Watching private equity take over and subsequently destroy businesses is so frustrating! This is a story that comes up again and again and there isn’t yet the overwhelming backlash that’s necessary to stop it. I highly recommend the book “Plunder: private equity’s plan to pillage America” for an extremely cogent overview of the entire situation. https://www.goodreads.com/book/show/62874267
Something I don't understand is why private equity would destroy a business they themselves own.
It doesn't make any sense - they paid billions for Red Lobster, they made some money, they could make even more by having a viable business.
If this were a publicly owned company I could understand outrage, but it's privately owned, the owner presumably isn't interested in losing money. What's his motivation for taking these steps that are "obviously" bad?
Not certain, but I would guess it is to do with investment horizons and getting a 10x return on the money they put in to return to their fund, rather than 1x revenue per year.
When you value a business, part of it is brand and people's habits. The new owners are betting that they can trade in that value for cash, by selling a crap lesser product under the old name, and that this will return faster than a sustainable business.
It's not obviously bad from a finance point, it's just significantly shorter term thinking than the original owner.
IMO the fundamental issue is that the goal of private equity isn't to save the company, but to make as much money as quickly as possible off of it. The article hits on the exact pattern. Equity strips down a business, does whatever they can to juke the numbers with no concern for sustainability. As soon as they can make the numbers look appealing [enough], they sell it to the next sucker, and that person is left holding the bag, while the PE gets out with a tidy profit. From the article:
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After the real estate move, Golden Gate sold 25% of the company in 2016 to Thai Union, a Thailand seafood company, for $575 million and unloaded the rest of the company to an investor group called the Seafood Alliance, of which Thai Union was a part, in 2020. Golden Gate likely came out ahead, but the same can't be said for Thai Union, which also controls the Chicken of the Sea brand. It is now looking to get out of its stake in Red Lobster...
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The bigger question to me is why there are so many entities interested in buying up businesses from private equity, when this exact pattern has been repeated about a million times. I suppose in this game nobody ever thinks they're the sucker. After all if you can casually toss around billions of dollars, you must clearly have had plenty of financial success at some point, and it most certainly was due exclusively to your exceptional financial genius.
It reminds one of NFTs in a way. Spending hundreds of thousands of dollars on a poorly drawn picture of a cartoon ape is either moronic or brilliant dependent exclusively on whether you're the one left holding the cartoon.
That's the trick though, they don't own it. They often take a company private and make the company "own itself". Then make it take out exorbitant loans to pay them their consultation fees. Then they fuck around as consulting management as the company struggles to meet even the interest payments on the massive loan taken out in its name.
It's rooted in societal culture and what people incentivize (ie assign the highest multiple to).
Until Americans take on a mindset of longterm/family (as I've seen many Chinese families express), they'll be doomed to make short term decisions. Right now very few Americans are able to accept an optimization that looks like "I invest today, and my grandkids will get the returns". So America is stuck in that local maxima of invest for next few quarters. The obvious tradeoff being the risks/ability to predict the future.
I want my investments to pay back over 30 years to me. I don't care about quarter to quarter returns. I don't need to invest for my grandkids for any of this.
As I understand the gross summarization of Chinese culture is that they're extremely family oriented. Anecdotally I've heard of grandmas acting like their homeless to earn a little money to give to a grandson which drives a Ferrari. They do it because they love and maximize for the next generation.
Plenty of money is being made by taking the short term route. Execs move factories to China and Mexico and they'll get a fat bonus while the workers will see their communities go into decline, and the government starts erecting trade barriers to protect what's left.
At some point in my lifetime, the mindset switched from "I'm investing because I want to see long-term, steady growth and get regular dividends" to "I want to make as much money as possible as quickly as possible and damn the consequences to others".
The short-sightedness and greed is destroying so much.
Making money off restaurants is incredibly hard. It's just a lousy business. Even well-run, well-liked, well-attended restaurants are often running on incredibly thin profit margins.
Which seems crazy, since the costs of inputs are so low at most restaurants. They pay workers embarrassingly little money, and the ingredients have massive externalities. (Those "endless shrimp" are possible because of literal slave labor and environmental destruction in southeast Asia.)
And yet restaurants bleed money. There are so many invisible costs -- replacing bent silverware, repairing the walk-in fridge, shady suppliers whose produce you have to toss, etc etc etc etc. It's just a crappy business.
A private equity firm may not know how to turn a profit. Or they could run it with a tiny profit that just isn't worth their time and effort, and it's easier to just shutter it. It's a much bigger hardship to the employees than it is to them -- even the potential gains are too small.
The private equity fund who makes the decisions about what to do is buying the company with other people's money. They get a % of the other peoples money they manage as revenue and slice of the profits on success.
Also they often engineer things so the money the fund put into the deal comes back very fast. In this case they sold the companies real estate which got a big chunk of their initial investment back ASAP.
the simplified view - red lobster they bought it for $2.1b - they sold off the real estate for $1.5b and 25% of the equity for $575m - so the PE fund has $25m of their original investment in the deal. They borrowed a bunch of money and then paid out dividends on that $25m that were multiples times that amount.
It's understandable if you are a small business owner and someone makes an offer which means you can retire comfortably. The blame here is not with those owners, but with the private equity companies that exploit customers, and also the regulators that allow this monopolization & destruction of value to happen.
Not necessarily. I’ve seen it happen involuntarily several times - most recently, a client was acquired by another technology company in a mutually beneficial buyout - however, a year later, the buyer found themselves undergoing a hostile takeover by private equity.
They then gutted everything - all technology teams stripped back to nothing, or a single junior to KTLO as best as possible, all management fired, although of course kept all of sales and marketing. They handle amazingly sensitive data for manufacturers across numerous sectors, including the likes of Apple and BAE, and no longer have any infosec functions.
So in the case of the client, they didn’t sell to PE, and it’s a time bomb I’m quite looking forward to seeing go bang.
In another case, years ago, it was just a straight up hostile takeover initiated by a disgruntled investor who wanted out, and an asset strip followed by administration - we, their main technology partner, got screwed to north of £100k. One of the events that lead to me deciding to quit my previous business, as I couldn’t put down the murderous rage it incited in me. The money was almost immaterial, it was the fact that these fuckers essentially burgled a perfectly good and profitable business and then robbed their entire supply chain, from services to product, and cost several hundred people their livelihoods. Fire and ice in lucifer’s mouth for all eternity for these bastards.
Yeah, a decade on, still haven’t quite put that down - but again, not initiated by anyone who actually had anything to do with the business - I felt terribly sorry for all of them.
Are they entirely to blame? No. Everyone who capitalizes on the deal shares some blame. The consumer and the economy do get hurt. Late stage capitalism is starting to destroy what was good about capitalism and we need regulations to keep things sane.
There is a finite amount of capital in the world (with a little more printed each year of course). But they're not printing 20% more every year, so companies can't keep expecting to grow by 20% every year forever. It's just not possible and once a company reaches certain thresholds, we need regulations that prevent them from destroying the good parts of capitalism for simply more money than they had last year.
I don't have the books of Red Lobster, but the economic rationale is that if the enterprise is continuing to persistently lose money, it is destroying capital not increasing it.
It's likely that the real estate that the Red Lobsters were built on was worth more than the entire enterprise. In such a case the implication is that the ongoing operation is negatively valued. Splitting the real estate off and valuing the restaurants at zero is a rational action -- and good for the economy.
Put a mom and pop restaurant on the spot. Or a nail salon. Or anything that can justify its costs.
The "private equity kills beloved brand" stories are usually overcooked, as far as I can tell.
They usually involve PE taking over firms that were already in financial trouble, which is what made them attractively priced to PE in the first place. The PE firm would also prefer to have a nice profitable business, but if they can't turn it around, they have options like asset stripping or selling the name to a different company.
Here TFA mentions "flagging sales" already in 2014.
The most likely alternative to PE "killing" Red Lobster or Sears or Toys R Us wasn't that the businesses restructured with the same management and business model but 25% fewer stores. It was that they went out of business altogether.
I'm worried by PE buying up successful natural mom-and-pop businesses like dentists and vets and worsening the consumer experience at those. Not so worried about them managing the decline of massive national brands slightly more aggressively than another billionaire owner might.
> To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company called American Realty Capital Properties — and then immediately leased the restaurants back.
So private equity didn't try to make Red Lobster profitable before stripping it of its assets. That was literally their first move.
Because it was a dead man walking by the time PE bought it. The underlying assets were worth more than the sale price so it was never going to make sense to do anything other than what happened.
With that said, the tax code and employee law could be improved so there are stronger guardrails to protect some stakeholders more.
Sure, but Red Lobster should be able to make ends meet paying that rent. Their accountants should run the numbers and have numbers for what the restaurant made after paying rent, and what the real estate investment made from rent. Even though the same entity owns both they still need to know where the money is. If a restaurant cannot make money except that the real estate is paid off and thus rent free (or maybe bought at lower than current prices and so payments are artificially low) then they should close and rent the real estate out to someone else.
The above is something people often fail to think of. If you (as is common) have something that could be two independent business with one supplying the other, then you should have your accountants figure out the numbers for each separately. (this is not easy, and eventually not worth it)
How is owning real estate a distraction for a restaurant chain? Presumably their new landlords aren't going to maintain kitchen equipment and other infrastructure that makes up a lot of the maintenance burden. If it's really such a distraction, outsource it—but don't sell the real estate.
That depends - how long will the location be a great location for that business? You really need an good accountant and a reliable psychic to figure this out, an accountant can figure out how tax code, laws, and other details apply - while the psychic can tell you how the tax code, fads, and your life will change in the future. (I don't believe a reliable psychic exists - but you still need one to figure out the correct answer)
If you will be there for decades it is worth owning. The land can be paid off and still working for you. Likewise the building is depreciated and paid for (check with an accountant!), but you are still there using it - you still need to remodel and maintain it though. You pay more upfront, but long term it is a better investment.
However many businesses are fad - they do well for a few years and then people move on to the next fad and you should close up. If you only need the real estate for a couple years you should rent/lease: you won't see a payoff from the upfront costs, and you are stuck with the real estate while trying to sell it.
"Gives the primary business (making food profitably) a huge cash infusion, and removes a distraction"
This is so suspiciously MBA-esque:
- Owning real estate (and responsibilities associated with it) are not distractions: they are the cost (and responsibilities) associated with running a business.
- "a huge cash infusion" followed by [correspondingly] huge rent payments; the business becomes a prisoner.
There certainly are distractions when running a business, but owning the spot of land where it's installed is not one of them.
Do you think every business owns the land and building it operates in? Real estate is expensive. Maintaining a building is expensive. There are plenty of businesses that rent to avoid the capital requirement and headache of property ownership.
You are thinking about distraction wrong. Owning real estate isn't so difficult/time consuming that the managers lose much time/energy deal with it instead of running the business.
However it is an accounting distraction. If you own real estate you need to figure out which share of your profits comes from rent of real estate and which from the restaurant. If you cannot make both business profitable that means you should get rid of one. (sometimes that means sell the real estate and rent, sometimes it means close the business and rent the real estate to someone else). If both work out profitable, then keep going as is. (don't forget about intangibles, if real estate is a small loser it might be worth it just because you don't have to move and so can get loyal customers - but you should be intentionalable about accepting this loss)
> The "private equity kills beloved brand" stories are usually overcooked, as far as I can tell.
What are some well known examples of "private equity turned troubled brand into wild success" where products become better than ever and consumers couldn't be happier? It seems like all I ever hear are stories where a brand is "rescued" only for it to be butchered for parts in a couple years time.
Maybe Dell? Not exactly a consumer darling, but certainly a successful story for a PE LBO.
There was a side plot of "PE partners with charismatic former founder", but the main story was PE cost-cutting, layoffs and loading the company up with debt.
That has more to do with Silverlake capital preferring steady, regular cash flows. They like to buy up and hold and just run things like a normal business, no MBA shenanigans.
>The PE firm would also prefer to have a nice profitable business
Quotation needed. Usually they put no or little effort in this. They want to get their profit by destroying the business, either by breaking it down and selling the parts or by turning it into a shitty consumer-hostile money-grabbing version of its former self
I never understood how PE firms get blamed for rising costs in doctor's offices and vets. If a PE firm can just unilaterally raise prices, then why didn't he mom n pop practices do the same? Where is the competition? Why is there a barrier to entry that prevents some new young doctor or vet from coming in and undercutting the PE business?
