Red Lobster slated for sale - WALB.com, South Georgia News, Weather, Sports

Red Lobster slated for sale

By CANDICE CHOI
AP Food Industry Writer

NEW YORK (AP) - Darden Restaurants says it will sell its Red Lobster chain to investment firm Golden Gate Capital in a $2.1 billion cash deal.

The company, which also owns Olive Garden, had announced late last year that it planned to either spin off or sell Red Lobster to improve its financial performance.

Both Olive Garden and Red Lobster have been losing customers in recent years, even as the company changed the menus and marketing campaigns to win back business. Part of the problem is the growing popularity of chains like Chipotle and Panera, where customers feel they can get the same quality of food without having to pay as much or wait for table service.

Red Lobster, which opened in 1968, helped popularize seafood among Americans and today has about 700 locations in the U.S. and Canada. The first restaurant in Lakeland, Florida, boasted a menu including a half a dozen oysters for 65 cents and platters with frog legs and hush puppies for $2.50.

As the chain suffered sales declines more recently, Darden executives blamed a variety of factors, including a refusal among customers to swallow price hikes. In 2012, for instance, executives cited a $1 price hike for its "Festival of Shrimp" special in explaining a quarterly decline in sales.

More recently, the company tried expanding Red Lobster's menu to include more non-seafood dishes in a bid to attract a wider array of customers. The efforts didn't take hold.

Darden CEO Clarence Otis noted that Red Lobster has been unable to capture higher-income customers.

The company sees more potential in fixing Olive Garden, which has about 830 locations. Executives say it's a better fit with Darden's other chains that cater to diners willing to spend more, such as Longhorn Steakhouse and Capital Grille.

Darden recently reworked the logo for Olive Garden and has been adding lighter menu items, as well as smaller dishes that it says reflect eating trends.

Still, affordability is an ongoing issue across the industry and Darden has been slow to address the issue. At the height of the downturn, for instance, Applebee's introduced a "2 for $20" deal that proved so popular it ended up becoming a menu fixture.

Investors have challenged Darden's plans to sell only Red Lobster, saying that the company should separate Olive Garden and Red Lobster as a pair from its more successful chains.

After the transaction costs, Darden said it expects proceeds of $1.6 billion, of which $1 billion will be used to retire outstanding debt. The company said it expects the deal to close in its first fiscal quarter of 2015.

Golden Gate Capital made a $1.5 billion deal to sell the Red Lobster real estate to American Realty Capital Properties, then lease it back. Its other investments include California Pizza Kitchen, Payless ShoeSource and Eddie Bauer.

Shares of Darden, based in Orlando, Florida, fell nearly 4 percent to $48.70 in premarket trading.

 

Follow Candice Choi at www.twitter.com/candicechoi

 

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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