How private equity rolled Red Lobster

[Yo_Mama_Been_Loggin]

Last edited Sun May 26, 2024, 01:43 AM - Edit history (1)

Angry that your favorite Red Lobster closed down? Wall Street wizardry had a lot to do with it.

Red Lobster was America’s largest casual dining operation, serving 64 million customers a year in almost 600 locations across 44 states and Canada. Its May 19 bankruptcy filing and closing of almost 100 locations across the country has devastated its legion of fans and 36,000 workers. The chain is iconic enough to be featured in a Beyoncé song.

Assigning blame for company failures is tricky. But some analysts say the root of Red Lobster’s woes was not the endless shrimp promotions that some have blamed. Yes, the company lost $11 million from the shrimp escapade, its bankruptcy filing shows, and suffered from inflation and higher labor costs. But a bigger culprit in the company’s problems is a financing technique favored by a powerful force in the financial industry known as private equity.

The technique, colloquially known as asset-stripping, has been a part of retail chain failures such as Sears, Mervyn’s and ShopKo as well as bankruptcies involving hospital and nursing home operations like Steward Healthcare and Manor Care. All had been owned by private equity.Asset-stripping occurs when an owner or investor in a company sells off some of its assets, taking the benefits for itself and hobbling the company. This practice is favored among some private-equity firms that buy companies, load them with debt to finance the purchases and hope to sell them at a profit in a few years to someone else. A common form of asset-stripping is known as a sale/leaseback and involves selling a company’s real estate; this type of transaction hobbled Red Lobster.

https://finance.yahoo.com/news/private-equity-rolled-red-lobster-180041614.html

Or as I and many others like to call it, vulture capitalism.

[FakeNoose]

1. Mitt Romney has made billions from this private equity-vulture capitalism operation

[Haggard Celine]

22. He was the first person I thought of when I read this.

"Corporations are people." He's better than Trump, but that's about the only good thing I can say about him.

[Timeflyer]

2. When private equity groups take over hospitals and nursing homes patient care goes down the toilet.

Profit becomes the main mission. Patient's pay with their health and sometimes their lives.

[ArkansasDemocrat1]

10. I worked at an assisted living facility for a few months

Perpetual undertaffing while charging the residents $5,000 a month back in 2017 plus whatever they got from Medicare.

Minimum wage was $9 when I worked there. They paid us $9.50. To bathe, help with dressing and clean soiled linen and wipe butts. We had about 25% turnover a month, which was just about right since I lasted 4 months.

65 residents paid about 3 million a year combined to live there.

[Permanut]

3. With lots of bonuses for the psychopaths at the top.

[DENVERPOPS]

16. Now they have realized

that Hospice care is the next newest/biggest profit center and are pursuing buying every hospice care facility and hospice care givers corporation they can.........

[Silent Type]

4. Companies usually don't go to PE unless they have no other funding source. ToyzRUs could

not get funding once their debt was downgraded to “junk” status. Red Lobster was similarly in trouble.

PE in these cases is kind of like going to a loanshark, or even hospice if ill. PE delays the ultimate demise, but that’s it.

[dickthegrouch]

5. And lawmakers do nothing to stop it

Is it any wonder that we’re all disgusted by the results of any election?

[Baitball Blogger]

6. Asset stripping sounds like an idea that came out of the mind of a gambler on meth.

It also sounds like the way Republicans operate when they're in power. Strip the country of its assets, and make sure the country is so lean that it can't operate quickly in times of crisis.

[Celerity]

9. And then outrageously and falsely blame us Democrats when their shit machine blows up.

It also sounds like the way Republicans operate when they're in power. Strip the country of its assets, and make sure the country is so lean that it can't operate quickly in times of crisis.

[multigraincracker]

30. According to Mitt, corporations

are people too. They just wear funny underwear.

[PufPuf23]

7. Private equity and similar is not new. Think junk bonds and hostile takeovers.

Rules have changed but not the general business model and impacts on consumers and jobs. Private equity ripples through industries.

[GiqueCee]

21. And they all took a page...

... from the fucking Mafia's business model. Private equity deserves taste of its own medicine. The world would be better off without them.

[ArkansasDemocrat1]

8. I stopped eating there. The quality that kept me coming back is gone

It's barely better than Captain D's or Long John Silver's now. And I can make the cheddar biscuits at home.

I call BS on the endless shrimp losing money. 11 million sounds like they lost maybe $2 a meal...and made it back on sides, dessert and drinks.

[multigraincracker]

31. We are eating out less.

Bought a pound of large cooked shrimp at the store for $13. The two of us got two meals each out of it. Yum.

[JoseBalow]

11. Fuck Red Lobster. I've been boycotting them for decades

because of their greedy exploitation of the Miskito Indians.

Since fishing for spiny lobster off the Caribbean coasts of Honduras and Nicaragua became industrialized in the 1980s to meet demand from the United States, the Miskito Indian divers who are the first link in the supply chain have moved farther and farther out to sea as stocks vanish in shallow waters.