Reducing the friction of starting new business is good. But I don't think it's sufficient to protect consumers. (If it was sufficient, we wouldn't need antitrust law at all, right?) For example, the rolled-up firms might have economies of scale that allow it to undercut new competitors.
They don't really prevent new competition, rather than target markets that specifically have a larger barrier to entry such that new competition is rare to form.
i.e. these vet clinics - a PE firm can buy up 40 disparate vet clinics in a large city then raise fees and cut staff. You may be lucky if a few new clinics appear over the next couple years once customers are fed up with the increased price and reduced quality.
It's still a win for the PE firm and a loss for most of the consumers.
This is exactly it - mom and pop businesses will charge enough for a comfortable lifestyle for themselves, but not really feel pressure to charge above that.
And if you have a vet, say, who is near the end of his career, he's already amortized all the training/educational expenses, and so can run out until retirement at relatively low rates compared to a brand new one.
The companies take advantage of this, but the customers also like it, too, because the offices will be fancy and feel new and they can schedule an appointment online.
Same thing that Great Clips et al did to barber shops.
> If a PE firm can just unilaterally raise prices, then why didn't he mom n pop practices do the same?
Because they have a connection to their community, which means both (1) they're more vulnerable to backlash, and (2) they don't want to, because it would be taking directly from other members of their community.
Mom-and-pop shops tend to price based on what is fair. PE firms tend to price based on what is profit-maximizing.
The two groups have very different goals. One wants sustainable profit running a sustainable business, the other wants short-term profit by any legal means necessary.
The mom and pop, if they raise prices too high, punish themselves when they lose business. Perhaps even to the point of insolvency and folding.
If the PE firm raises prices too high, they don't punish themselves at all, because those customers go elsewhere. "Elsewhere" being just another office/practice which they also own. Mom and pop couldn't do that themselves. They didn't have monopoly-like powers to ensure their success.
> Why is there a barrier to entry that prevents some new young doctor or vet
Because the young ones are getting started, and do not have the capital to start a practice (or to buy an existing one). How much does a dental x-ray machine cost? How much do the dental chairs cost? How much does the lawyer that fills out the paperwork to get the permits for that retail space to be a dental office cost, per hour, and how many hours of paperwork?
It's especially jarring to see a story like this with Red Lobster as its subject.
I'm curious if anyone who has a negative reaction to this article has actually been to a Red Lobster in the last 10 years. They serve poor quality food for similar prices as other sit-down restaurants. You're as likely to get poor service as you are anywhere else (maybe more so), but you'll still have to tip the same amount and spend the same amount of time there. There is no value proposition and certainly no cause for mourning or hagiographies.
> In 2014, amid flagging sales and pressure from investors, Darden sold Red Lobster for $2.1 billion to Golden Gate Capital, a San Francisco private-equity firm.
Nitpick: You'll have to tip the same amount as another restaurant with bad service. If it's awful enough, that works out to about a 20% discount on the meal.
People who don't know how to tip bad for bad service (most of us!) are why tipping is bad. When you get a bill you should have a discussion about service quality with everyone and then decide what to tip (if you are solo is can be just you but still think). If you don't do that then you failed to use your tipping power.
We see eye to eye on this. I'm not a stingy tipper and I don't look for reasons to save a buck. I'm also suuuuper understanding about problems that aren't the waitstaff's fault: if the restaurant is packed but there are only 2 waiters and they're running themselves ragged, I'll do right by them. I delivered pizza when I was a kid and I feel a kinship with people trying to get food to a table.
If it's a normal night and I see our waiter playing with their phone or chatting with the bartender while I unsuccessfully try to wave them down for a drink refill, I'll remember that when I'm paying the bill.
They're currently buying up veterinary practices in the UK and turning them into cash cows. This has the effect that pet insurance has gone through the roof, and general vet bills are much higher than they used to be. Pets suffer too if owners can't afford to treat them any longer. (https://www.theguardian.com/business/2024/mar/12/uk-vet-pric...)
About 20 minutes, some disposable gloves, a disposable toothbrush head impregnated with toothpaste. So about €25 an hour. Commercial rents for small spaces are dirt cheap here - probably about €600/mo. That’s probably the driving factor in the U.K. - commercial property is eyewateringly expensive.
What about labor costs? I'm not GP but I appreciate this sort of breakdown. I wouldn't have considered that commercial RE for small business is much cheaper in Portugal than GB.
Lucky! Our ancient Maltese has a heart murmur and was referred to, I kid you not, a canine cardiologist. The estimate started at $10K and went up from there.
The affected teeth got loose. We pulled them. The dog is happy and healthy. I would have liked for a professional to have done that for us in a more controlled and methodical manner, but there's no way I could justify spending at least ten thousand freaking dollars on a 13 year old dog who was at significant risk of dying on the table.
That sounds like a "we're not in the teeth cleaning business; go away!" price.
I love my dog and spend pretty freely on him, but no way is he getting an $800 teeth cleaning. At that point, you might as well locate your practice on the airport and cater only to people who fly their dog in on a private jet.
My vet is absolutely considering selling his practice. We (selfishly, not seriously) suggested selling his practice and then opening a new one closer to where we live. (We moved out of the area several years ago, but continue to drag the cats in to see him.)
We said it in gest but he said he was already giving it serious consideration. When he bought his practice from the previous vet, the original owner did exactly that —- opening a new practice elsewhere.
If the PE firm is charging more than a vet operating alone would, then why wouldn't a vet operating alone just undercut the PE firm's veterinary practice?
There must be some barrier to entry in the market that prevents that, and that's what I would target. Because the PE firm isn't the root cause. After all, if you can't just enter a market and charge whatever you want as a standalone vet, what makes a PE firm different?
Part of what's happening here is a combo of making a small business being expensive and a good chunk of the population living hand to mouth.
The people with the cash to start the business and get the space and equipment just sold to PE and you have people that were employees and a much smaller number of these people are going to be able to just quit and fire up a business.
> If the PE firm is charging more than a vet operating alone would, then why wouldn't a vet operating alone just undercut the PE firm's veterinary practice?
Finance.
Throwing in with the PE firm means you don't have to negotiate real estate leases, don't have to think about POS systems, and don't have to worry about collections.
So, the vet probably gets paid the same and spends a lot more time on being a vet. On the other hand, the consumers spend a LOT more once the PE firm has a monopoly position and switches to gouging them.
> There must be some barrier to entry in the market that prevents that, and that's what I would target.
Training to be a vet is a long process. The patients are nice (mostly), but don't communicate well, and some of the customers are terrible. In my area, there's a shortage of small animal vets because they can make a lot more money in the big city. There's an even worse shortage of large animal vets because the job is worse, and they can make a lot more money working with small animals in the big city. Our large animal vet won't do callouts for emergency/urgent services anymore unless you're on contract for annual checkups; routine visits are good for vet morale and help the budget.
You see the same with Dentist, the cost to start a practice after paying for college? Or get a job at a big PE owned Dentist Office and work for commission.
Sister-in-law is a vet tech at a place that sold out to PE a few years ago. Wife is a pharmacist who worked at a small chain of pharmacies and had it taken over by one of the national ones. Both industries are seeing massive consolidation.
A couple of things that they observed between them:
A) a lot less interest among newly graduated pharmacists and vets for going into business themselves- they are deeply in debt from school, taking out business loans to start up a new business on top of those loans is a real threat to their financial stability
B) they want to do vet/pharmacy things with a reasonable work/life balance, not running a business things with an insane work/life balance while carrying that huge risk
C) (unique to vet) people want the convenience of big, one stop shops that can offer complimentary goods like grooming, boarding, surgeries, and their medications all in one place, which requires large capital investments- the vet firm my s-i-l works for just got a nice brand new facility with brand new fancy equipment and surgery centers etc.
D) (unique to pharmacy) Pharmacy Benefit Managers are destroying the reimbursement rates of small pharmacies, if you aren't a national chain you don't have the scale to effectively negotiate with the three PBM's that control 80% of the drug insurance business, and they are getting gutted by those PBM's, forcing pharmacy consolidation (one of those three PBM's is actually one of those national drug stores, CVS Caremark- thank the George W Bush administration for that bit of anti-competitive nonsense).
I'm not as sure about vet as I am about pharmacy, but at least in pharmacy it is not generally any harder because of regulations or anything like that, to start up than it was decades ago. My wife also points out that because we have more drugs than before, with more varied storage requirements, and they are more expensive than before, inventory costs a lot more than it did decades ago. So these newly graduated Pharm.D's with their 200k in debt would need to get even larger loans to start up a new business, and they get reimbursed less for it thanks to PBMs, making it hard for the indy pharmacies to stay in business whether they are new or old alike.
> If the PE firm is charging more than a vet operating alone would, then why wouldn't a vet operating alone just undercut the PE firm's veterinary practice?
It takes capital to start a business and people don't have that.
> There must be some barrier to entry in the market that prevents that
People retiring are selling their brick and mortars and the next generation don't have the personal wealth to buy them because they're saddled with medical/education/credit card debt and stuck with bad rent terms that caused low savings.
The only people around to buy the places are private equity.
I just saw a blurb about something similar in the US! Mars (the candy company) is 'the largest owner of stand-alone veterinary clinics in the United States.' Also: 'JAB Holding Company, the owner of National Veterinary Associates’ 1,000-plus hospitals (not to mention Panera and Espresso House), also holds multiple pet-insurance lines in its portfolio.'
Optum is doing the same thing here in the US PNW for actual doctors' offices. My SO had a mysterious charge suddenly appear in her account that nobody would explain and then she got fired as a patient and sent to collections by them a few years ago. Now that they're buying all of the clinics she essentially can't get in to any providers because of it.
I wouldn't expect anything to change now. This is essentially what we're all doing to Earth: wringing it dry because we know we'll be dead before the oil runs out. People stopped dreaming of something better a long time ago.
Ah, American classism, where crap like McDonalds is OK, but pissing on Olive Garden and Applebees is a signal for "I'm not working class, I have taste".
Perhaps because the latter are associated with aspirational working class, which is to be mocked.
The upper middle class and higher going to coffee shops and restaurants targeting them and dialing the pretentiousness and crap fusion food and such to 11 is OK though, that's in high taste. And McDonalds is acceptable too, since it's seen as neutral.
> Perhaps because the latter are associated with aspirational working class, which is to be mocked.
No, what’s being mocked is the quality of the food. The “aspirational working class” in Europe has much better food options for even better prices—has nothing to do with classism and everything to do with the development of an American culture that ruined food in this country.
My grandparents grew up in rural Appalachia and what they prepared themselves and ate back then was much tastier and fresher than Olive Garden.
>No, what’s being mocked is the quality of the food
If that was the case the "quality of the food" would be mocked elsewhere, in tons of brands with crap quality. But those seem to be particular targets in the way that say McDonalds and other fast food or higher tier but still crappy brands are not.
Besides, most references/parodies I've seen (like online, on SNL, movies, and so on) always seem to mock the working class in that context (or the ignorant lower middle class), in some "lol, these people think they're eating fancy" - usually with stereotypes about their appereance and mannerisms to match.
Olive Garden is hardly cheap. Eating there costs my family just as much as many local restaurants that have better food. It's not a class thing as much as a culture thing.
McDonalds is constantly mocked for low quality food. Olive Garden is much higher prices, but not much better in quality.
Note, but quality what we really mean is either health or taste. Both McDonalds and Olive Garden are extremely high quality in that everything is exactly the same and so you can go into any one around the country (and most of the world) and order something and be unable to tell the difference from any other.
I mean, if McDonald's along with every restaurant in SoDoSoPa wanted to join Olive Garden and Applebees on a voyage into the sun, that wouldn't be a bad thing.
The fundamental problem is that all of these businesses are devoid of soul, and the majority of the profits don't go to the people working them.
>The fundamental problem is that all of these businesses are devoid of soul, and the majority of the profits don't go to the people working them.
That however is a problem of capitalism in general, not Olive Garden in particular.
