Here's Why Red Lobster's Demise Could Happen Sooner Than You Think

The business practices of Red Lobster's new owner will hasten the restaurant chain's demise.

Jul 2, 2014 at 5:30PM


Red Lobster's days are numbered. While it was struggling to stay relevant under former owner Darden Restaurants (NYSE:DRI), it now faces a dismal future at the hands of private equity firm Golden Gate Capital.

The reason for this is simple. Despite efforts to characterize things differently, the private equity industry isn't interested in investing in a failing restaurant franchise in a last-ditch attempt to revitalize the brand -- click here to learn more about the history of private equity companies. Golden Gate will instead extract as much cash out of the business as possible in an effort to maximize its own return on investment.

In fact, Golden Gate has already begun doing so. "On the same morning that Darden announced the sale of Red Lobster, Golden Gate Capital announced that it had sold the real estate assets of 500 Red Lobster properties in a sale-leaseback deal with American Realty Capital for $1.5 billion," a recent Fortune article explained.

As a result, "Golden Gate, which stripped Red Lobster's real estate assets and sold them off, arranged to recoup 71% of the total investment before it even took control of the restaurants."

As Motley Fool contributor John Maxfield explains in the video below, the result is that Red Lobster, which has already been struggling with declining same-store sales and profitability, now faces a higher expense base. Needless to say, this probably won't end well for the chain.

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John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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