July 30, 2014

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Darden to sell Red Lobster, hold onto Olive Garden

A Red Lobster restaurant is shown in Hialeah, Fla. (AP Photo/Alan Diaz, File)

A Red Lobster restaurant is shown in Hialeah, Fla. (AP Photo/Alan Diaz, File)

NEW YORK (AP) — Darden is setting Red Lobster adrift, but betting that it can still turn around Olive Garden’s fortunes.

The company, based in Orland, Florida, said Friday that it would sell its seafood chain to investment firm Golden Gate Capital in a $2.1 billion cash deal. The announcement came despite objections from some shareholders to the plan to either spin off or sell Red Lobster, which was announced late last year.

Both Olive Garden and Red Lobster have been losing customers in recent years, even as Darden changed their menus and marketing campaigns to win back business. Part of the problem is the growing popularity of places like Chipotle and Panera, where customers feel they can get the same quality of food without having to pay as much or wait for table service.

But Darden CEO Clarence Otis has noted that Red Lobster’s customers have increasingly differed from those at Olive Garden and the company’s other chains, which also include Longhorn Steakhouse and The Capital Grille.

In particular, Otis says Red Lobster hasn’t been able to attract higher-income customers.

Red Lobster, which opened in 1968, helped popularize seafood among Americans and today has about 700 locations in the U.S. and Canada. The first restaurant in Lakeland, Florida, boasted a menu including a half a dozen oysters for 65 cents and platters with frog legs and hush puppies for $2.50.

As the chain suffered sales declines more recently, Darden executives blamed a variety of factors, including a refusal among customers to swallow price hikes. In 2012, for instance, executives cited a $1 price hike for its “Festival of Shrimp” special in explaining a quarterly decline in sales.

More recently, the company tried expanding Red Lobster’s menu to include more non-seafood dishes in hopes of attracting a wider array of customers. The efforts didn’t take hold.

Darden sees more potential in fixing Olive Garden, which has about 830 locations. The company recently reworked the logo for Italian chain and has been adding lighter menu items, as well as smaller dishes that it says reflect eating trends.

Still, affordability is an ongoing issue across the industry and Darden has been slow to address it. At the height of the downturn, for instance, Applebee’s introduced a “2 for $20″ deal that proved so popular it ended up becoming a menu fixture.

Activist investor Barington Capital has challenged Darden’s plans to sell Red Lobster, saying the company should separate Olive Garden and Red Lobster as a pair from its more successful chains. Darden’s other chains include Bahama Breeze, Seasons52, Eddie V’s and Yard House.

After the transaction costs, Darden said it expects proceeds of $1.6 billion, of which $1 billion will be used to retire outstanding debt. The company said it expects the deal to close in its first fiscal quarter of 2015.

Golden Gate Capital made a separate $1.5 billion deal to sell Red Lobster’s real estate to American Realty Capital Properties, then lease it back. Its other investments include California Pizza Kitchen, Payless ShoeSource and Eddie Bauer.

Shares of Darden, based in Orlando, Florida, fell nearly 4 percent to $48.70 in premarket trading.

  • Razorback Twou

    Last one out turn off the lights

  • Otter

    Yep, it was the $1.00 that did it.

  • Phil Blank

    Good timing. Recently read news the cold weather has been hard on crab and lobster and they are smaller than normal along the east coast, stone-crab catch coming in small too.

  • golfingirl

    “In particular, Otis says Red Lobster hasn’t been able to attract higher-income customers.”

    Maybe because all the “higher-income customers” pay too much in taxes! Less disposable income.

    Those darn rich people, they ruin it for everyone else. How dare they not want to eat the “Festival of Shrimp.”

    Interesting that their high end restaurant, Capital Grille is doing fine.

    I have an idea to save Red Lobster. Charge those “higher-income customers” more at the Capital Grille, and use the extra money to subsidize the Red Lobster brand. Kind of like the income tax system.

    Works for the government, why not in the private sector? Could it be because in the private sector there is a thing called choice?

    Can’t build a business dependent on people without money. Never does work very well.

    • HankKwah

      Stop it!! Where did you ever get such foolishness???

      • Scout

        She right-including the innuendos!

      • golfingirl

        “Higher-income customers” generally don’t eat at establishments where the food items on the menu start with the word “Festival.”

        Just an observation. Sounds like carnival food.

        Bottom line is Red Lobster food is not very good. Call it what you like, but the food is less than enticing. A restaurant without good food is doomed.

        • Otter

          I don’t know of any “high end” restaurants that have a children’s menu….I personally avoid all things with the word festival, and mart in them….

          • golfingirl

            Or with an “Endless Fountain of Chocolate.”

        • Scout

          I ate at red lobster in Jan for my son’s birthday and have not gone back. It was awful-greasy, over fried, and cold. Even sent them an email and haven’t heard back. That’s ok because I’m not going back. They can close them for all I care, the food fare has gone way down over the last few years.

    • JHL27

      You must be blue collar, due the fact you think you have to work to make money. Investment taxes are much lower than income taxes.

      • golfingirl

        I wear both blue and white collars.

        You pay tax on your income, before you pay taxes on your investments.

        You are taxed twice!

      • golfingirl

        “You think you have to work to make money.”

        Kind of says it all, don’t you think?

        Yes, I do work to make money. Unless you are living off government entitlements, we all do.

  • jz

    I don’t see Panera as being a bargain. What you pay for a soup and sandwich is outrageous.

  • Sis Delish

    Change the name to “Rock Lobster” and serve B-52s at 1/2 Price all day long…

  • GreatRedeemer

    Like some other restaurant chains that are gone or are just a glimmer of their former self’s; Red Lobster has significant value in real estate holdings. Hence immediately after purchasing they are doing a lease back for the majority of the deal.
    The investors will be looking to make profit from the real estate and perhaps lease rates that are unaffordable. Now that the biggest asset has been spun off the brands exposure is increased to be disposed of closed, sold or bankrupted. Perhaps not.