And I'd say class snobbism against lower class "taste" (independent of unhealthy fast food vs fine cuisine, since for example something like In and Out is totally acceptable by the same people) is also a problem of capitalism.
>That however is a problem of capitalism in general, not Olive Garden in particular.
Sure, but the lengths Olive Garden's marketing goes to present the facade of a soul is so cringe that they deserve to be emblematic of said problem.
>And I'd say class snobbism against lower class "taste" (independent of unhealthy fast food vs fine cuisine, since for example something like In and Out is totally acceptable by the same people) is also a problem of capitalism.
Not to burst your class snobbism bubble, but as a former poor person I have to say the Dollar Menu kicks Olive Garden's ass all day long. For one (dollar), it isn't reheated cardboard!
I don't think fast food somehow being comparatively acceptable is a problem in and of itself, because fast food isn't pretentious. If anything, narratives that make it seem as if the "lower class" has no choice but to eat cardboard at Olive Garden if they want a dining experience, and that doing so is just a taste that's forced upon them, is laughable.
Right. My local non-chain Mexican restaurant charges far less than Olive Garden, or any other nearby chain for that matter, and manages to put out large quantities of very tasty food. Not surprising, the place is usually very busy.
Your McDonald's still has a Dollar Menu? Over here it's the "1-2-3 Dollar Menu" and there's nothing on it that costs less than $1.79 (a plain hamburger).
In-n-Out is cheaper than McDonald's. A preference for McDonald's isn't a class issue, it's a taste issue.
The popular disdain for family dining comes from people who don't want to sacrifice food quality for table service. Olive Garden isn't competing against fine dining, it's competing against fast casual restaurants. And that's far less of a class divide than a generational divide: restaurant dining as widely available phenomenon is a relatively new concept, with it being a relatively rare luxury for the Greatest Generation. This put a level of perceived prestige on being served, which the family dining restaurants managed to reduce the cost of substantially the latter half of the century.
With ubiquity, though, the novelty wore off. Young people who grew up regularly eating restaurant fare aren't particularly impressed by table service, and thus for a given price point, on average, Millenials and younger tend to choose a fast-casual restaurant with better food quality over a family dining establishment that has to cut into their food quality to pay for table service.
What you're perceiving as a class divide is a urban/rural divide, where trends of all sorts (including this one) lag a decade or two behind in rural areas relative to urban ones.
Someone in New Orleans (a town with a large Italian and specifically Sicilian population), left a one-line Yelp review of the one Olive Garden in the metro area (by the airport). "The 9/11 of Italian food"
I used to feel the same, but eventually I came to understand that they have a tremendously important role in the business ecosystem.
Like sharks in the sea or wolves in the wilderness, they identify and remove sick and ailing businesses. Additionally they offer a convenient exit to tired owners and investors, thus incentivizing further business creation. Finally, they identify and exploit regulation-created monopolies, enabling the government to re-allow competition through deregulation - something more and more important in today's populist and regulation-happy climate.
That belies that fact that the play is usually to finance a bunch of debt to prop it up, pay themselves PHAT bonuses, and then let it burn to the ground. Honestly, it's gotten way past tiring that the government continues to let this same scenario play out over and over and over again.
Well, they have to make money somehow. You can't just buy a failing business, run it into the ground completely, and take the blame without being compensated.
If these businesses had a promising future, the owners would have been less interested in selling, someone interested in actually operating the business would have made an offer, or it could have been publicly traded.
I never eat the stuff including lobster (non allergic) but one time I was relocated to Germany to help ship a new software release (English technical documentation) and was invited to a meal with my colleagues and his family.
Out comes a big bowl of shrimp for everybody with the skins and feet and antlers on - think we had a language misunderstanding.
Not wanting to offend and send it back - did not even know how to disassemble it - ate a few and back at the hotel you know what happened :).
Sorry, but no. I've thought that shrimp and lobsters were simply ocean bugs since I was a child in the 80s. It isn't quite accurate in science terms, but still holds out as a thing in my brain. Even if I happen to eat them (Not disgusting, not delicious either)
I'll also mention that folks allergic to shellfish also have to be careful with crickets and other land insects. They have their similarities.
CA was where innovation went to die far before Broadcom. It's main business process was buying popular products, "enterprising" but mostly selling them, and then selling them off as they went out of fashion.
I had the dubious luck to work for a company that got acquired by private equity. The company was resold for double the price it was valued when the private equity injected capital after 3 years. But during those 3 years, they lowered the quality, increased the quantity of product sold and now, no customers are excited by their product anymore.
When I jokingly talk about MBA Disease being the same as Dutch Elm Disease, this is what I mean: parasitic behavior that kills the host.
On one side this is a study in destroying a chain restaurant, but what'll be taught in business school will be the other side: was this transaction profitable for one party and if so how do we repeat it? It won't be taught as a cautionary tale unless the hedge fund lost out.
Chipotle took on McDonalds as an early investor, used McDonald's investment to quickly expand from 16 to 500 stores. Chipotle had a tremendously successful IPO, which they used to fund further growth. McDonalds, who was always a minority investor, divested themselves from Chiptole earning $1.5 billion on a $450 million investment. It trades on the NYSE as CMG and has a market cap of 88 billion.
Based on how Chipotle has been the last couple years though, I foresee them going down the route of Red Lobster within the next 10 years. That kind of valuation goes against how bad the food has gotten.
I can’t wait until private equity companies are exposed as the exploitive side of our current system that needs to be corrected. At the heart of so many good companies are bad decisions driven by PE structures and personalities, most of whom seem very toxic and short sighted. Surely there is a better model of capitalism — I am not so vapid as to turn against the obvious advantages of the system. But I am also not willing to endorse the current approach as anything but exploitation with extra steps.
Tiffany Cianci is at the dead center of a battle with private equity trying to monopolize young child development centers. Her horrific personal story will open your eyes as to just how depraved and soulless private equity can really be in their attempt to take over the world. (TL;DR: they literally forced her give a deposition while she was having a miscarriage.) The government should be writing laws to curtail these kinds of bloodsucking parasites.
No one can force you to give a deposition during a miscarriage.
I’ve been through a few depositions and anyone can leave for medical reasons. It’s not like there are bailiffs there forcing you to attend. Even with the most basic of cases, I can just walk out and tell my attorney to reschedule. I may have to pay other counsel’s fees, but I expect with the reason “I’m having a miscarriage” no judge is going to uphold their claim.
>> To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company called American Realty Capital Properties
I wonder if the Golden Gate investors also own American Realty, or are good friends of theirs. Sure GG made their money, but owning the real estate seems like a second good investment so long as the chain doesn't go under and the lease terms are favorable.
What a short sighted, money grubbing decision by people that didn't actually care about the wellbeing of the company. Keeping the land the restaurants are on means higher margins of profit long term and the ability to weather problems. Selling it off and then leasing it back does...exactly what happened here.
You're responding as if the person you're replying to wasn't asking a question, but stating a fact. Do you know about the details or even a general outline of the considerations that went into this decision?
Bluntly, they're irrelevant. Selling off the real estate is a short-term books-juicer that's tantamount to pillaging the contingency fund. Classic corporate raider move.
The people in PE don't concern themselves with the wellbeing of a company in any sort of moral or sentimental sense. The company's future is dependent on what turns the highest profit on their time and investment. Sometimes the most money is made in value extraction and crippling the company long term. They are the vampires and vultures of the economy.
In fact you could argue that Red Lobster has suffered from a long term decline due to poor positioning in the marketplace, and the PE shops are accelerating what was likely to happen anyway.
tl;dr summary in 3 points:
1) Heavy debt from private equity deals and increased lease costs made Red Lobster financially vulnerable. 2) Customers drifted away to other dining options, and frequent leadership changes hindered a stable turnaround plan. 3) The Endless Shrimp promotion, while a poor decision, underscored the company's larger management issues.
These private equity deals are the convergence of a couple of phenomena.
The most obvious is low interest rates, which is fortunately dying off. The ability to borrow lots of money is something that smaller, well-run companies, are reluctant to do. Why bring in a bunch of cash to expand and take on debt when you are operating at a reasonable profit?
The secondary is the undervaluing of customer goodwill -- what PE firms can do is directly monetize that goodwill by squeezing those customers. The income stream from a reliable customer can be translated into present value, and prices and quality can be adjusted to the point where you can drive a customer's goodwill down to zero while extracting something that approximates the present value of the lifetime income stream from that customer.
Inflation plays a role -- businesses are reluctant to raise prices because they don't want to sacrifice goodwill, but the supply chain costs keep going up. They have to somehow maintain margins, but they do so by raising prices slowly. PE has no such scruples.
Sometimes it is. The more cynical version of this, though, is to engage in a protracted liquidation of the business, and get as much return on the assets as possible in the short term, with no intention of the business surviving into the long term.
Optimistically, you could see this as a way of freeing operating assets from underperforming businesses and putting them back into circulation, clearing the way for superior competition. But that only works if there is superior competition to fill the gap, and the whole economy isn't saddled with dysfuction, perverse incentives, and bad leadership. Unfortunately, it seems like we're getting closer and closer to that latter situation every day.
A good portion of this is cartels that could be squashed. Notably, real estate (commercial and otherwise, driving up the single biggest cost of business/living). But, then, you'd have to deal with the people who rely on cartel-ized pricing power for their income, investment collateral, etc. (But someone is going to get thrown under the bus, so might as well be them.)
I'd add that it's also a function of revaluing the assets, and then determining if the return on asset value is appropriate.
Take a small restaurant. Grandad bought the building 50 years ago. That's long since paid off.
The restaurant makes say 10k a month. Good honest business. But the building/land is worth say a million.
The owners don't care, it's paid off. The business makes a good living.
So I come along and offer 500k for the business. That's basically 4 years profit up front. They want to retire soon, so that's good deal. But I turn around and sell the land for a mil. I've made a big profit, and since rent is now 10k, in only a few months the restaurant goes under.
The root problem is that the business is delivering a really poor return on asset value. Which opens the door to someone buying the assets, not the business.
That's what it looks like to me too. All of the Red Lobsters I know of in California are in some very high volume locations, often in large multi-block shopping malls where everyone in a several mile radius goes to shop. They did a good job front running the state's population growth and locking in some great locations before they became really expensive.
It's pretty much a license to print money as long as the restaurant can maintain competitiveness in quality and cost. All of the restaurants in the strip mall that holds my nearest Red Lobster have been around for over a decade and half of them for over twenty years. The turnover is really low because everyone rakes it in as long as they don't mess it up. Looks like Red Lobster messed it up.
Private equity is mostly driven by state pension funds that are basically unfunded entitlements. They have to pay out more now as the boomers retire, but they have no money so seek ever-increasing rates of return, even above market rate. They can't find anything on the 'public' market, so they turn to these alternatives. Meanwhile, those on the supply side see that there is money that needs to be invested in these sorts of vehicles to have any shot of paying out, and they oblige.
People will say it's all about greed, or whatever. But it's not 'the rich' buying these PE investments. It's public pension funds (i.e., government workers, teachers, mailmen). It also has nothing to do with the interest rate (although that certainly enables it, it doesn't explain the demand for the investment vehicle itself or the source of funds).
According to a study from UNC Chapel Hill [1], public pensions comprise 31% of investors at PE funds and 67% of capital.
That means that, while it's true that perhaps the other 69% of investors are the supposedly greedy rich, if it were just them investing, PE would be 3x smaller than it is today.
We have to face the truth which is that these sorts of deleterious economic effects that occur as a result of PE takeovers are due to unfunded public pension liablities.
Even without private equity's meddling, Red Lobster would have been in a rough spot. Family dining as a segment (lower end restaurants, but with table service) is being squeezed aggressively. Compared to Gen X and before, Millennials on average are valuing food quality over service experience, ballooning the fast casual (order at the counter, but nicer than fast food) segment. This is squeezing family dining from below, meanwhile their branding as ubiquitous and affordable prevents them from raising prices too much without bumping up against the fine dining segment (and who wants to bring a date to Olive Garden?).
And speaking of food quality, restaurants like Olive Garden and Red Lobster are just terrible. I'd rather get a fast-food fish sandwich, or fish and chips at the local brewpub, than eat anything at Red Lobster.
