Today, Americans pay more for worse healthcare, which is delivered by health workers who get paid less and work under worse conditions. That's because, lacking a regulator to consolidate patients' interests, and strong unions to consolidate workers' interests, patients and workers are easy pickings for those consolidated links in the health supply-chain. That's a pretty good model for understanding what's happened to Red Lobster: monopoly power and monopsony power begat more monopolies and monoposonies in the supply chain. Everything that hasn't consolidated is defenseless: diners, restaurant workers, fishermen, and the environment. We're all fucked.
Red Lobster was killed by private equity, not Endless Shrimp
The bankrupt casual restaurant chain didn’t fail because of Endless Shrimp. Its problems date back to monopolist seafood conglomerates and a private equity play.
The Endless Shrimp fiasco was a minor speed bump amid a series of poor business decisions by the company’s numerous owners. Many of those mishaps look less like miscalculations and more like self-sabotage, intended to hollow out the restaurant chain to enrich the chain’s previous private equity owners, Golden Gate Capital.
Golden Gate crippled Red Lobster by selling off one of its most valuable assets, the real estate it owned, in what’s known as a sale-leaseback, for $1.5 billion. With that sale, Golden Gate nearly made back its $2.1 billion purchase of Red Lobster, while turning the chain into a permanent leaser, adding a massive additional cost in the form of rent that was orders of magnitude bigger than the cost of Endless Shrimp. When commercial leases started going up, Red Lobster was highly exposed, but by then Golden Gate had already sold off its shares to Thai Union, which inherited all the debts Golden Gate stacked on the company.
Even today, the financial extraction continues. The law firms conducting the bankruptcy on Red Lobster’s behalf have already billed the company $10.5 million, nearly equivalent to the entire loss on the shrimp promotion.
How Red Lobster originally fell under control of private equity foreshadowed the problems that would later follow under Thai Union Group. The downfall is an emblem of how the long-term effects of consolidation in seafood and restaurant retail laid the groundwork for corporate raiders to pillage the once-iconic American brand.
Preparing for an interview for a private equity job? Learn the ins & outs of the interview process, types of questions, and recruitment cycles in private equity.
Preparing for an interview for a private equity job? Learn the ins outs of the interview process, types of questions, and recruitment cycles in private equity
This week some updates to work for private equity firm in Ghana and Nigeria, looking to shape the ESG into all 4 stages of the investment lifecycle - asset gathering, due diligence, portfolio management and exit.