They descend to depths of 100 to 120 feet, repeatedly diving and resurfacing, pushed by poverty to ignore all the safety rules. A few die every season; many more are paralyzed by decompression sickness, commonly known as the bends.

During a two-week fishing trip, they make as many as 12 to 16 dives a day — no more than two are recommended at that depth — to scrabble for a catch that earns them about $3 a pound. (On a productive trip, they may catch as much as 100 pounds of lobster, but they must pay expenses that total about 40 percent.)

Aside from the drug trade, most Honduran Miskito Indians have no other way of making a living. They live in a region so remote that it is reached only by sea or air, and they are among the most neglected inhabitants of an already poor country.

Devoted to Keeping Lobster Divers of Honduras Alive

[ShazzieB]

15. I didn't know that Red Lobster served spiny lobster..

I haven't been there in ages. We only went when the endless shrimp promotion was on, because my husband was a big fan of that (I'm not into shellfish myself). I'll admit I didn't pay close attention to the shellfish offerings on the menu (since I'm not interested in eating it), but I remember there were always tanks full of lobsters with great big claws (Maine lobsters, I think they're called?) every time. Spiny lobsters don't have those.

[comics_arteest]

12. It's all a Soprano's style "Bust Out"...

Which was also the title of the episode where Tony and Richie subject Davey Scatino's sporting goods store to a "bust out", using the store's line of credit to buy expensive merchandise with which to pay off his gambling debt, and doing so until the store goes bankrupt.

Truth, meet fiction based on truth.

[marble falls]

27. Same thing happened on Good Fellas to the restauranters. Then they burn the joint for the insurance.

[Warpy]

13. Well, that figures

Red Lobster had somehow gotten through Covic, so I wondered what finally killed them off.

Figures it's an asset stripping vulture capitalist looking for someplace to park bad debt.

This isn't Wall Street wizardry. It's theft.

[aggiesal]

14. Hope you can view this ...

Link to tweet

[Moosepoop]

24. For those that can't view the Twitter(X) post...

Here's the text:

Wall Street Apes
@WallStreetApes

People Are Learning Red Lobster Didn’t Go Bankrupt Because Of Endless Shrimp, They Were Attacked By Wall Street For Their Land

Here’s the full story

“The only reason Red Lobster's going into bankruptcy is because a hedge fund wanted them to go into bankruptcy.”

“The media will never stop covering for hedge funds while making it seem like every problem is the fault of the American people.

Like, I'd be willing to bet you think Red Lobster went into bankruptcy because of endless shrimp. You know, the endless shrimp promotion they had. Because that's what the media's told you. They've been telling you repeatedly that the reason Red Lobster went into bankruptcy was that they had the endless shrimp combo and the greedy American people just took advantage of it.

That's not what happened.

No, what happened was a hedge fund bought Red Lobster and as a condition of the sale, they made therm split up their land and their restaurants.

Because up until that point, Red Lobster actually owned all of the land that their restaurants were located on.

And then once they made them split that up, the hedge funds made the leases on that land so expensive that the Red Lobsters couldn't possibly continue to operate.

Thanks, aggiesal! This really helps to explain what was done.

[aggiesal]

28. You're Welcome & Thank You for adding the text. n/t

[dembotoz]

17. sucks for the folks who worked there

red lobster was supposed to be an ok place the work
generally busy with a slight upscale feel for somewhat decent tips.
Know some folks where that was the go to spot for a bit fancy dinner.

I do not do well eating seafood so i would generally eat whatever chicken thing they had

i hope those employees find something soon.
The are not the ones who screwed up the company

[msongs]

18. one suspects lobsters are ok with the place going belly up nt

[et tu]

19. sadly seafood is off

any of my menus- i watched the sea shepherd doc
and just couldn't

[Takket]

20. hot take: it should be illegal to intentionally destroy a company to try and make money

[oasis]

23. Guided by extreme greed. Free

enterprise y'all. We don't need no stinkin' restrictions.

[LostOne4Ever]

25. I just saw this meme about it

[IronLionZion]

26. So it wasn't Biden punishing the job creators with taxes and regulations?

Yep, the private equity firms get wealthy while adding no value. Others pay the price, like workers and customers. The PE firms might promise all sorts of assistance to help a troubled company get back on it's feet. But it's often lies. You don't get Romney-style rich by being benevolent.

[keithbvadu2]

29. Sold their land to thier own subsidiary, probably at a deep discount.

Last edited Sun May 26, 2024, 01:53 AM - Edit history (1)

[onethatcares]

32. Think "Organized Crime" under the guise of capitalism

and watch the movie "Goodfellas".

[The Bopper]

33. Unfortunately

This has rolled into home buying and leasing. The “We buy any home” types out there are doing the same thing with private residences. When profits are your ONLY goal, everything else is 3rd with no seconds.