Wednesday, April 2, 2014

Can High Finance Save Red Lobster From "Shrimp Inflation" And "Lobster Deflation"?

Last December, the parent company of Red Lobster (and Olive Garden, among other chains), Darden Restaurants, which is the largest full-service restaurant company in the world and a Fortune 500 company, announced plans to spin-off the consistently under-performing seafood chain.

But now there's a shareholder battle brewing at Darden over the fate of Red Lobster.  Some significant investors don't want to sell the chain now while it's down (at a discount), but instead want to try to fix it, to preserve more shareholder value. In the meantime, they want Darden to leverage its extensive real estate holdings by establishing a Real Estate Investment Trust, or REIT, which these activist shareholders assert could increase shareholder value by $1 billion.  You can read more in today's New York Post HERE.  Goldman Sachs and Morgan Stanley are also apparently involved.

But there may be a fundamental cost issue at the root of Red Lobster's problems, according to THIS article. "The price of shrimp, arguably the most democratic of seafoods, has skyrocketed over the past several years, largely because of a bacterial disease ravaging shrimp in Vietnam, Thailand and China, according to Quartz. That’s a huge problem for Red Lobster, which offers shrimp at bargain price. So-called shrimp inflation has cost Red Lobster an estimated $30 million over the past year, executives said on the call.. On the other end of the spectrum is lobster, the most decadent of seafoods... 'For a lot of guests (Red Lobster) is a special-occasion experience,' Eugene Lee, Darden’s chief operating officer, said on the call. But lobster isn’t so special any more. Thanks to a glut in the North American lobster supply, prices have sunk to historic lows over the past few years. Now, diners looking for a cheap lobster meal can get their fix at places like Golden Corral, Whole Foods and even Quiznos, the Wall Street Journal reported earlier this week."

No comments:

Post a Comment