Golden Gate Capital just bought Red Lobster for $US2.1 billion.
The chain, which was previously a part of Darden Restaurants, has struggled in recent years.
An April presentation by Red Lobster activist investor Starboard highlighted all the problems facing the seafood chain. Starboard was opposed to Red Lobster spinning off parent company Darden.
Here’s what Golden Gate Capital is going to have to solve.
Declining sales. Red Lobster’s sales have been declining for some time, as diners seek fast casual options like Chipotle or Panera Bread. The brand also responded to declining traffic by jacking up prices, which further exacerbated the problem, according to Starboard.
Lack of unit growth. Red Lobster has more than 700 restaurants across the U.S. With traffic declining, Red Lobster will have to focus on strengthening the core business before it can expand.
Declining margins. Red Lobster’s profit margin is the worst in years because of declining traffic and higher operating costs, according to Starboard. At 9.3%, Red Lobster’s margins are significantly lower than competitors like Buffalo Wild Wings and Cheesecake Factory, according to Starboard.
Commodity prices. Shrimp prices have increased to unprecedented rates recently because of production issues in Asia. Prices for white shrimp, one of Red Lobster’s core menu items, soared 50%. While the prices are expected to ease up soon, Red Lobster might have to figure out other menu solutions in the near term.
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