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2 Reasons Red Lobster Is In Big Trouble

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RED LOBSTER
Red Lobster signage is displayed outside of a restaurant location in New York, U.S., on Wednesday, Sept. 19, 2012. Darden Restaurants Inc., operators of casual dining restaurants in North America, is scheduled to release earnings data on Sept. 21. Photographer: Victor J. Blue/Bloomberg via Getty Images | Bloomberg via Getty Images

Red Lobster has two problems: One big, one small.

Red Lobster sales fell 8.8 percent from a year ago in its latest quarter, parent company Darden Restaurants said Friday. The restaurant chain is suffering from price swings in two of its signature offerings: Shrimp and, you guessed it, lobster.

Darden's profits tumbled 18 percent from a year earlier, to $109.7 million, thanks partly to Red Lobster’s performance, which has been so bad that Darden is considering spinning it off or selling it.

Terrible weather and a shorter holiday season were partly to blame, Darden executives said on a call with analysts and shareholders on Friday. Those factors hurt sales in December, typically a huge month for the chain.

But the shrimp and lobster are hurting the most.

The price of shrimp, arguably the most democratic of seafoods, has skyrocketed over the past several years, largely because of a bacterial disease ravaging shrimp in Vietnam, Thailand and China, according to Quartz. That’s a huge problem for Red Lobster, which offers shrimp at bargain prices ($15.99 Endless Shrimp special, anyone?).

The chart below from commodity research firm Urner Barry shows how shrimp prices have skyrocketed in recent years. The highlighted portion shows when the shrimp disease started to kick in.

chart

So-called shrimp inflation has cost Red Lobster an estimated $30 million over the past year, executives said on the call. And they don’t expect the price to drop significantly until next year.

On the other end of the spectrum is lobster, the most decadent of seafoods. Normals often head to Red Lobster for a little taste of the 1 percent lifestyle in the form of a $30 lobster dinner. “For a lot of guests (Red Lobster) is a special-occasion experience,” Eugene Lee, Darden’s chief operating officer, said on the call.

But lobster isn’t so special any more. Thanks to a glut in the North American lobster supply, prices have sunk to historic lows over the past few years. Now, diners looking for a cheap lobster meal can get their fix at places like Golden Corral, Whole Foods and even Quiznos, the Wall Street Journal reported earlier this week.

The chart below from Urner Barry shows how lobster prices have fluctuated recently. Though they've trended up a bit since the lowest of the lows last summer, prices will likely fall again because summer is typically when the lobster supply surges, Michael Ramsingh, a staff writer at Urner Barry, wrote in an email to The Huffington Post.

lobster

Still, don’t expect Red Lobster, or any other restaurant known for its lobster offerings, to cut prices any time soon. Red Lobster gave that a try last year, and it didn't work out so well. Now it's trying to reel back the discounts, to make sure it keeps its upscale feel.

“We’ve gotten out of balance by having too many discounts,” Lee said on the call.

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