Red Lobster Tries To Claw Back By Dropping Prices
The nation’s largest seafood chain is biting back.
Red Lobster, faced with wobbly demand and a boatload of new competitors, is lowering prices, offering spicy new entrees and putting greater emphasis on alcohol sales.
Widely anticipated by Wall Street analysts, the overhaul was confirmed earlier this month by the company. There had been hints for some time that changes were afoot. Two weeks ago, Red Lobster’s president, Kirk Spresser, resigned and the new menu was instituted.
The company also is planning a $150 million remodeling of the seafood chain’s 728 outlets to reflect the “wharfside” look already in Orlando.
“The goal of the changes is to restore Red Lobster to fiscal health,” said Jeff O’Hara, president of Darden Restaurants Inc., the chain’s parent company, and interim president of Red Lobster. “… We needed to get our prices back in line where Red Lobster would be a choice for everyday dining, not just special occasions.”
Chief among the problems at the 28-year-old seafood chain has been its pricing, industry analysts said. The company, one of the largest seafood buyers in the world, enjoys enormous economies of scale in its purchases. Still, it experienced cost increases in recent months and passed those on to customers.
With more competition among middle-market restaurants - a segment that includes anything from T.G.I. Friday’s to Houston’s steakhouse - demand has not held up. Other chains, such as Outback Steakhouse, also have seen a softening in demand.
Red Lobster’s customers are not typically at the upper end of the income range, though check prices have edged close to $20 a head. The new menu will cut prices on popular entrees and offer 15 meals for less than $10.
“The customer perception is that they had become too expensive,” said Stacy Jamar, an industry analyst at Oppenheimer & Co. in New York. “I definitely think providing a better price-value relationship is more in line with people’s perception of the restaurant.”
Some stocks that moved substanially or traded heavily Friday:
NYSE
PepsiCo, down $2.12-1/2 at $28.12-1/2.
After the close of trading Thursday, Pepsi said it would pull back from its troubled foreign soft-drink business to focus on its core domestic operations. It predicted layoffs and possible closings in its international business and said it would consider selling part of its U.S. restaurant operations to focus on snack food, fast food and domestic soft drinks.
Providence Journal, up $8.12-1/2 at $29.
The newspaper publisher continued to gain in response to the announcement Thursday that A.H. Belo Corp., publisher of The Dallas Morning News, would buy the company for $1.5 billion.
General Electric, up $1.12-1/2 at $91.50.
GE benefited from reports that analysts at Goldman, Sachs & Co. had upgraded the company’s stock, putting it on the investment firm’s recommended list.
NASDAQ
MobileMedia, down $2 at $4.50.
The Ridgefield Park, N.J.-based paging company said increased costs and subscriber turnover have placed it in violation of some of its bank credit agreements. Before the announcement, the stock had plunged amid rumors MobileMedia’s thirdquarter earnings would be below expectations.
DSC Communications, down $1.35-1/2 at $26.
A Brown Brothers Harriman analyst cut his rating of the company, which sells digital switching, transmission and access products, and also lowered his prediction of the company’s 1997 earnings.