sit-down service. And the atmosphere in these restaurants is not what millennials are looking for to relax or entertain.
- ghaff 2y ago
  That's actually sort of been a sort of a revolution with things like fast casual burgers and a lot of food in airports (at least those that serve upscale cities). A lot of people don't really want at least somewhat extended sitdown. They want fairly decent food that's served quickly. Individual preferences vary obviously but I'll basically never eat at McDonalds but some of the burger places like Shake Shack and In-and-Out hit the spot now and then.
  - kube-system 2y ago
    There's multiple reasons why people visit a restaurant and with different needs. I think the rise of fast casual is coincident with the rise in people visiting a restaurant when it isn't a treat. When someone is looking to just grab a quick bowl, they don't care as much about atmosphere or service, their priority is something quick, easy, and good value. But then when these same people go out to dinner when it is a special occasion, they're looking for something measurably better quality and better experience than the fast casual they had three times for lunch that week. It's the mediocre sit-down places that are caught in the middle. In the 90s these types of places were good enough to be considered a friday night treat. Because people weren't eating out during the middle of the week as much.

tonymet 2y ago

Can someone help explain restaurant industry economics? when the business starts out, it's high risk and low margin. Tons of capital investment. Labor intensive and hard to staff. If you are lucky you are pulling 15% margins Besides some exceptions, if you are lucky you may get some growth for 5-10 years. Then your brand falls out of favor (trends) and you spiral into bankruptcy. Who invests in this stuff?

tithe 2y ago
> Who invests in this stuff? Bill Ackman (founder of Pershing Square Capital Management), for one: https://lexfridman.com/bill-ackman-transcript#chapter4_investing_in_restaurants https://lexfridman.com/bill-ackman-transcript#chapter4_inves...
laweijfmvo 2y ago
Maybe not fast food / fast casual, but at least in a trendy area (NYC, SF, LA, etc.) if a restaurant catches on, they're making way more than 15% margins because they can charge whatever they want and people will go because it's cool... this would include coffee shops and other relatively low cost establishments
MrFantastic 2y ago
If I ever get rich, I would totally open a ghost pizza restaurant. Margins are good. Spoilage is a non-issue. Orders are pickup or delivery. I can bring 10 pizzas to every party.
tempsy 2y ago
You should look at Chipotle's stock.
- tonymet 2y ago
  an exception that proves the rule
- tonymet 2y ago
  also, stock prices aren't economics. In aggregate they can be useful indicators, but they are not a measure of a business' results (due to derivative factors)

bachmeier 2y ago

To me this is not even slightly surprising. Red Lobster used to be at the top of our list of restaurants. Then in recent years the quality of both the food and service deteriorated. One visit the food was so bad I couldn't even eat it. That was compounded by not having a server to talk to. Took our order and never returned - even had someone else bring out the order. The thing about a restaurant is that you'll always have business if the food and service are good. You can talk about how the market changed or whatever, but no restaurant can survive at that price point while offering so little. We had a chain BBQ restaurant in town that had a booming business for more than a decade. Then the quality of the food went downhill and they shut down, citing lack of a market. They had a market for years but there's no market for crap. Red Lobster's situation is no different.

asdfman123 2y ago
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 arguing how the video game Stardew Valley succeeded due to the way it was marketed. Marketing is important, but maybe the game succeeded because it was cute and had a soul and is fun to play. You can't measure that.
- jncfhnb 2y ago
  But a lot of games are cute and fun to play that do not succeed
  - chiefalchemist 2y ago
    Sometimes it's just timing and/or luck. Think of some TV show that was big say 10 years ago, would it do the same today? Maybe. Maybe not. Product + Marketing + Timing + Luck = Maybe Successful The thing is, there's no VP of Timing. There's also no VP of Luck. These factors are ignored because there's no one to champion them. Yet they are very real. Unsuccessful Product !== Bad Product or Bad Marketing