Red Lobster is in trouble - again. This time, by design.
I wrote about Red Lobster a decade ago, shortly before Darden group spun it off to private investors. If you read (or watch) the history of many of these restaurant chains, you realize they are bought, sold, and spun-off many times in their history, before sputtering out over time - which they all seem to do.
Joe Chef comes up with a restaurant idea, "Joe's Burger Shack" and pours his life's blood into it. It makes a little money and he expands it into a three-restaurant chain. He is doing OK and a large corporate owner of several chains, "GoodFoodCo," buys him out for a few million dollars, which is good for him, as he had no capital to expand further, and he was running out of energy and would have gone bankrupt eventually if he kept trying to "go it alone."
GoodFoodCo quickly expands the chain to 25 States and three overseas locations, both by franchising and through company-owned "stores". Before long, it has restaurants in every state - hundreds nationwide - and has expanded into 25 foreign countrues. You can go to a Joe's Burger Shack in Beijing or Tel Aviv. They are everywhere. They even selll Joe's signature burger sauce at Walmart!
Over time, the novelty of smashed burgers dies off and the franchisees get antsy. GoodFoodCo cuts back on advertising and raises the prices of supplies - which captive franchisees must buy from GoodFoodCo. As franchisees go bust (including some that are chains themselves!) GoodFoodCo buys them back - for cheap. Once they own a majority of the "stores" the advertising budget suddenly increases (magically!) and GoodFoodCo shows a healthy profit.
Then, for whatever reason, GoodFoodCo spins off Joe's Burger Shack to Rayleon, Inc., a manufacturer of nuclear missiles or whatever, who wants to "diversify" their portfolio away from the defense industry. I guess they think they can apply their business practices to the restaurant world. The results are predictable, and the new menu items ("Joe's Atomic Burger!") flop. More franchisees go bust and company-owned stores close, one after another. The abandoned hulks of Joe's Burger Shacks dot the landscape. Even the original location has closed!
Rayleon then spins-off the remains of Joe's Burger Shack to Kraven, Krakhed & Klegal ("KKK"), a group of "private equity" investors, who load up the chain with massive amounts of debt and come up with a "turnaround" plan for the chain. KKK then sells off the land that the Burger Shacks are located on, to another company, LandCo, that the principals of KKK own a large part of. The Burger Shack chain then pays an exorbitant rent to LandCo. They do the same with the "intellectual property" of Joe's Burger Shack. Joe, now retired in Florida, is chagrined to discover his likeness has been sold off - he gets a cease-and-desist letter from the law firm of Dewey, Screwem, & Howe, after he tries to open a restaurant in Ft. Lauderdale, using his smiling face as a logo.
Of course, none of this is sustainable. The principals of KKK are making money through their land leases and intellectual property royalties. They are also raking in huge salaries they get for "managing" this demolition-derby.
Where they go from there depends on the market and timing. Generally, it is a good idea to pump up the numbers (and hype them with a "roadshow" as well as online) and then do an IPO. This allows the principals of KKK to sell their interest in Burger Shack (or "BS" as the kids call it) to "retail investors" on Reddit, who believe, beyond all logical reasoning, that this "meme stonk" is going places.
The dumpster is indeed a place. But thanks to the Internet, you can keep these geeky incels buying the junk stock forever - convincing them that a dying restaurant chain will suddenly turn around and make billions overnight. Float rumors of a Burger Shack Meme Coin and watch them wet themselves with excitement. When it all goes horribly wrong, simply blame Joe Biden and the Democrats for their pesky SEC regulations - that's what ended the party - right?
Now, I am not saying this is what happened to Redneck Lobster, but the word on the street is that what is driving the chain towards bankruptcy isn't "endless shrimp" or anything like that, but the fact they cannot service their debts. It is Sears all over again, with the death spiral of lack of foot traffic compounded by cost-cutting to try to break even - which leads to a loss of foot traffic.
I remember visiting a Sears in Ithaca, New York and feeling like I was in an abandoned bus station. Stained ceiling tiles were falling to the floor and whole empty sections of the store were cordoned-off with Police tape (crime scene?). I did buy a weed-wacker, one of five available (open box) for what I presume was below cost. It was a sad sight.
But you can make money this way - in a "bust out." Like the movie The Producers (and Broadway musical, which then became a movie again), you can make more money from a flop than from a hit. When the musical fails, no one demands forensic accounting as to where the money all went (and thus discover that the musical was "oversold" by 1000%). It is only when you make a profit that people demand an accounting! Mel Brooks is to blame for modern Corporate practices, it seems.
So we are seeing the final death throes of Red Lobster. Or not. They may sell the tattered remains to some other operator, or the remnants will emerge from bankruptcy court, only to be bought out by another "private equity" firm, who will close stores, revamp the menu, show three quarters of increasing profits, and then do an IPO.
Wash, rinse, repeat.