And it's not a secret. Fettucine Alfredo? They open the plastic packet from Sysco, microwave for the appropriate amount of time, same with the sauce, put it on a plate... $18.
You're spot on. I haven't been to any sort of Red Lobster owned property in years. The last time I went to Olive garden it was completely transparent how the microwaved Sysco food is the norm now. I sat there thinking how AI could have just bought the same thing from the frozen aisle at half the price and not had to deal with sitting in a dirty Olive garden.
It’s not limited to these big chains at all — the vast, vast majority of restaurants in the States are at the mercy of Sysco. The restaurant industry is absolutely brutal right now. They are barely profitable and the best restaurants survive from underpaid family labor or under-the-table undocumented immigrants. Rent costs are insanely high, labor isn’t there and is bottom of the barrel, and non Sysco food costs too much. The average person still expects a $8 burger and fries when the cost to make it is $10 minimum.
The whole industry is on the verge of collapse, and we’ve had a ton of restaurant closures over in my neck of the woods since Covid. These aren’t Red Lobsters closing but beloved local places.
Anyone that has worked food in the last couple years knows how bad it really is.
I believe it. It seems to be a natural consequence of the wealth imbalance in the US. There is an obscene amount of money looking to be placed at the top, but nowhere great to put it. At the bottom all of the industries that relied on disposable income are struggling. The bottom will continue to fall out piece by piece until we reach a new equilibrium.
To be fair, Sysco can provide a lot of different levels of food. Yes, they're most associated in the public eye with the microwaved and boiled examples. But they can also deliver many fresh ingredients or just staples like rice or flour.
US Foods is probably their most direct competitor but for a lot of restaurants there are specialty distributors who have more specialized products for the type of food from seafood to steak, or Italian cheeses and cured meats, or tuna from Japan.
US Foods (already mentioned) and Shamrock are probably the two biggest alternatives to Sysco. Maybe Roma, too. And those specialty distributors that were mentioned, if I were to guess, probably take a nice double-digit percentage of purchases that restaurants make.
Less well known is what happens in much of the baking world: pre-made mixes. Most commonly, this means a 50-pound bag of all a product's dry ingredients and only wet ingredients are necessary. These products reduce labor, simplify employee training, are more consistent, and bigger buyers can get customization.
All big bakery retailers are using these: Panera, Whole Foods, Costco, HEB supermarkets, etc. Smaller establishments and franchises also. Less obvious uses are industries with constraints that benefit from what these products offer, cruise lines maybe being the best example. While this sounds like just more ultra-processed food, many of the products are legitimately good quality. Yes, a donut is a donut, but products like breads can be fantastic quality and respectably healthful.
There are frozen bags of heat-in-a-pan Italian dishes in the grocery store that cost half what Olive Garden does (so, the slightly-fancy frozen meals—there are even cheaper ones) and also taste quite a bit better (though still not great).
They used to at least be better than high-side-of-mid-tier frozen grocery store meals. Not anymore. Their continued existence confuses me.
Heh, yeah, pretty much. Been better than Olive Garden for a decade or more, and cheaper.
I guess people just like the breadsticks that much (it is, admittedly, a lot more work to replicate those at home than the dump-frozen-bag-in-a-frying-pan process for beating most of their main dishes at home)
There's a local italian restaurant that I frequent which is 30% cheaper than Olive Garden and way, way tastier. There are dozens of other local restaurants that are also cheaper, and tastier, than Olive Garden.
I don't understand why these huge restaurant companies have such a hard time with the "make good food" part of their business model. It clearly can't be that hard if so many small businesses are able to do do it better.
The entire schtick of chain restaurants is consistency. For nationwide chains, that means that the same ingredients end up being used in relatively remote places without cheap access to fresh produce as in, say, California, where fresh produce is far more affordable.
The big chains also tend to aim for excessive variety on their menus, which again leads to food needing to be designed to be less perishable.
And then there's the chunk of profits that are going to run the national presence, ad spend, and line the pockets of shareholders.
All of this just doesn't seem like it flies with consumers in 2024.
I think people value quality over consistency when it comes to their leisure spending, especially when small restaurants can still be consistently good. Why do I care that the pancakes at an IHOP in Tampa taste the same as the IHOP in my neighborhood when the local diner across the street makes better pancakes than either of them?
Having lots of options doesn't mean a whole lot if all of them suck.
The national presence I think works to their detriment. Being able to buy ad spots during the superbowl makes a restaurant categorically un-cool. The number of times "I don't want to eat at a chain restaurant" comes up when discussing places to eat with my friends has practically turned the sentiment into a meme.
I imagine social media has played a huge role in this shift. People posting actual pictures of the food they got somewhere does a lot to undercut deceptive advertising and elevates meals that actually get people excited.
I believe there is some market for consistency when your market is explicitly travelers.
This is probably why so many motels have chain restaurants in the parking lot: if you've just spent 7 hours in the car getting there, or are primarily staying there on the way to get somewhere else, convenient and predictable trumps good.
I could see that in the '80s and '90s, but today it takes 30 seconds of looking at my phone to figure out where all the good food is hiding any time I visit a new area.
> I don't understand why these huge restaurant companies have such a hard time with the "make good food" part of their business model. It clearly can't be that hard if so many small businesses are able to do do it better.
They would need to have people in the restaurant, tasting the food, observing the business, etc, and empowered to make decisions based upon the evidence. These companies are the opposite of that, and take away that power from the people actually conducting the operation. Even if they could get great cooks, waiters, hosts, managers, etc, to work at these restaurants, the value that they bring would be stifled.
I imagine the logistics of sourcing enough ingredients to supply a nationwide chain are much more complicated than a single local establishment, which pushes the nationwide chains towards more-consistent but lower-quality solutions like just buying from Sysco.
At that point you would think they would pivot to using their economies of scale to compete on price. But they're still more expensive than better local alternatives.
My best guess is that the price is inflated by the huge amount of money they spend on national ad campaigns, which I'm convinced at this point do not even work. Any restaurant big enough to buy ad spots during the superbowl is by definition "not cool" to the under-40 crowd. None of the most popular restaurants among my peer-group where I live even run local TV ads, and they don't need to.
The one thing Olive Garden has that Red Lobster lacks IMO is great service. Maybe I'm lucky, but I've never once had anything less than awesome service there. I don't go often, and yes it's not fine dining but it's a place to go to enjoy mediocre to good tasting food and be frustration free. I'll take that every single time over a place with better food but unreliable or frustrating service.
Red Lobster well... I've only been twice. Two different locations. The first time service was really, really slow. The second time it was non-existent. After about 15 mins of waiting, we grabbed another waitress who dismissively told us that our waitress just quit and hurried off like it was our problem to figure out. I don't remember the food at all, but even if it was stellar I'd not go back.
It's not even about quality. Honestly, much of it is just that megachains aren't cool. I'm not above eating at Red Lobster but if I have to pick where I'm going to spend my money it's hardly going to be the first choice.
I don't even really think it's food quality alone that is the issue. It's the total package doesn't match preferences.
I think many millennials would be fine with Red Lobster quality food, if it were quick enough for lunch. But the format is slow, sit-down service. And the atmosphere in these restaurants is not what millennials are looking for to relax or entertain.
That's actually sort of been a sort of a revolution with things like fast casual burgers and a lot of food in airports (at least those that serve upscale cities). A lot of people don't really want at least somewhat extended sitdown. They want fairly decent food that's served quickly.
Individual preferences vary obviously but I'll basically never eat at McDonalds but some of the burger places like Shake Shack and In-and-Out hit the spot now and then.
There's multiple reasons why people visit a restaurant and with different needs.
I think the rise of fast casual is coincident with the rise in people visiting a restaurant when it isn't a treat. When someone is looking to just grab a quick bowl, they don't care as much about atmosphere or service, their priority is something quick, easy, and good value.
But then when these same people go out to dinner when it is a special occasion, they're looking for something measurably better quality and better experience than the fast casual they had three times for lunch that week.
It's the mediocre sit-down places that are caught in the middle. In the 90s these types of places were good enough to be considered a friday night treat. Because people weren't eating out during the middle of the week as much.
And for many, especially perhaps people out of their twenties, they want something at a level above the traditional fast food chains.
But I basically agree. If I have to I'll go to a standard dinner chain either because there aren't other options where I am or I'm dragged there by friends. But I'd never do it around home and would try to do my best to find other options when traveling--although, on the road, some brand recognition of this isn't awful may be a trigger.
Millennials don't have families and can barely afford the transportation to get to these places, let alone the cost of a decent meal there. The ones that can aren't satisfied with a cookie-cutter franchise experience.
But, that's assuming that the more well-off generations aren't going. I dunno if that's the case; things other than revenue can be squeezing RL.
Sorry. What I meant to imply was, "Millennials don't have families [at a rate relative to preceding generations.]" Millennial families are less numerous and smaller.
Can someone help explain restaurant industry economics?
when the business starts out, it's high risk and low margin. Tons of capital investment. Labor intensive and hard to staff. If you are lucky you are pulling 15% margins
Besides some exceptions, if you are lucky you may get some growth for 5-10 years. Then your brand falls out of favor (trends) and you spiral into bankruptcy.
also, stock prices aren't economics. In aggregate they can be useful indicators, but they are not a measure of a business' results (due to derivative factors)
Option a, you stay small, don't chase trends, and you bring in decent profits year after year. Eventually maybe you close but not after paying back the investments plus more.
Option b, you grow super fast, you have a lot locations, each one barely profitable, but you make it up on scale. You scale quickly enough that you make a lot of money before trends change. They key is that you accept that you're chasing a trend and move as quickly as possible to extract as much as you can.
Option c, you come up with the core concept, and you create a franchise program. You make your money off franchise fees & shadier stuff like making the franchisers use suppliers that you own. The franchises die when trends change but some made a profit, and your capital outlays were never very high, so you make a lot of profit.
More than half close within a year and it's closer to 80% after five years, but the ones that make it past that point are a lot more likely to thrive. Kinda like turtles going out to sea.
> Tons of capital investment
I mean it's not that much capital, compared to most businesses. You need way more money to start a software shop than a restaurant.
Chick fil A is privately held and their franchise operator model doesn’t require a large infusion of cash from the franchisee. Only 10k cash, so it’s more like a manager job with profit sharing and I don’t see how it could be a MLM.
"MLM" is a sanitized name for "Pyramid Scheme" where the only way for a member to make profit is to bring in new people who pay up into the organization. Franchises aren't pyramid schemes.
I don't know why you'd be skeptical, franchising has been very successful for the last century (McDonalds, 7-Eleven, Ace Hardware, etc) and gives steady returns to investors. And the reason why the food business always has opportunity is because people always need to eat, and are willing to spend disposable income on food. When consumer spending goes up so does the restaurant biz, and that's not going to change. And franchises are just one efficient way to create an international restaurant business. It was actually pretty surprising when Starbucks came along and didn't franchise.
But just because the model is efficient doesn't mean you can't screw it up, like Quiznos. That's just short term thinking run amok.
Speculators hoping to catch the next Chipotle. Tons of activity in this space right now. I got burned trying to short one of them. These are, many times, low-float or institutionally owned and prone to heavy manipulation as well.
$CAVA, $WING, $SG, $SHAK, $TXRH... lots of names that will either be the next $CMG or crash back to earth when the next trendy restaurant catches the attention of social media.
I think a lot of young people are abandoning older brands like McDonalds in favor of these trendier options, so there's a lot of business there if a new brand can capture it. But like you say, nothing lasts long in that industry.
i hear that. but how about the actual economics of the businesses. e.g. return on capital .
Obviously a handfull of stocks have spiked with speculation. but every town has hundreds to thousands of restaurants. And regions have dozens of growth chains all receiving investment.
I get why mom & pop's invest, even if it's high risk low reward. But everything in the middle that takes on millions in capital makes no sense
Maybe not fast food / fast casual, but at least in a trendy area (NYC, SF, LA, etc.) if a restaurant catches on, they're making way more than 15% margins because they can charge whatever they want and people will go because it's cool...
this would include coffee shops and other relatively low cost establishments
To me this is not even slightly surprising. Red Lobster used to be at the top of our list of restaurants. Then in recent years the quality of both the food and service deteriorated. One visit the food was so bad I couldn't even eat it. That was compounded by not having a server to talk to. Took our order and never returned - even had someone else bring out the order.
