Darden is setting Red Lobster adrift but betting that it still can turn around Olive Garden’s fortunes.
The company, which is based in Orlando, Fla., said Friday that it would sell its seafood chain and the accompanying real estate to investment firm Golden Gate Capital in a $2.1 billion cash deal. The announcement came despite objections from some shareholders to the plan to separate Red Lobster, which was announced late last year.
Both Olive Garden and Red Lobster have been losing customers in recent years, even as they changed their menus and marketing campaigns to win back business. Part of the problem is the growing popularity of places such as Chipotle and Panera, where customers feel they can get the same quality of food without paying as much or waiting for table service.
But Darden CEO Clarence Otis has drawn a distinction between Red Lobster and Olive Garden.
Otis says Red Lobster in particular is increasingly unable to attract the higher-income customers Darden caters to with its more-successful chains, which include Longhorn Steakhouse, The Capital Grille and Seasons 52.
Red Lobster, which opened in 1968, helped popularize seafood among Americans and today has about 700 locations in the U.S. and Canada. The first restaurant in Lakeland, Fla., boasted a menu including a half-dozen oysters for 65 cents and platters with frog legs and hush puppies for $2.50.
As it suffered sales declines more recently, executives blamed a variety of factors, including a refusal among customers to swallow price increases. In 2012, for instance, executives cited a $1 price hike for its “Festival of Shrimp” special in explaining a quarterly decline in sales.
More recently, the company tried to attract a wider array of customers by adding more nonseafood dishes to Red Lobster’s menu. The efforts didn’t take hold.
Darden sees more potential in fixing Olive Garden, which has about 830 locations. The company recently reworked the logo for the Italian chain and has been adding lighter menu items, as well as smaller dishes such as “crispy risotto bites” that it says reflect eating trends.
Still, affordability is an ongoing issue across the industry, and Darden has been slow to address it. At the height of the downturn, for instance, Applebee’s introduced a “2 for $20” deal that proved so popular it ended up becoming a menu fixture.
Activist investor Barington Capital had challenged Darden’s plans to sell Red Lobster, saying the company should separate Olive Garden and Red Lobster as a pair from its other chains, which also include Bahama Breeze, Eddie V’s and Yard House.