The spinoff of Darden’s longtime flagship Red Lobster was officially completed this week, sending the beleaguered chain off into the hands of Golden Gate Capital. Shortly after, Darden announced a second shake-up: Clarence Otis, its chief executive of nearly 10 years, would step down from his post. Unfortunately for Darden, it might take a lot more than dropping Red Lobster and Otis to jump-start its lagging business, which has lost 12 percent of its value since January. That’s because Red Lobster’s decline isn’t so much about seafood as the dying casual-dining industry and still-struggling middle class.
Casual-dining chains like Red Lobster and another Darden property, Olive Garden, were all the rage in the 1990s but have faced decreasing traffic in nine out of the past 13 years. After the recession, consumers spent less money in general, so restaurants offered more promotions and value items. But this didn’t bring back the middle class. Instead, as Darden noted when it first announced the Red Lobster spinoff late last year, the chain's customers were increasingly from lower-income groups. Higher-end consumers, meanwhile, moved on to more upscale dining experiences. Places like Red Lobster and Olive Garden got lost somewhere in the middle.
To make matters worse for casual dining, so-called fast-casual dining is red-hot. Chipotle, Panera, and Five Guys offer cheaper and quicker, but still high-quality, dining experiences. Fast-casual is the fastest-growing segment in the restaurant industry, with an 11 percent increase in sales in 2013. Restaurants like Chipotle are great for the middle class, whether it's the office worker who needs a quick lunch or the college student picking up dinner. And strong customer loyalty has kept people going there even amid substantial price increases.
Red Lobster’s new CEO, Kim Lopdrup, told the Associated Press this week that he thinks the chain can win back customers. "At the end of the day, people are not going to go to a Chipotle for their anniversary or their birthday," he said. But seeing as the median household today is poorer than it was in 1984, Chipotle might be looking like a pretty sensible option.
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