The thing about a restaurant is that you'll always have business if the food and service are good. You can talk about how the market changed or whatever, but no restaurant can survive at that price point while offering so little.
We had a chain BBQ restaurant in town that had a booming business for more than a decade. Then the quality of the food went downhill and they shut down, citing lack of a market. They had a market for years but there's no market for crap. Red Lobster's situation is no different.
Increasingly I think the financialization of everything makes us less capable of understanding the world.
"Red Lobster failed because of X corporate restructuring," "Red Lobster succeeded due to Y ad campaign." People go to restaurants for reasons completely unrelated to things like that. Those things are important, but just constitute the small slice of reality that can easily be measured.
I saw a Twitter thread arguing how the video game Stardew Valley succeeded due to the way it was marketed. Marketing is important, but maybe the game succeeded because it was cute and had a soul and is fun to play. You can't measure that.
The thing is, there's no VP of Timing. There's also no VP of Luck. These factors are ignored because there's no one to champion them. Yet they are very real.
Unsuccessful Product !== Bad Product or Bad Marketing
I understand why you think that, because when I started out making video games I thought the same thing. The reason why is that if I had heard of a video game in a review or recommendation it sold really well, but if I tried a game at random it was usually terrible. That is because there are thousands of games and most that aren't that good.
The other thing that happens is you point out a really good game and then someone will say, yeah but that's not a good game because of the art style or it's too similar to something else etc. Everyone can always come up with a quality reason why a game didn't sell. Someone has a reason not to like every game ever made. The problem with that is you can come up with the same complaints for well reviewed games. Often the review will say something like : this has been done before, or that style is a little annoying, but.. it's a great game.
Final nail in the coffin of this theory for me is having talked to many game review editors and having worked with a few, they will often tell you that they don't always expect to shape opinion as much as parrot it back. As one person used to tell me, most people read our reviews to validate their purchase or get our take on what they are playing.
And then to your challenge. Good games that didn't succeed. How about Midnight Suns, Lock's Quest, Space Marine, Company of Heroes II, Maquette.. that's just off the top of my head. If I thought about it I could make a really long list of game you've never hear of. This is probably the same for everything: music, novels, etc.
They make extremely niche RPGs that routinely rate >90% in positive reviews on Steam and they've never had an actual hit. Pretty much the definition of cult classics.
I don't think you're thinking of this in the right way. Crafting media and creative products of all kinds is like playing poker. You can go all in or you can make little bets where you think you can win.
You're making the assumption that the way to win is to GO ALL IN.
When in reality whether you're making AAA games or a small indie digital artist like Darius Kazemi...
https://www.youtube.com/watch?v=l_F9jxsfGCw
(Went to high school with him. Amazing guy. His senior project in the electronics lab was a teddy bear that could detect seizures.)
Luck. Word of mouth. Anyway, things you can't control (and can barely influence) as a developer/publisher. So, we face the notion that, perhaps, if we want people to take the risk of creating and sustaining a business for reasons other than simple profit (say, to provide a needed or pleasant service), the proposition might need to be better than, "Succeed or die (sometimes literally)." Because none of it's a sure thing, and it can't be, but sane people generally aren't going to bet their life or livelihood on a risky venture (assuming that irrational passion is a form of insanity).
Which doesn't mean they aren't necessary conditions. It just means they aren't sufficient conditions. A game needs other things too, one of which may be luck, and others of which may be incompatible with the private equity model.
I think Stardew filled a niche that wasn't being catered to. There were no Farm Sims that weren't a cash grab released since Farmville. Stardew caught all the people who remembered Harvest Moon fondly.
This is what people mean when they use the term soulless capitalism. The increasing financialization of everyone leads us to optimize for the things we can measure assuming those are the things that matter, and in the end the optimizations erase everything good.
> The founder of Costco told a CEO who wanted to raise the prices on Costco's hot dogs: "If you raise the effing hot dog, I will kill you. Figure it out."
> because it was cute and had a soul and is fun to play.
I'm a full on stardew addict. I was waiting for a game to rekindle the feeling I had playing the original harvest moon on snes. natsume just made a ton of crap sequals focused on making it all 3d.
concernedape, distilled the snes version down to what made it fun and built it up fron there. it scratched the itch better than any of natsume's sequals ever could.
We live in a time where almost everything is getting worse. Products are getting smaller, service is getting worse, businesses are closing, quality is going down. I don't think I've ever experienced such an obvious decline in commercial society in my entire life.
Is it the financialization of everything? Is that we reached peak growth and profit increases are only possibly through extreme optimization? Is it financial inequality?
Sometimes it's monopoly. Not this time, though; Red Lobster was a minor player.
Red Lobster was a leveraged buyout. (Most "private equity" is leveraged buyouts. The buyer seldom puts up full cash.) Plus the equity to debt conversion.
I was just wondering if it's just me feeling like everything is on a highway to terrible.
- Prices in my city, just this year, have felt like they've jumped 10 or 15 percent.
- I've been working in tech for a decade now and for the first time a new company simply refused to negotiate salary.
- I feel financially worse off than 5 years ago making a third of what I make now.
- Housing prices have exploded. I worry I will never own a home.
- Denmark has started deleting public holidays to save our social welfare state.
- Health care is the worst it's ever been. You can not get basic health diagnostics for most things in Denmark without screaming.
- Europe has a literal war at our doorstep.
- Public transit prices have jumped in the last year.
- Good quality grocery stores have closed and been replaced with discount chains. The quality of the produce is terrible.
- Democracy feels increasingly shittier and hijacked by two extremist poles of very-online meme-thought.
- Gen Z is looking like the most garbage generation of the last two centuries with more mental illness than any generation in history.
- Everything has become a political lightning rod.
I feel exploited by invisible forces I can't see or touch or name. I feel as if I have no mastery over my own life. I no longer know why I continue to contribute to a society that does not give anything back to me for my labor and exploits the best years of my life for taxes that do not improve my lot in life.
Can someone tell me everything is going to get better?
Boomer checking in. I totally blame my generation. We spent our whole lives sucking the long term value out of everything we could, for our short term gain. Leaving your generations with massive debt and nothing to show for it. You’re welcome.
Yea, I hate generation wars, but it seems to be increasingly true that most of the economic value created in the last, say, 50 years, was currently either 1. captured by a few extremely wealthy individuals, or 2. locked up in the retirement accounts and real estate of people over 60 years old.
I feel like we (the younger generations) are all sitting here holding our breath in this stasis, waiting for that generation to die, and hoping those portfolios somehow get magically spread across the population. I don't know what mechanism is available to do that spread, but if it doesn't happen, where will all that locked up wealth go?
You are in Denmark? WOW!! From here in the US, my impression of Denmark is a small country of really smart people with gorgeous women having really good lives!!! Your post questions that impression ....
Here in the US, there are what seem to be related issues. Opinions about what is wrong and why differ. It can seem that we don't address the issues or what is wrong, for example, it can appear that the media believes that making clear the issues and faults are too deep for the audience of the media. For example, so far I've yet to see good engineering style graphs of even the basic measures from the economy, health, education, happiness, etc. In simple terms, the birth rate is so low we are going extinct -- some graphs over time might provide some insight. To avoid going extinct should be worth some graphs of related data?
Here is one guess: Some people want more government involvement, activity, services, ..., at the national level. Involved are money and power, money collected from taxes and/or borrowed and then spent and the people spending the money getting power. Then for the money the guess is that the spending is too inefficient, that is, too often wasted. For the power, it can stop what might be solutions. So, with the waste, we are throwing away our efforts, and with the power we are blocked from better approaches.
For this view, the US has some old images, from history, the movies, some parts of education, and even from some of recent history: So, the old images are from, say, the movie The Big Sky from the 1830s of 20 or so men and one Native Indian woman leaving Saint Louis on the Mississippi River (major US river from the north east going south and dumping into the Gulf of Mexico) and the Missouri River (from the northwest of the US close to the Pacific Ocean and flowing ~2000 miles to the Mississippi) to trade with the Blackfoot tribe to give them woven blankets, guns, tools and get beaver pelts.
The whole effort was lawless, that is, no government, laws, police, political power, regulations. So there was fighting, killing. No medical care, so there was suffering. There were lots of injuries from struggles with the river. It was all highly risky with lots of struggles and losses but in the end successful.
There were more such movies about the US, people on their own, risking everything, fighting, struggling, having failures, in the end being successful. There was Henry Ford, the Wright Brothers (had a bicycle shop), etc.
To the present, there were two guys at Stanford University in a project for indexing the contents of libraries. They thought of indexing the Web sites on the Internet and were offered ~$1 million for their work and Web site. They turned down the $1 million, started a company, and had success. It was all risky. It's now worth ~$1 trillion, called Google. Other successes, risky, one or a few founders, include Microsoft, Walmart, FedEx, Facebook, Amazon, Burger King, McDonald's. One guy, sole, solo founder, used some old Dell computers, an early version of Microsoft's Windows and Web software ASP.NET, built a romantic matchmaking service, grew it, ..., and sold out for ~$550 million.
Mostly these successes are examples of significant increases in economic productivity, that is, how much utility get from each hour of work. Personal computers? Killed off the typewriters with just astounding increases in productivity; same for email; Zoom, .... In cars, using digital electronics to get fuel mixture and spark timing a lot better resulted in the engines lasting much longer -- if looked carefully into what was going on with the old carburetors and breaker point ignitions and the huge ways they were wrong (unburned gasoline diluted the engine oil and, thus, wore out the main engine parts) can understand. Tires -- progress in the synthetic rubber chemistry made the tires last much longer, maybe 5 times as long.
The theme is, as in the movie, leave individuals with a minimum of taxes and government power and let...
I think the big successes that you describe are the exception rather than the rule. I think you'll find the majority of economic success comes from simple rent seeking -- whether literally as landlord, or as financial service, or otherwise being in middle.
With all the significant increases in economic productivity that has not benefited the average American. We can see historically that as productivity has increased, the wealth of individuals has decreased. We like to think of utopia where increased productivity means we would all get to work less and have more but that isn't how capitalism works. We have made everything significantly more efficient and continue to do so but who is benefiting? For most people things are getting worse because that is actually more efficient.
> leave individuals with a minimum of taxes and government power and let them try and take the risks.
Living in a country with a good social safety net is pretty helpful for risk taking. It's a lot easier to quit your job and start a business when you don't have to worry about losing health care and potentially dying or going bankrupt.
> I think the big successes that you
describe are the exception rather than the
rule. I think you'll find the majority of
economic success comes from simple rent
seeking -- whether literally as landlord,
or as financial service, or otherwise
being in middle.
So, $1 trillion companies versus some guy
with $400K a year from 15 well run
convenience stores, .... We have a lot of
both.
> With all the significant increases in
economic productivity that has not
benefited the average American.
Maybe not in comparative terms, i.e.,
maybe the distribution curve for wealth
has not changed much.
But in absolute terms, some of what I
listed are huge benefits for "the average
American":
Nearly no one in the US would want a 1950
Ford, forced to use a typewriter instead
of a word processor on a computer, news
papers on paper instead of the Internet,
no mobile phone or Zoom, 1950s health
care, lath and plaster instead of drywall,
oak flooring instead of vinyl (cheaper and
more durable), microwave ovens, synthetic
yarn in cloth and clothing, in general, as
in the famous movie, no "plastics",
railroads and busses instead of airplanes,
no summer air conditioning, no gasoline
powered lawn mowers, no calculator aps or
pocket calculators instead of adding
machines, no computers instead of punched
cards, car tires that wear out in 20,000
miles instead of 100,000 miles, elevator
operators instead of electrically
controlled elevators, etc. ....
If you gave Americans the option of those old things but also a single income could house, feed, a clothe a family of 5 I think it might be closer than you think. It's not fair to describe what we've gained without describing what we've lost.
My parents owned different homes their entire lives. I make significantly more than they ever did and don't and could never afford my own childhood home. My children are even worse off than that.
