Red Lobster Isn't Quite Dead Yet
PORTLAND, Ore. (TheStreet) -- When a rumor circulated last week that casual dining chain Red Lobster was going to close its more than 700 locations in North America, only its parent company's denials made such a thing seem implausible.
Even after Darden Restaurants
Same-store sales slipped 4.5% last quarter and Darden has been making noise about spinning off Red Lobster into its own entity. Even in a Darden portfolio that includes the Olive Garden, Longhorn Steakhouse and Yard House chains, Red Lobster falls somewhere beneath the Capital Grille in the pecking order. Darden issued warnings as early as 2012 that its 2 for $25 meal deals were falling short of the 2 for $20 deals offered by its competitors. It's been fairly disastrous since.
Red Lobster's pain has been spread around the casual-dining world like a shared appetizer. One of its adversaries, Chili's and Maggiano's Little Italy's parent company Brinker International, reported earlier this year that the end of those deals coupled with the end of a Social Security tax cut would force it to lower expectations for 2013. NPD Group wasn't surprised and noted that the number of restaurant visits driven by deals rose between 3% and 5% at the height of the recession in 2008 and 2009, but slumped 3% last year.
What casual dining establishments are quickly learning is that nobody's going to buy their reheated food or pre-fabricated atmosphere if they don't feel it's a value. The cost of dinners out rose nearly 3% over the last year, according to the Consumer Price Index. That's more than the 2.2% overall rate of inflation and isn't helped when a $10 promotional meal jumps to $12 or $14, jacking up the price 20% to 40%.
In Red Lobster's case, it's just not the only game in town anymore. It was always billed as a premium seafood spot, which made it a laughable afterthought in coastal areas where options were more plentiful. In landlocked places where such offerings were in short supply, it was destination dining.
At least until recently. As Outback Steakhouse and Carraba's Italian owner Bloomin' Brands
In casual dining, where even fast-casual establishments like Panera