Red Lobster In Hot Water With Consumers And Shareholders

By Robert Passikoff | Small Business

It’s been no secret in the restaurant world that Darden Restaurants has been trying to 86 their Red Lobster restaurant chain for a while now. It hasn’t been a secret to us either.

According to the Brand Keys Customer Loyalty Engagement Index for Casual and Fast-Casual Restaurants, brand engagement for the chain – a leading-indicator of consumer behavior and, axiomatically, profitability – has been lukewarm. All the advertising and promotion in the world – including seafood fests, endless fried shrimp, and for two-for-one meal- deals – hasn’t been able to help the brand claw its way up the list. Or with tanking same-store sales, which were down nearly 6% for the quarter. Current brand rankings looking like this:

  1. Panera
  2. Chipolte
  3. Au Bon Pain
  4. Arby’s
  5. Cosi
  6. IHOP
  7. Texas Roadhouse/Olive Garden
  8. TGI Friday’s/Applebee’s
  9. Ruby Tuesday
  10. Chili’s
  11. Golden Corral/Outback
  12. Red Lobster

The brand found itself in even more hot water recently when the hedge fund, Starboard Value LP, who own an 8% stake in Darden Restaurants, sued over a $2.1 billion agreement to sell Red Lobster to the buyout firm, Golden Gate, alleging it was “a fire-sale price.”

Olive Garden, also operated by Darden (along with more successful specialty brands like Bahama Breeze, Yard House, and Capital Grill, too small to make our lists yet), hasn’t done much better either, on our Customer Loyalty Engagement Index (down two spots to #7) or in same-store sales, also down. And if/when the Red Lobster sale is completed, Olive Garden is expected to account for as much as 60% of Darden’s revenues, which was recently reported to have plunged 35% compared to same time last year. So putting extra stress on a brand structure that wasn’t up to code in the first place.

Darden has indicated that they intend to highlight quality, freshness, and health, all of which are values more and more customers attribute more and more to fast-casual brands like Panera, Chipolte, and Au Bon Pain (#’s 1, 2, and 3 on the Customer Loyalty Engagement Index list), none of which have fried-anything on their menus.

Starboard Value LP filed with the SEC last week requesting the Darden books and records, complaining of “months of maneuvers” looking to silence shareholder opposition. They argued that Darden should have placed their real estate assets into a separately traded company and, by selling Red Lobster, the potential value of the transaction has been diminished.

Darden is introducing lighter dishes to boost lunch business, and Eugene Lee, Darden’s president, has been quoted as saying they’re “in the early stage of exposing guests to what we call a brand renaissance plan,” but all that is pretty hard to swallow. And based on current brand rankings and customer engagement levels, we’d say near impossible.

But to paraphrase Lewis Carroll’s Red Queen about Darden’s chances, “Why, sometimes I’ve believed as many as six impossible things before lunch,” so we’ll have to see what they finally serve up.

This article was syndicated from Business 2 Community: Red Lobster In Hot Water With Consumers And Shareholders

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