Maybe some news source would publish a graph over time of the ratio of house prices to, say, prices of gasoline, ground beef, carrots, a wool blanket, a car, a refrigerator, etc.
We are very short on news that has credible information, gets to causes, presents like STEM field information, etc.
Also the appliances in my childhood home weren't energy inefficient but they were solid. My current fridge is full of cheap (and broken) plastic. My new stove lasted just past a year before a part that cost 1/5 the price of the entire thing broke. You can get appliances with a touchscreen but you can't get one that will last 20 years anymore.
If it wasn't for government safety regulations that 1950's Ford might actually be safer than what would be produced now without them.
I see this all around me here in the US, and feel the same way that you do. Ironically, some Americans see this as a US-centric problem, and look at places like Denmark as an example of a country that still has its shit together, but your own comment seems to confirm that we're in the midst of a global cultural malaise that could probably give the 1970s a run for their money.
We have a total lack of competent leadership across all institutions -- political, commercial and social -- increasing extremism and authoritarianism from every political faction, and cynical short-term thinking from every economic institution. Everything is drowning in mediocrity and pessimism, and society is increasingly dysfunctional in every aspect. Extremists keep proposing authoritarian political solutions, but I see their proposals only as even worse iterations of the problem. What can we do about it, apart from admitting defeat and going off-grid in the mountains?
I've been thinking about this a lot too. It just feels like all ends of the spectrum, for a consumer, are crashing down. Everything is harvesting and selling data, stock at stores is low and usually favors the generic (and sometimes lesser) option over the higher quality names... Apps like facebook, twitter, IG, tiktok, reddit, and youtube are making life worse for their users. Overall, it is kind of a depressing time to observe.
Most people used to believe in Jesus Christ with values built on the Bible. That was true from lay people to Ivy League colleges to even folks in prison. His blessings with His accountability both made many good things happen and limited lots of damage we’d cause. America was prosperous as the Bible said it would be.
Over the decades, people turned away from God and those values to chase new ones: money first, pleasure first, self/ego first, atheism, subjectivism, Marxism. These by themselves, if increasing enough, guarantee massive amounts of suffering for people. Whereas, the fruit of the Spirit in Galatians only does good for people when you increase it. Society made their choice.
As in Romans 1, God handed us over to our depraved minds and sins to let us feel the full consequences of selfish, godless, subjective societies. Everything has gotten worse. The solution is to repent and turn back to what God gave that worked before. Then, gradually improve ourselves in any weak areas. Wr must bake righteous values back into our families, businesses, and government. Inward change creates positive, outward results.
When and where did that really ever work? Evidence please. The bible says nothing about America. I assume that abolishing slavery was where we turned away from biblical principles.
You don’t even really need it. You can go right to the roots.
Let’s compare two sets of things on a basic level.
1. You know God will judge what good or evil you did at the end of your life. You factor that into your decisions.
2. You think we’re an accident, nothing matters, people are just over animals, actually just chemical reactions, universe itself disappears in enough time, nothing matters in the long term unless you say so, and no accountability for any horrible thing you did.
Which is more likely to lead to righteous behavior? Which is more likely to lead to destructive behavior?
Next set are Christ’s basic commandments vs the world’s:
1. Love and obey God first. That means truth, justice, avoiding self-destructive behavior, family, and good work ethic. From there, love others as you would yourself in all your interactions with them.
2. Do whatever you want to whoever you want. It might be limited by whatever is popular at the time which will change. The Devil has most media focusing on individualism over family, squeezing max profit out of everything, and chasing pleasures with reckless abandon.
Which of these logically creates more good? Which leads to more damage?
I think we could stop there. The consequences of just those differences in believes are tremendous. Those in set 2 are currently doing the most damage in all areas of life. They include people who identify as Christian but don’t live like it. Lip service.
Whereas, my first-hand experience with hundreds of people following Christ and Biblical teaching is that it’s working. Their problems often come from sin, not obedience.
I haven't observed any correlation between belief in God and righteous or destructive behavior. Seems like most theists and most atheists try to live the virtues you've described as best they can.
I'm an atheist, and I do my best to live those virtues because it's just the right thing to do, and because it feels better than the alternatives. I don't think I'm exceptional in not needing a final judgement to make me want to be kind, honest, work for justice, live with integrity, etc.
Much respect to my theist brothers and sisters, and please consider that your atheist brothers and sisters are worthy of respect as well.
Yea, Spinoza effectively argues that the Commandments were necessitated by practical utility to control the unruly and uneducated masses and have since become even more bastardized by sectarian religions that wield these appeals to control people and actually prevent them to fully getting to know "God", which he finds entirely possible through reason alone.
And humorously, the latter of each of GP's respective points map pretty well to the destructive effects of what Nietzsche most feared of what he sensed was impending nihilism. Tho the difference, among many, is that "belief in the Christian God has become unbelievable".
We do evil for selfish reasons. God’s Word says the Father draws us to Him, faith itself is a gift He enables, and those who repent receive eternal life and close fellowship with God Himself. Then, His presence in our lives in many ways from changing character to answered prayers. Committing to rebellion in this life gains us nothing in the long term in comparison.
A sovereign ruler who is just necessarily has to enforce the law. That sinning against a perfect, loving, and good being would be punished severely shouldn’t shock you. It would happen in human, legal systems and likely your own house.
The beauty is God’s mercy outweighs His wrath. The wages of sin are death but the free gift of God is eternal life in Christ Jesus. He took the punishment for us so we can just turn away from sin and back to God. Then, He never lets us go. You do have to put your God first, though.
The parent that I originally responded to asked a broader question about why we’re seeing declines, esp moral and quality, across many areas of life. They were wondering if this example was one of a general trend happening. I showed it was.
There were also predictions about what would happen if we followed Christ and His model vs other models centered on selfish gain. The other side denied the Biblical truth saying we’d have a better America with godlessness, capitalism, and/or communism. We’ve had time to see where those philosophies would take us. What happened?
God’s Word came true quite literally in many ways while the godless’ predictions were wrong with damaging results. So, the rational choice between multiple worldviews is to think the one that works and has correct predictions is true (or better). And then commit to Christ and repent.
Now, let’s tie that directly into Red Lobster:
1. Christ-like business over worldly greed would have the new owners not sell the real estate the business depended on.
2. Jethro and Paul said to pick leaders of great character and wisdom who aren’t sellouts. They’d have managed it better.
3. Humility in the service sector means constantly listening to customers to adapt to their needs since we put others first. Red Lobster would’ve changed with the times in some way which might have worked out (or not).
4. Proverbs focused on equitable or profitable arrangements. Jesus said to count the cost before you commit to a plan. The Bible often says to seek counsel. These would preclude all you can eat shrimp every day.
In short, Biblical morals would’ve prevented every aspect of this situation. Whereas, godless, unloving capitalism… all those together… naturally leads to things like this. If you will benefit from, but never be held accountable for, destroying the chain… why not make a fortune destroying it?
lol. congrats on working a sermon into a post about red lobster but... this is exceedingly poor argumentation if your goal is to actually convince anybody.
it's spot-on if you just want to feel good about yourself though. you start off with a whopper of a false dichotomy and strawman, and don't improve from there.
Good morals are basic math: create the world you want to live in. Golden rule and all that.
It turns out that Allah and Vishnu are both quite popular. And none of it supported by actual evidence. We can do better. God's plan is never to reveal that God makes any sense, just random whims. The immoral false prophets get rich and influence millions. So, gotta wait until you die to find out? Maybe. But the Abrahamic bible is so full of misinterpreted BS as to be unusable.
Yea, I dislike that frequent atheist rejoinder cuz it totally misses the point; religion is concomitant and merely used as a pretense. Which I equally dislike, I wish there were more transparency about one's innate will to dominate rather than masquerading behind fictitious ideological claims.
In another article, America was rated as the most Christian with the most missionaries. Yet, it’s had hardly any wars motivated by religion. They’re usually about the selfish motivations of non-Christian worldviews.
Whereas, Communists have killed tens of millions of people, cultural Marxism is spreading in universities, and that should worry people. You might want to cite liberal beliefs and atheism as top killers in future comments.
As an American Millennial, all my life I've seen Christians who talk about love and charity on Sunday, and then work the rest of the week to lower taxes on the rich, shame women, and get as many guns into as many American hands as possible. Ultimately, they found their political apotheosis in Donald Trump, who seems to be the physical manifestation of the deadly sins. If he was created in a lab by Atheists to prove that Christians are hypocrites above all else, they could not have done a better job.
I'd suggest that if they want more Americans to live the values preached by Jesus, they should try starting with themselves. I don't know how many people they have turned into Atheists with this behavior, but I can say for sure they did for me, and I suspect they have alienated many others as well.
Somewhat ironical, but I'd be a bit more charitable and simply chalk that up to edge cases; additionally it's no different than typical ideological signaling. I find it less interesting to care about the extent people can bastardize a given idea, also because that's an entirely different, sociological issue.
Tho really any belief system that becomes so institutionalized will inevitably attract flies and become debased over time. However one could cheekily remark that by virtue of its message and who it spoke to, early Christianity was inherently debased, and certaintly ignoble.
There are certainly many people who claim to believe in Christ while committing many sins. There’s also tons of atheists and liberals with similar sins. It would certainly help if people acted in line with their values. Also, if they stop causing others harm individually or politically. I’m with you there.
As I look at the Word, we see Jesus Christ promised that anyone who repents and believes in Him would receive eternal life by how good He was, not our own works. It’s a gift of grace. From there, John 15 shows real believers who are in the vine bear the fruit. We’re all steadily changed over time (sanctification) to be more like Him. So, we’ll all have faults.
Even in God’s Word, we see all kinds of sin in the churches. They have fake leaders, people about money, sexual immorality, ego, and James says they starve the poor. Yet, apostles call them “saints” because Jesus bought their future. Instead of discarding them, the apostles keep exhorting them to improve to become who they need to be. Anyone that confessed and made an effort would make it.
Whereas, we can’t let any excuse… ourselves or others… separate us from Christ. Apostasy leads to a worse fate than non-belief if one never returns. John says Christ will never let anyone snatch His real sheep out of His hand. He’ll forgive anyone that returns. I encourage you to return to your first love and find a Biblical church (eg GiveThemLife.com has help).
On an individual level. God promises them national prosperity for obedience in Leviticus and Deuteronomy. There’s curses for disobedience, esp turning away from God, that are very specific. Then, we see those patterns happening in the following books for Israel and the other countries. We’ve seen both happen in the U.S.
> Over the decades, people turned away from God and those values to chase new ones:
Most people leaving the church today do so because of how hateful and toxic the modern US church has become over the recent decades. If you don't like Christians leaving the church for Marxism, you shouldn't have let Marxism be the only ideology loving thy neighbors while the church was too busy chasing the delusions of white supremacy and Christian Nationalism.
I'm a little bit concerned about Jesus crashing the fishing industry by dumping product onto the market at prices that are too low for anybody else to compete with. It would be especially bad if it triggers some kind of broader trade war. It would be better if there was some way to quantify the risk involved.
In case it helps you, I find the following products / services have improved their quality and offering in the past decade:
TVs: I get a much nicer TV now for the same amount what I paid for a crappier one in 2012
Smartphones: very powerful and do a lot of things better (eg. camera, connectivity)
Entertainment: Netflix, HBO, Hulu, Prime, ... you can pick 1-2 of those, binge all you want and then rotate. Costs < 30$/mo
Travel options: Ok, even in 2014, there were very good travel options. But I see a lot more options these days (direct flights from SF, more obscure locations on the travel map etc)
Cars: I bought a new car in 2021 (previous one was 2010). New one is cheaper and has some nicer features (rear view & other cameras, various warning signals)
Sorry, I don't think that helps at all. If anything, it comes across with a "You should skip the avocado toast" energy.
The vast majority of these things are not all that important to most people, not like prices of groceries, household goods, clothing, energy, childcare costs, transport costs..etc.
I don't care that cars have nicer features now, if buying a new car is most of my annual wages pre-tax. I don't care that I can fly to more interesting destinations from SF when I can't afford to go to urgent care without having to switch to rice and beans for a week. I do on the other hand care when my grocery bills double unless I spent multiple hours a week collecting coupons and driving around to find sales. I care when I have to wake up in the morning shivering because I can't afford to keep the heat at even close to a comfortable temperature.
