The demise of Red Lobster is a perfect case study in how to kill a business
The demise of Red Lobster is a perfect case study in how to kill a business
Red Lobster may be headed toward bankruptcy, but its business problems go far beyond all-you-can-eat shrimp.
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Red Lobster first opened in Lakeland, Florida, in 1968 and was acquired by the food conglomerate General Mills in 1970. General Mills then spun the chain off in 1995 along with the rest of its restaurant division, which also included Olive Garden, as Darden Restaurants. In 2014, amid flagging sales and pressure from investors, Darden sold Red Lobster for $2.1 billion to Golden Gate Capital, a San Francisco private-equity firm.
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 — and then immediately leased the restaurants back. The next year, Red Lobster bought back some sites, but many of its restaurants were suddenly strapped with added rent expenses. Even if Darden had kept Red Lobster, it's not clear it would have taken a different route: A press release from the time says it had contacted buyers to explore such a transaction. But in Maze's view, the sale of the real estate was sort of an original sin for Red Lobster's current troubles. He compared it to throwing out a spare parachute — chances are, you'll be OK, but if the first parachute fails, you're in deep trouble.
First thing private equity does is sell the property, whether the business is a LTC home or a restaurant chain.
Fuck private equity. I hope every one of those bastards rots in hell where they belong.
Irrelevant. If you have a business that owns property you should have two divisions for accounting reasons, one that runs the business and one that leases the property to the business. Both sides should be making money. This should just be an accounting trick but you need to watch it, if you can't make money with either side alone that means you don't have a good business.
There are good reasons to own your own real estate, and good reasons to lease. However either way you need to make the accounting numbers work.
Not irrelevant. If they had kept the property the company would have assets. They liquidated the assets and sold the name which was now saddled with debt. That's not even remotely irrelevant it's the literal cause of the bankruptcy...can you even read???
This article just said "don't sell real estate because it is an unsustainable expense."
Private equity hate spending their own money or they overspend in an attempt to be an entrepreneur. They will buy something, squeeze all the value out of it, and then try to sell it off to be juiced by some other dumb schmuck with deep pockets and dreams.
Constant profitability is a cancer and you are giving advice on how to kill a business, with the example being Red Lobster used your "plan" and just died.
Red Lobster was already dead, they just hadn't held the funeral yet.
this wasn't two B/U in a single umbrella though, they sold estate to another company who then leased it back to them.
Which is perfectly fine to do.
Well done you guys, let's downvote the only person in the entire thread who knows what they're talking about. Brilliant stuff.