Red Lobster Goes Overseas in Search of Comeback Under New Owner

(Bloomberg) -- When Golden Gate Capital acquired Red Lobster in 2014, the restaurant chain was saddled with an aging customer and a concept that had lost allure for many Americans. The solution: go big overseas.

The chain has opened 21 offshore locations since it was acquired from Darden Restaurants Inc. in 2014, with Golden Gate wagering that customers in places like China have an appetite for seafood and cheddar bay biscuits. The expansion has brought the total number of Red Lobster’s overseas restaurants to 51, not including Canada, helping give the distinctly American chain more of an international profile.

Breaking away from Darden, where Red Lobster was overshadowed by Olive Garden, has given the company more flexibility. Olive Garden, which is still part of the publicly held Darden empire, has more of a U.S. focus: It has just 29 non-North American locations, out of a total of 872.

“We think the biggest opportunity is Asia,” Red Lobster Chief Executive Officer Kim Lopdrup said in an interview. “And China is a particular interest to us.”

Domestic Slump

The stakes are high for Red Lobster. Sales are shrinking in the U.S., where the market is saturated and there’s not much room to open new restaurants. In 2015, Red Lobster’s domestic sales fell 0.6 percent to roughly $2.41 billion, according to research firm Technomic. Last year marked the fourth straight annual sales drop. The chain hasn’t opened a domestic location since November 2013.

“The consumer is pulling back from casual dining at a pretty high rate,” said Bloomberg Intelligence analyst Jennifer Bartashus. And the U.S. is inundated with sit-down restaurants, so “it’s hard to be distinctive and draw customers.”

The company declined to give sales figures for its international locations, saying just that it was seeing “strong momentum” across the overseas business. Red Lobster says same-store sales have been positive since it became a private company. But it’s clearly facing more pressure in its home market.

Against that backdrop, Red Lobster is planning more locations in Asia -- with a particular focus on China. The chain already has 24 locations in Japan and seven in Malaysia. Its Japanese restaurants sell dishes such as seafood curry, paella and fried soft-shell crab. Some even have a halal menu.

American Cachet

“China is a huge market,” Lopdrup said. “They love American brands. They love seafood.”

But while the Chinese may love deals like all-you-can-eat shrimp, the economy is volatile now and other American dining names, such as Pizza Hut, have lost ground to local eateries.

“Full-service concepts are really tough to run overseas -- sourcing and managing them,” said Bob Goldin, vice chairman at Technomic. “It’s not like putting up a Starbucks or a Dunkin’ Donuts. These are much more complicated.”

Pizza Hut has recently struggled in China after broadening its menu too much. Same-store sales at the Yum! Brands Inc.-owned chain fell 11 percent in China in the most recent quarter. The company also has faced backlash in the country after a former supplier was accused of selling expired meat.

Bill Darden opened the first Red Lobster in 1968 in Lakeland, Florida. General Mills Inc. bought the business in 1970 and expanded it across the U.S. The company in 1982 partnered with retailer Jusco to open stores in Japan, but struggled to gain traction with local diners. The chain ended up closing roughly half of its locations there. Now, the seafood eatery says it’s seeing momentum and growth again in the country.

Golden Gate

In 1995, General Mills spun off its dining unit as Darden Restaurants, which about two years ago sold Red Lobster to Golden Gate after facing pressure from activist investor Starboard Value. Golden Gate paid about $2.1 billion for the struggling chain, calling the brand “iconic.” The investment firm owns other retail and restaurant brands, including California Pizza Kitchen.

A year ago, the company brought on Jarrett Whitlow to lead international franchising and also recently began working with Chef Jennifer Treptow in Lima, Peru, to guide overseas Red Lobster operators in creating dishes to suit local tastes. Some of those items include wood-grilled hammour fish in the Middle East and sautéed-octopus tacos in Mexico.

Casual Clothes

It’s not just the menus that are different abroad. In Mexico, restaurant managers have ditched their ties, taking on a more casual look that features light-blue clothing instead of black attire. And in the Middle East, walls in Red Lobster have been lowered to allow patrons to better view fellow diners and workers in the open-style kitchens.

Still, it may not be easy to make Red Lobster a success in China, the world’s second-largest economy.

“It’s hard for pure-American-based concepts to translate in some countries,” said Ivan Feinseth, an analyst at Tigress Financial Partners. “Some things translate well; some things don’t.”

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Kevin Orland