It has been well-reported by now that the famous seafood restaurant chain Red Lobster has filed for bankruptcy and will be shuttering a number of locations as a result. Red Lobster is the latest among a growing number of business and chain closures and mass layoffs being felt across the United States.
It was initially reported by a number of outlets that things such as their all-you-can-eat shrimp buffet dinners helped to bury the already struggling chain.
But this was just auxiliary to the root of the problem: private equity firms.
The Trends Journal provides more insight into this and how private equity groups killed Red Lobster and so many other businesses:
Red Lobster was the largest casual dining chain in the U.S., with more than 600 locations in 44 states. Its 36,000 employees served 64 million diners a year.
What happened? First, it was the company’s endless shrimp debacle.
In 2020, Bangkok seafood company Thai Union became Red Lobster’s majority owner. It brought in Paul Kenny as the new CEO, who ended relationships with two other suppliers and made Thai Union the chain’s exclusive source for shrimp.
As an exclusive supplier, Thai Union was able to charge the chain a higher price for shrimp. The Thai firm also forced the $20 shrimp promotion onto the menu as a regular item, guaranteeing it a steady, booming market for its shrimp.
As labor and supply costs rose, the promotion became a money hole, losing $11 million. That contributed to a net loss of $76 million in the company’s fiscal year 2023.
However, the Endless Shrimp Summer promotion, as it was called, was only a last straw, not a root cause, NBC said.
The company’s problems began before Thai Union became involved and dated back to 2014 when private equity firm Golden Gate Capital bought the seafood chain for $2.1 billion.
Private equity firms are known for a practice called “asset stripping,” in which a private equity firm buys a company, sells some of its assets, and keeps the proceeds for itself instead of feeding the money back into the company it bought. That leaves the company poorer.
Asset stripping has been linked to bankruptcies of retail chains Mervyn’s, Sears, and Shopko and of hospitals and nursing homes such as Manor Care and Steward Health. All were owned by private equity companies, NBC noted.
The form of asset stripping that Golden Gate brought to Red Lobster is called a sale-leaseback arrangement. With Red Lobster, it worked like this.
As Red Lobster’s new owner, Golden Gate sold the land under 500 Red Lobster restaurants to a real estate investment firm called American Realty Capital Properties (ARCP), another private equity firm. The sale generated $1.5 billion.
However, that money did not flow back to Red Lobster. Instead, Golden Gate took the $1.5 billion to pay for its purchase of the restaurant chain. Then ARCP began charging those 500 restaurants rent for the land they sat on. Under the terms of the sale, ARCP jacked the restaurants’ rent by 2 percent every year.
The sudden rent charges robbed the company of working capital. The company took on debt, incurring interest costs and driving its Moody’s rating from stable to negative in 2017.
Red Lobster was in bad shape by the time the COVID lockdown closed its stores and post-COVID inflation sent its costs soaring.
By the end of 2023, rent was eating 10 percent of the chain’s gross revenues, according to its bankruptcy filing.
Carrying a lot of debt and not owning your real estate puts companies at a disadvantage.
Red Lobster is yet another example of the private equity playbook of harming restaurants and retailers in the long run.
Analyst Andrew Park at Americans for Financial Reform, said to NBC. The group advocates for a fair and ethical financial system.
Steward Healthcare and its eight bankrupt Massachusetts hospitals is yet another instance.
Senator Ed Markey from that state has now proposed a law that would require private equity companies to publicly report sale-leaseback arrangements, fees private equity firms collect from healthcare businesses they own, and the dividends those businesses pay to their private equity owners.
“My legislation is quite simple,” Markey told NBC.
“To make sure these financial shenanigans don’t have a profound impact on communities across our country, the Department of Health and Human Services has to determine whether the sale of the land underneath hospitals and then having that land rented back to the hospitals isn’t having a negative impact on the provision of healthcare in that community,” he explained.
“The more private equity gets into the hospital business, the more this is just a preview of coming atrocities affecting our healthcare system,” he added.
TRENDPOST: Private equity firms have stretched their tentacles throughout the global economy, owning major pharmaceutical companies, cutting-edge tech businesses, rental housing, and enterprises in everything from hydraulic hose manufacturing to bridge construction.
We document this ongoing takeover of the American economy in our regular section, “Bigs Getting Bigger.”
Private equity employs about 12 million people, around 7 percent of the U.S. workforce, according to NBC.
Companies bought and thrown into debt by private equity firms go bust at 10 times the rate of other businesses, various studies have shown.
