3 ms·

> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim. Not directly, but only 1 step removed

> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim. Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money".

quantified 3y ago
> that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there. Evidently not really taking the factors into account. Would the limited partners eat there? More than once?
- outop 3y ago
  I don't see the relevance of this. No one eats at Red Lobster thinking "this is the exact dinner experience that billionaires would design for themselves". Walmart is a family owned business. Do you think that the Walton family buy groceries and home furnishings there? McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there?
  - ChickeNES 3y ago
    > McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there? Yes: https://financialpost.com/executive/mcdonalds-new-ceo-eats-at-the-chain-twice-a-day-but-runs-50-miles-a-week-to-burn-it-off https://financialpost.com/executive/mcdonalds-new-ceo-eats-a...
outop 3y ago
What makes you think that PE equity owners have any different incentives to any other chain restaurant owners to cut costs and improve margins?? Why would you think that private equity owners would ever make things worse to improve margins without giving careful consideration to whether or not the changes will make people less likely to spend money at their restaurants??
- ImPostingOnHN 3y ago
  Because PE equity owners DO have different incentives. It's reasonable to think things that are true. PE is incentivised to squeeze the business and extract the value built up over time, to get large, quick returns, even if it destroys the business (they can sell the corpse after). A restaurant which delivers regular, single-digit restaurant margins indefinitely would be considered a PE investment failure. So, the answer your 2nd question is also "because it's true". I'm happy to be convinced otherwise on either count, if you think differently.
  - outop 3y ago
    You've just repeated and rephrased the claim that I challenged without providing any evidence or argument at all. Your actual answer to both questions is "because I believe this". Can you explain how the math works that PE owners make money from discouraging people from going to a restaurant, and other owners don't have the same incentives?
    - ImPostingOnHN 3y ago
      I explained the difference in incentives: Restaurant margins are a PE failure [0], that alone would explain it. Your framing of the scenario as "discouraging people from going to a restaurant" is... less than charitable. A better description would be "extracting the value of customer goodwill from the business and moving it into their pockets". They're PE, they prioritize big, fast returns over long-term customer value and small, slow returns. Add to that, the leveraged buyout mechanism that Red Lobster went through is famous for siphoning value off the target in the form of fees and other schemes, and then leaving the empty husk to die under crippling debt[1]. A clue here is that the 2nd paragraph of the article we're discussing is, "In mid-April, Bloomberg reported the debt-laden seafood chain...", and it sounded like they had trouble paying it in part because of the rent payments that started when the PE firm sold their real estate to pay for the buyout. Can you explain why you think anything I've said so far is untrue? After all, we can't assume a PE LBO executor and a small business owner have the same incentives unless we have sufficiently convincing evidence to support that assumption. 0: https://www.indeed.com/hire/c/info/restaurant-profit-margins-guide https://www.indeed.com/hire/c/info/restaurant-profit-margins... 1: https://www.investopedia.com/articles/stocks/09/corporate-kleptocracy-rjr-nabisco.asp https://www.investopedia.com/articles/stocks/09/corporate-kl...

quantified 3y ago

> that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there. Evidently not really taking the factors into account. Would the limited partners eat there? More than once?

outop 3y ago
I don't see the relevance of this. No one eats at Red Lobster thinking "this is the exact dinner experience that billionaires would design for themselves". Walmart is a family owned business. Do you think that the Walton family buy groceries and home furnishings there? McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there?
- ChickeNES 3y ago
  > McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there? Yes: https://financialpost.com/executive/mcdonalds-new-ceo-eats-at-the-chain-twice-a-day-but-runs-50-miles-a-week-to-burn-it-off https://financialpost.com/executive/mcdonalds-new-ceo-eats-a...

outop 3y ago

What makes you think that PE equity owners have any different incentives to any other chain restaurant owners to cut costs and improve margins?? Why would you think that private equity owners would ever make things worse to improve margins without giving careful consideration to whether or not the changes will make people less likely to spend money at their restaurants??

ImPostingOnHN 3y ago
Because PE equity owners DO have different incentives. It's reasonable to think things that are true. PE is incentivised to squeeze the business and extract the value built up over time, to get large, quick returns, even if it destroys the business (they can sell the corpse after). A restaurant which delivers regular, single-digit restaurant margins indefinitely would be considered a PE investment failure. So, the answer your 2nd question is also "because it's true". I'm happy to be convinced otherwise on either count, if you think differently.
- outop 3y ago
  You've just repeated and rephrased the claim that I challenged without providing any evidence or argument at all. Your actual answer to both questions is "because I believe this". Can you explain how the math works that PE owners make money from discouraging people from going to a restaurant, and other owners don't have the same incentives?
  - ImPostingOnHN 3y ago
    I explained the difference in incentives: Restaurant margins are a PE failure [0], that alone would explain it. Your framing of the scenario as "discouraging people from going to a restaurant" is... less than charitable. A better description would be "extracting the value of customer goodwill from the business and moving it into their pockets". They're PE, they prioritize big, fast returns over long-term customer value and small, slow returns. Add to that, the leveraged buyout mechanism that Red Lobster went through is famous for siphoning value off the target in the form of fees and other schemes, and then leaving the empty husk to die under crippling debt[1]. A clue here is that the 2nd paragraph of the article we're discussing is, "In mid-April, Bloomberg reported the debt-laden seafood chain...", and it sounded like they had trouble paying it in part because of the rent payments that started when the PE firm sold their real estate to pay for the buyout. Can you explain why you think anything I've said so far is untrue? After all, we can't assume a PE LBO executor and a small business owner have the same incentives unless we have sufficiently convincing evidence to support that assumption. 0: https://www.indeed.com/hire/c/info/restaurant-profit-margins-guide https://www.indeed.com/hire/c/info/restaurant-profit-margins... 1: https://www.investopedia.com/articles/stocks/09/corporate-kleptocracy-rjr-nabisco.asp https://www.investopedia.com/articles/stocks/09/corporate-kl...