> The vast majority of these things are not all that important to most people
Hmm I don't think you and I share the same definitions of "most people" then, or "important" for that matter. Just to give 2 examples:
>85% of US adult population uses smartphone. The way smartphone revolution has occurred and the big role they play in our lives (entertainment, communication, public services, finances) in just 15-16 years since its invention is truly astonishing.
>90% US households have a car. ~40K Americans die every year in car road accidents. Improving car safety is literally a matter of life and death and numbers prove[1] that we are doing better over time.
Corporate consolidation, some would say. IIRC, at some point in the last some decades, the US got the bright idea that antitrust isn't really worth enforcing if potentially anticompetitive business practices and mergers can also result in lower prices.
That kinda works— Until a small handful of corporations gain enough power that there is not really any meaningful competition anymore, and they can effectively engage in price-gouging with monopoly power. Which has now happened, apparently, in most industries. …Hence everything getting worse.
…I think there was an article I read some time back that explained it really well. But I can't seem to find it, so these links will have to do. The Guardian/Youtube ones might seem clickbaity, but that man was also Clinton's Secretary of Labor:
Ticketmaster, Facebook, grocery prices, even the Boeing 737 mess— I suppose a lot of these problems do basically come down to a company or an oligopoly getting so powerful that nobody can hold it accountable anymore.
It’s what inverting the age pyramid feels like as the average age of society keeps increasing and risk mitigation becomes the meaning of life, espoused in phrases like ‘stay safe!’
We are slowly in the midst of going through a black plague of sorts when it comes to the % change in population that is occurring, except we will be left with an elderly population instead of a dynamic healthy and young population.
This is the reason I've always been a detractor of purely relying on "data driven decision making". Being data driven is great... if paired with intuition and common sense.
But what ends up often happening is data-driven myopia. You see some statistic that doesn't seem optimal and you end up optimizing for that instead of figuring out how it fits into the big picture.
Restaurants, at the end of the day boil down to food. You serve food. People either like the food or they don't. How many customers you get is a function of how much people like the food, how competitive the pricing on the food is, and the market you're in.
Red lobster at the end of the day suffered from people not wanting to pay what they were charging for low quality, uninspiring seafood dishes.
People nowadays are struggling more (spare me the CPI data, hedonics and other basket adjustments mean the situation for most people is quite a bit worse than it was a few years ago) and there needs to be a value prop for dining out.
> Restaurants, at the end of the day boil down to food. You serve food.
To expand on this a little, restaurants serve food in a building brought to your table by people. If the building/table/environment is dirty or just uncomfortable people don't want to be in it. If the people preparing and serving the food are doing a bad job people won't want them doing it. If a restaurant drops the quality of the food, environment, or personnel they are going to lose business.
As you say it's the value proposition. I go to a restaurant because I want to just pick a food, eat it, and leave. The "hard" parts of cooking and cleaning are someone else's job. All restaurant patrons are willing to pay some premium over the cost of the raw ingredients to save their time and effort. But as the experience gets worse that value proposition starts to erode.
For me and I imagine many people the experience doesn't need to be mind blowing. It just needs to be not shitty.
What I don't understand is the value people place on waitstaff being enthusiastic to serve you. I don't care, as long as you they take my order and check on my drinks.
That value proposition is typically that the experience be enjoyable. What makes it that varies, hence a variety of restaurants to choose from. If I am inconvenienced and have to chase down wait staff then that nudges the experience to the 'non-enjoyable'. If I run out of something to drink while I am eating, that nudges the experience. If we are sitting and having after dinner drinks/coffee and talking, and are surrounded by dirty plates, that nudges. If we just boated to a restaurant after a day on the water enthusiastic comes to play (we want a happy fun experience). If it's a business dinner, enthusiastic could be a detriment.
You're the person who has encouraged this bizarre behavior where waitstaff come to pull away my plate the second they think I'm done. No! Leave it unless it's completely empty, I've asked you to take it, or the next course is about to arrive.
Data-driven X is a semantic trick to absolve people from owning their X and being accountable for it; decisions just happen to be the most damaging usage. Let data _inform_ you.
The catch-22 is that being data-driven means being driven by what data you can measure. And that is an absolutely gobsmackingly fatal flaw.
For a 1000+ page exposition on why this is such a fatal flaw see James C. Scott's 1990s tome "Seeing Like a State" which addresses precisely this issue with receipts brought from fields ranging from agriculture, urban planning, politics, family naming systems, and more across at least 4 or 5 continents and a century.
It's an essential non-partisan read that manages to piss everyone off by being a peon to left anarchism in many ways while saying "actually yes Hayek was right about sensitivity to local conditions" and "actually the NHS and NWS are good and sometimes centralized planning isn't the worst solution".
I've not seen any direct link between them but I feel like you can draw a very firm line between it and Piketty's Capital and Ideology. You might think "wait isn't Piketty the guy who's completely data driven and publishes stupidly large amounts of xlsx files as appendices" and you'd be right except in his second book he's leaning far more heavily on sociology and just using financial data (much imputed from tax records) as support for sociological arguments that align very closely in many respects.
The problem is that executives will ask "what makes Stardew Valley successful?" and never make it to this answer:
A developer who genuinely cares about the quality of the game, interacts positively with the community around it, and makes decisions that demonstrate his caring for the game and the community. Specifically, decisions that often leave revenue on the table, particularly in the short term but arguably in the long term as well.
That sort of caring is largely impossible for private equity, and it's really hard to successfully fake.
I think there's an even more-overlooked factor that most people never get to: Good-old random chance in timing and markets and events.
We humans are hardwired to hate that idea, we always want an understandable story with distinct causes and effects... So much so that we will often invent one, even for things we "know" are random, like: "Okay, now the next one will almost certainly be heads, because..."
It's a failure of our internal simulatory abilities. People are usually much more confident in their counterfactual beliefs than they have any right to be. Self reinforced internal narratives ("if only this had happened then this would have happened") seem necessary in order for us to maintain confidence in our predictive abilities. I wonder if we were truly aware of the surrounding cloud of possible alternative outcomes, if it'd be paralyzing for otherwise mundane activities. How many times do we escape death by the thinnest margins everyday, without ever being the wiser.
I think this is naive. When (for example) a private equity fund buys a casual dining chain, they will go through how the business is run in painstaking detail and try to understand exactly what makes the experience 'work' and what changes are possible or advisable.
If the olives in the salad don't taste as good or there are fewer breadsticks or the lighting makes it feel more relaxed or the greeters have more time or the menu gets shorter or the desserts arrive quicker or the pasta is less salty, that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there. There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim.
If the food gets worse and it just doesn't have that same vibe anymore and you don't want to go there next time, it's because an expert in marketing or restaurant management or food design made an error in their judgement about what they could cut, what they should improve, and what they needed to keep the same. That, or the change which turned you off attracted more customers or more desirable customers who have different preferences to you.
Your restaurant changed because its corporate policy changed. But the capital structure is totally relevant in understanding why that changed.
> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim.
Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money".
> that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there.
Evidently not really taking the factors into account.
Would the limited partners eat there? More than once?
I don't see the relevance of this. No one eats at Red Lobster thinking "this is the exact dinner experience that billionaires would design for themselves".
Walmart is a family owned business. Do you think that the Walton family buy groceries and home furnishings there? McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there?
What makes you think that PE equity owners have any different incentives to any other chain restaurant owners to cut costs and improve margins??
Why would you think that private equity owners would ever make things worse to improve margins without giving careful consideration to whether or not the changes will make people less likely to spend money at their restaurants??
Because PE equity owners DO have different incentives. It's reasonable to think things that are true.
PE is incentivised to squeeze the business and extract the value built up over time, to get large, quick returns, even if it destroys the business (they can sell the corpse after). A restaurant which delivers regular, single-digit restaurant margins indefinitely would be considered a PE investment failure.
So, the answer your 2nd question is also "because it's true". I'm happy to be convinced otherwise on either count, if you think differently.
You've just repeated and rephrased the claim that I challenged without providing any evidence or argument at all. Your actual answer to both questions is "because I believe this".
Can you explain how the math works that PE owners make money from discouraging people from going to a restaurant, and other owners don't have the same incentives?
I explained the difference in incentives: Restaurant margins are a PE failure [0], that alone would explain it. Your framing of the scenario as "discouraging people from going to a restaurant" is... less than charitable. A better description would be "extracting the value of customer goodwill from the business and moving it into their pockets". They're PE, they prioritize big, fast returns over long-term customer value and small, slow returns.
Add to that, the leveraged buyout mechanism that Red Lobster went through is famous for siphoning value off the target in the form of fees and other schemes, and then leaving the empty husk to die under crippling debt[1]. A clue here is that the 2nd paragraph of the article we're discussing is, "In mid-April, Bloomberg reported the debt-laden seafood chain...", and it sounded like they had trouble paying it in part because of the rent payments that started when the PE firm sold their real estate to pay for the buyout.
Can you explain why you think anything I've said so far is untrue? After all, we can't assume a PE LBO executor and a small business owner have the same incentives unless we have sufficiently convincing evidence to support that assumption.
You've replied with the same trivial urban myths that are endlessly repeated about private equity.
You've compared the incentives of private equity and a small business owner. Do you think that Red Lobster was previously a small business?
Why can't you answer the question on the different incentives that apply to different owners of large businesses? If a private equity fund can make a profit by buying a successful business, discouraging all its customers and then "selling the corpse", why can't other owners do the same thing?
Why does the company having a large amount of debt change the decision a restaurant chain's management makes between selling cheap and good food, or cheap and bad food, or expensive and bad food, or expensive and good food?
Literally everything that you've said about this has been handwaving and rumours. Explain the decisions based on where the money comes from and where it has to go to, if you can (you clearly can't).
You citing Nabisco as the best example of what you believe is comical since it's from 40 years ago (and famously fraudulent).
Other end goals than making people happy by serving good quality shrimps for a reasonable price? Obviously they do.
Other end goals than making money? Of course they don't. But neither did Ray Kroc, who was extremely upfront about how McDonald's is a business whose strategy is to acquire real estate, funded by burger sales. Neither do the Waltons, who aggressively cut margins on all their products and compete to drive other retailers out of business. (Neither does General Mills, who used to own Red Lobster, nor Darden Restaurants, the public spin-off that owned Olive Garden and Red Lobster, nor Starboard Value, the activist investor that pushed for Red Lobster to be sold.) None of these companies exists because of a high-minded commitment to customer service, or fair play, or delicious food.
If turning a viable restaurant chain into a chain that no one wants to go to and then selling it is an attractive business proposition for private equity, than it should be for McDonald's and Walmart too. Unless you can point to some specific causal connection between the ownership structure and the decision about whether or not a restaurant should serve stuff that people actually want to eat?
The example of McDonald's acquiring value through real estate, funded by the business, is pretty poingnant, considering the PE firm here did the exact opposite: sold all the valuable real estate and rented it back from the buyer under crippling rent payments, funded by the business.
Why did the PE firm do that when McDonald's didn't?
Because the PE firm had partners who bought the underlying real estate for themselves.
I'm sure that there are PE firms that really do try to make businesses successful and profitable, but the vast majority are in it to sell off anything of value and dump all the ensuing debt into a company that will shortly go bankrupt.
If you own a company, and a PE firm buys one of your clients, that should be a hint to require prepayment for everything they ask for after that. They will leave you holding the bag as a creditor.
Your first point: this would obviously be serious fraud. I'm not sure if you have any evidence of this in this particular case or is you are alleging this is standard practice by PE funds?
Your second point: why would someone lend money to a company which was going to go bankrupt? If PE firms always made the companies they controlled bankrupt, no one would lend to them.
Your third point: if someone buys a company from you, how does it make you a creditor of the bought company?
It’s not fraud if the sales are advertised and fair… even if they’re not widely publicized. But that was just spitballing.
For 2), people loan to the PE firm because they extract all the value for themselves. Their creditors get paid. People who loan to PE-controlled firms don’t seem terribly wise to me, but maybe they can model them like junk bonds.
For 3), if the firm buys one of your clients, be cautious.