Leveraged buyouts—deals that pile debt onto acquired companies—increase the number of companies that default on their debts and cut the money available to investors when a company goes bust and restructures, NBC noted.
TRENDPOST: Each bankruptcy created when a private equity strips a business ripples across the economy, costing jobs at suppliers’ firms and sales at stores where suddenly unemployed people used to shop.
Repeating what we have long been reporting, Robert Reich, professor of public policy at the University of California and labor secretary under President Bill Clinton said that private equity’s dealings is one reason people have less faith in the economy now than in the past.
“One of the reasons people feel so insecure is that you’ve got in the background, behind the curtain, a lot of these financial games that ultimately are making the very rich richer and hurting America’s working and middle classes,” Reich said in an NBC interview.
“All of the people who were supplying Red Lobster, providing services to Red Lobster, the small businesses in the communities affected by mass layoffs, they’re next in line,” he said.
AUTHOR COMMENTARY
Ecclesiastes 5:13 There is a sore evil which I have seen under the sun, namely, riches kept for the owners thereof to their hurt.
Red Lobster is but one of many chains that are being forced to close their doors and shutter their operations; all of which will add further pressure on the commercial real estate problems, thus leading to an inevitable and unavoidable banking bust this year and in 2025, something I have been warning about for years now.
I have not eaten at a Red Lobster in years, and I abstain from fast food and these types of restaurants that provide terrible quality food for your body. However, I remember as a child what Red Lobster used to be like. Here in northern Indiana my family would go to the one closest to us, and it used to be a big deal. We had to dress up nicely and use proper etiquette, make reservations, there was valet parking, the napkins were small blankets, a tower of fresh bottomless biscuits, vivid and exotic fishtanks everywhere, the service was awesome, the food was good and everyone was happy.
Fast forward to now and the service and quality is just pathetic and lifeless. The last time I ate at one was several years ago, if memory serves (and by this time I never ate out at restaurants because I abstain from these toxic food joints), and I was just repulsed and saddened by how far it had fallen.
From the fond memories as a child to where it’s all headed now is just saddening.
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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26) And when I have broken the staff of your bread, ten women shall bake your bread in one oven, and they shall deliver you your bread again by weight: and ye shall eat, and not be satisfied.
Leviticus 26:26
This is a perfect verse to describe How God destroys the economy of a nation that rejects Him and especially rejects and despises the King James Bible and become so evil and Godless.
Red Lobster is or was (I don’t remember) owned by a restaurant company called Darden who also own Olive Garden, Bahama Breeze, Longhorn Steakhouse, and Cheddar’s Scratch Kitchen among others, so for sure they’ll go down as well even!
It’s like businesses and industries are standing on a sinkhole, and it’s only a matter of time before it opens up and swallows them like Tic Tacs.
For sure, Wendy’s will also go out of business and that’s good because I worked at a Wendy’s and it was ATROCIOUS!
Also: Dave Thomas was a 33rd Degree Freemason and so was Colonel Sanders, that means they were practicing witchcraft and serving Satan.
“Also: Dave Thomas was a 33rd Degree Freemason and so was Colonel Sanders, that means they were practicing witchcraft and serving Satan.”
I did not know that. Thank you, Andrew.
“From the fond memories as a child to where it’s all headed now is just saddening.” Truth. It’s always darkest before the dawn. We’re almost ‘home’ Brother.
“It’s always darkest before the dawn. We’re almost ‘home’ Brother.“
That’s a beautiful way to put it, Born Again. I couldn’t have thought of it that way if I tried.
It gets dark and darker, even with the Lord’s protection and blessing upon us in the midst of warfare, our sanctification getting better and better, we see the death, the carnage, the war with economic collapse combined, people crying, screaming, attacking others provoked or unprovoked, bodies being transported in dump trucks like piles of lumber to be either buried in mass graves or burned. China and Russia – in fact, all the BRICS nations getting stronger, we lose out jobs because of the economy being in shambles as well as war, blood and dung in the streets along with vomit…and then…just when we think it can’t get any worse…
COME UP HITHER!
Hi Jacob! Thanks for the article, it was very informative! It is very sad to see these places that were once vibrant become lifeless, but I am glad you had such a nice memory about going out with your family at a time when things were decent and respectable.
You should read a little bit more on private equity before you trust everything you read. How many people want to take their cash and loose it investing? “According to Cambridge Associates’ U.S. Private Equity Index, PE had an average annual return of 14.65% in the 20 years ended December 31,2021. In comparison, theCambridge Associates U.S. Venture Capital Index found that VC returns averaged 11.53% in the same 20-year period.”