Red Lobster Restaurants 2014: Darden Sells Seafood Chain for $2.1 Billion
Darden Restaurants is selling Red Lobster to Golden Gate Capital in a cash deal for $2.1 billion, the company said Friday.
Darden will keep its ownership in Olive Garden and, despite some shareholders' objections, it will part ways with the seafood chain Red Lobster. Darden first announced its plans to shed Red Lobster late last year.
Red Lobster and Olive Garden have been losing customers in recent years. The chain restaurants have tried to revamp their menus and have attempted to attract customers through new marketing campaigns, but they have still lost customers. Some of the loss of business can be blamed on casual quick service restaurants such as Panera and Chipotle, where consumers can receive quality food without paying as much as table service or having to wait for a waiter to bring their food out to them.
Darden CEO Clarence Otis thinks that Red Lobster has difficulties gaining higher-income customers. These customers do dine at other Darden restaurants such as Longhorn Steakhouse, The Capital Grille and Seasons 52.
Red Lobster first opened in 1968. Thanks to the restaurants, seafood's popularity rose over the years. There are now about 700 locations in the U.S. and Canada.
In recent years, prices have risen at Red Lobster. Executives blame these price hikes as a reason for the decline in sales. In 2012, Red Lobster raised its "Festival of Shrimp" special by $1 and Darden executives blamed that for the quarterly decline in sales.
Red Lobster has tried to increase its variety, adding non-seafood options to lure in new customers, a strategy that failed to catch on.
Darden would rather switch its focus to Olive Garden. Olive Garden has changed its logo and added some lighter items to the menu to reflect recent diet trends of consumers.
Another problem Darden has faced is prices. They've failed to make their items more affordable when competitors have been lowering prices. For example, during the economic downturn, Applebee's added a "2 for $20" deal. The deal was so popular it became a full-time menu offering.
Darden's sale of Red Lobster is not subject to shareholder approval, the company noted. The company expects proceeds of $1.6 billion after the deal is done, which is likely this summer.
The announcement of the sale sent Darden Restaurant Inc. shares down 4 percent.
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