Darden Restaurants Drops Red Lobster

Darden Restaurants Drops Red Lobster

Darden Restaurants will be reformatting its business portfolio after announcing Dec. 19 its plans to release its Red Lobster brand. The restaurant operator is seeking to hold a tax-free spinoff -  thus creating a separate company - for shareholders. But Darden is also considering selling the business outright.

Darden's decision might interest people who are pursuing a career in business because growth in Darden's other, high-end specialty restaurant brands like the Capital Grille and Seasons 52 is likely.

Pressure from shareholders
Darden's announcement came after the activist hedge fund group Barington Capital told the company it needed to boost its revenue. Barington Capital believed that Red Lobster's lackluster sales and very low patron attendance made it a prime candidate for removal from Darden's restaurant portfolio. According to Darden representatives, the seafood chain would be better off separate from its parent company.

"As consumer demand dynamics have changed, Red Lobster's priorities and operating support requirements have come to differ meaningfully from those of Darden's other brands," Darden reps said at a press conference. "As a separate company, Red Lobster will have greater freedom to pursue marketing and operating strategies that are more tailored to the needs of those consumers who fit its core guest profile."

By separating from Red Lobster, Darden believes that it will realize higher sales numbers and more consistent growth beginning by 2015. The company projects that the move will save nearly $60 million a year, which is even higher than its $50 million projection from this past September. Darden also announced that its separation from Red Lobster is just a part of a company-wide overhaul. In order to boost revenue, the company plans to pause the expansion of its Olive Garden brand and reduce the number of new LongHorn Steakhouse locations. 

Abysmal record for Red Lobster
Barington Capital provided shareholders with a report outlining the sagging financials of the seafood restaurant, and detailing how eliminating the restaurant chain could potentially save the company millions. According to financial reports, there are 704 Red Lobster locations operating in the U.S. The seafood chain recorded $2.7 billion in sales in 2012, but in a three-year review, Red Lobster lagged far behind its sister-brands like Texas Roadhouse, Longhorn Steakhouse and Del Frisco's.

People working toward a degree in business administration might find opportunities at one of Darden's high-end restaurants like the Capital Grille and Seasons 52. As the company reworks its budget to focus on these specialty chains, it's likely that it will hire business specialists to implement their new managerial policies. 

This article is sponsored by Western Governors University, a nonprofit, accredited, online university. WGU offers online bachelor degree programs in business and online MBA programs. To find out more, please visit www.wgu.edu/wisecareers_business.

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