May 17, 2014 in Business

Darden to sell Red Lobster, focus on Olive Garden

Candice Choi Associated Press
 
Associated Press photo

Darden Restaurants on Friday said it entered an agreement to sell its Red Lobster chain to Golden Gate Capital.
(Full-size photo)

NEW YORK – Darden is setting Red Lobster adrift, but betting that it can still turn around Olive Garden’s fortunes.

The company, which is based in Orlando, Florida, 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 like 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, Florida, boasted a menu including a half a 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.

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 like “crispy risotto bites.”

Still, affordability is an ongoing issue across the industry and Darden has been slow to address it.

After the transaction costs, Darden said it expects proceeds of $1.6 billion, of which $1 billion will be used to retire debt. The company said it expects the deal to close in its fiscal first quarter of 2015, which is this summer.

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