> I saw a Twitter thread arguing how the video game Stardew Valley succeeded due to the way it was marketed. Marketing is important, but maybe the game succeeded because it was cute and had a soul and is fun to play. You can't measure that.
Thought leaders seem to know everything except when to keep their mouth shut for once. But I digress...
If firms are being punished for poor quality, then the system is working, even with enshittification becoming more commonplace. All of the Very Important Business People can sit around and scratch their heads about why the market seems to change on them when they screw up their offering, and they can consult overpriced business fortune tellers to reassure them that it was that pesky market's fault, but that doesn't change the outcome.
I'll miss Red Lobster's cheesy biscuits, but if they've dropped the ball on quality they had this coming to them.
Quality control and management ... seem to be the secret sauce to restaurants and are amusingly unrelated to the actual food / recipes and etc.
I too have a few local places that despite being busy and great food for ages, suddenly couldn't keep good people working there. They were doing great then just fell on their face.
I suspect that they just couldn't adapt to it being more difficult to retain / keep good people and everything else suffered.
Dominoes Pizza (US national pizza chain), seems to be the alternate story, long time bargain pizza chain with poor quality.... got better quality pizza and reportedly took off again.
This happened to a local sports-bar chain around us. It was always decent and our first choice for family nights out, but after Covid it went downhill, locations closed, and the last location close by just started falling flat... empty even at busy periods, no wait staff, declining quality, etc. It just up and closed shortly after.
Lately for pizza I've only been ordering from Dominoes, mostly because it's sort of cheap but also consistent.
Not fantastic, not bad, but always pretty good.
I hope they keep up with it, whenever I go in they always appear fully staffed and in good spirits.
For my poor friends the whole 'emergency pizza' thing was amazing marketing. Every other company is actively screwing them, increasing rates to unaffordable, shrinking sizes. Domino's not only stayed affordable, but said, hey, times are though, if you get in a crunch, here's an emergency pizza to fill the gap. Friggen' overdraft protection on food for their kids. The amount of good will that corporate marketing campaign brought in that group I can't even tell you. I'm talking about the single dad's working two jobs, moved back home with their parents segment. They now feel like Dominoes is the only company that hasn't f'd them. They actively talk about Dominoes randomly (we guys don't have much to talk about but still it doesn't normally fall to discount pizza discussion).
Yep, it's the food. There are many famous 'food destinations' around the world. Usually the line goes around the block. You always have to wait, either in line, for a reservation, etc. People wait because it's worth it. The food is good.
Well, it's could also have become a meme or whatever the right term is. There's a lobster roll place in a Maine coastal town that always has lines around the block with maybe hour waits. There's a place right across the street that IMO is just as good--as are a bunch of other Maine coastal places you've never heard of.
I used to really like Red Lobster, for the money they were quite good. Their cheese rolls are still great. That being said, I haven't been in years. Just the other day I went to a Chili's, I remember going to Chili's all the time in high school and college. Hadn't been in a while. The food quality was just so off from what it used to be. I was really disappointed. I honestly am not sure what these restaurants are thinking. Menu restructuring to cut back portions and also quality control is a significant problem. The only "fast casual" restaurant I can think of at the moment that has maintained its relative quality is Outback.
I stopped going after a waitress mentioned my mozzarella sticks were still in the microwave. As I sat there, thinking about the Sam’s Club cardboard box they might have come from, I realized that many restaurants probably do the same. However, I had hoped Red Lobster would at least use an oven.
I assume Red Lobster preemptively lowered the food grade and the service labour costs to avoid raising the prices in their menu drastically. We've had a wave of very strong inflation pretty much worldwide - or at least wherever there have been covid lock-downs and huge government payment schemes - and for many businesses, especially those that already operated at the margin of profitability, this has been their death knell.
I'm not so sure that Red Lobster would have survived if instead of lowering the quality of the product they'd have just raised the prices by say 80% overnight. I mention 80% because that's how much many hospitality businesses have raised prices in my area in London since the pandemic.
I've seen businesses go bust here that have tried both things:
- lowering quality and raising the prices by less than the average
- maintaining roughly the same quality and service but raising prices drastically
Plenty of examples in my area of businesses just collapsing with either strategy. People simply would not accept the new prices in many cases.
A business that is sort-of a luxury business like those specialised in oysters, shellfish in general, high-end cuisine etc only a very select few have survived. Those that are large chains have suffered the most, because they are not seen as so much of a special expenditure and people would just stop going.
Red Lobster perhaps would have fared better by not reacting and simply raising prices. Who knows, it's easy to make the counterfactual scenario in the abstract.
I'd like to see business schools codify "brand value extraction" or "enshittification" as explicitly unethical. Any activity that degrades a brand for short-term cashflow--and is reasonably know to decrease future business--is necessarily fraudulent.
If that is codified and taught, then journalists can point to that in all cases (of which we are overrun). It's pathetic.
In this context (the idea of making this unethical), a brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value.
But I'm guessing you knew that and disagree. Care to be more forthright?
> brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value.
Well for one, every new business is initially built on investor money, not profits, and "cashing out" is in the eye of the beholder, so I'm not sure how you're going to get everyone to agree on where the line is.
Furthermore, I think cory (and many of the folks here who have fallen in love with the term) misunderstands why platforms decay. Facebook doesn't suck because it is trying to please business customers at the expense of its users. Facebook sucks because it is attempting to please 2B users all at once. Every new little feature or notification or ranking change is loved by millions of people and hated by millions more (and merely tolerated by the vast majority). If the former is greater than the latter, it gets shipped to production. Rinse and repeat for 10 years across a myriad of teams, and you get a muddled, confusing mess that has a wider audience but much worse experience for most. That is the root cause of the decay.
I look at private equity as sort of like a bacterial infection. The infection may be the thing that kills its host by sucking of all of its energy, but the reason the host was infected in the first place was because of some other problem that led to a weakened immune system.
Private equity firms prey on companies that are already struggling. Yes, they take a struggling company and hasten its demise. But healthy companies don't end up getting bought by private equity in the first place.
In this case, I think dining culture has just changed in a way that's incompatible with Red Lobster's brand. It used to be considered higher-class fare, but drifted down market like almost every large restaurant chain does (see also: Friday's, Applebee's, etc.). For a while, it survived on the unusual combination of being a nice-seeming sit-down seafood restaurant, but not actually that expensive or close to the sea.
But, of course, the way they were able to do that was by cutting every possible corner (for example, calling langostino "lobster"). Diners today care more about their health and where their food is coming from. The post-WWII culture of "we can trust big companies because they're successful business" has been replaced by "we can't trust big companies because they must have grown by doing shady shit".
Frankly, a cheap restaurant in the midwest that lets you eat unlimited lobster no longer seems a delightful treat and a hell of a lot more like a suspicious food poisoning trap.
Seems like they exist to basically sell off a brand.
People thinking that Red Lobster is a good place to eat is a valuable asset, which can be traded for short-term profits until they catch onto what's actually going on.
One way to look at private equity is that they are playing an arbitrage game between the perceived value of a brand and the actual worth of the products the brand produces.
In a world where people had better access to true, recent information, perceived brand value wouldn't lag actual product value as much and there would be less opportunity to exploit the arbitrage.
> look at private equity as sort of like a bacterial infection
This is honestly fair given bacteria’s ecological role as digesters/recyclers. There are probably better things to do with Red Lobster’s locations and people than serving terrible seafood.
And what's more likely, that they do that or that they leave a bunch more dead real estate for at least several years while they hold out for more money?
If Red Lobster can't pay their rents then the market is saying they should be dead. Presumably the owners of the properties wouldn't ask for those rents if that wasn't what the market would bear. Of course some properties sit idle for a while; there's going to be an optimal rate of that that isn't zero.
> Private equity firms prey on companies that are already struggling. Yes, they take a struggling company and hasten its demise. But healthy companies don't end up getting bought by private equity in the first place.
From the finance/economics perspective, what should be the ideal replacement for Private Equity?
At least for me they seem like a part of the ecosystem responsible for extending the lifespan of some companies and eventually maximizing revenue in those that has success, and this premium is used to cover the losses in other bets.
I've been at 2 companies acquired by private equity firms. In one case, the company was totally healthy in the niche market of software for libraries. The company was sold because the owner wanted to retire.
The vampire capitalists did the standard playbook:
leveraged buyout.
transfer debt to the once healthy company.
extract yearly management fees.
fire and/or encourage many employees to leave.
shift maintenance to low cost foreign outsourcing company.
skimp on R&D and customer support.
In the short term, profits go up. Long term, the once healthy company slowly dies, as customers get pissed to the point they are willing to incur the cost of transitioning to a new vendor.
Not only was this company once healthy, it had astonishing employee retention. We are talking many programmers and support people with 20+ years of specialized knowledge. People seem to forget how much productivity is lost with high turnover.
LJS was always an extravagant treat when I was a kid as it was seemingly more expensive than McDonald's or Taco Bell, and further away from where we lived.
When I started making my own money, it was one of my regular indulgences.
As an adult, I rarely ever see them anymore. And when I do go (it's been years), I'm always left feeling sick to my stomach, and yet still hungry. The portions sizes have shrunk considerably, even more shrinkflation. The greasiness, while expected with that kind of food, it so much worse. The fries are soggy, and you hardly ever get any crunchies anymore!
Did he?? He expanded a bullet list of the different owners to fit a 12 minute video, started and ended the video with an ad, literally said he "didn't have too much to say about Golden Gate Capital", and shares the insight that "Red lobster just needs to get to a point financially where they can be themselves..." OK.
One can blame the private equity investors buying it, but every sale requires not just a buyer, but also a seller. The owner of RL sold it to this private equity firm for an amount they felt was proper. The PE firm got more money out than they put in, so they increased the value of the assets. If this meant (in effect) shutting down RL in slow motion, then so be it. Sometimes it's best to just put a pillow over a company's face and say that's it.
Red Lobster did not go bankrupt because of Endless Shrimp. On the revenue side, customers generally have been turning away in favor of competing dining options. On the expenses side, the company has to deal with high labor costs, expensive restaurant leases - and meddlesome PE investors that have led to high leadership turnover.
Going into bankruptcy might actually allow them to address their debt and operational losses
"The thing that private equity does is just unload assets and monetize assets. And so they effectively paid for the purchase of Red Lobster by selling the real estate,"
They did the same thing with Sears and many others.They short sell the company, buy it, sell anything valuable and destroy it.
Not sure about the expensive lease angle. The red lobster in my home town has had the same physical location longer than I’ve been alive. I assume many other red lobster locations are in the same situation.
I haven’t been to Red Lobster since 2019, and even during that trip the quality of the food was severely degraded from what I remembered it to be. Their garlicky biscuits were quite nice, though. What baffles me about this story is the fact that they’re continuing to sell the endless shrimp, despite the fact that it lost them 11 million dollars. Old habits die hard, I guess.
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[ 0.25 ms ] story [ 437 ms ] threadhttps://www.theguardian.com/business/2023/jul/10/as-thames-w...
It doesn't make any sense - they paid billions for Red Lobster, they made some money, they could make even more by having a viable business.
If this were a publicly owned company I could understand outrage, but it's privately owned, the owner presumably isn't interested in losing money. What's his motivation for taking these steps that are "obviously" bad?
(What %age of eastern european enterprises got long term investment in the 1990s?)
It's not obviously bad from a finance point, it's just significantly shorter term thinking than the original owner.
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After the real estate move, Golden Gate sold 25% of the company in 2016 to Thai Union, a Thailand seafood company, for $575 million and unloaded the rest of the company to an investor group called the Seafood Alliance, of which Thai Union was a part, in 2020. Golden Gate likely came out ahead, but the same can't be said for Thai Union, which also controls the Chicken of the Sea brand. It is now looking to get out of its stake in Red Lobster...
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The bigger question to me is why there are so many entities interested in buying up businesses from private equity, when this exact pattern has been repeated about a million times. I suppose in this game nobody ever thinks they're the sucker. After all if you can casually toss around billions of dollars, you must clearly have had plenty of financial success at some point, and it most certainly was due exclusively to your exceptional financial genius.
It reminds one of NFTs in a way. Spending hundreds of thousands of dollars on a poorly drawn picture of a cartoon ape is either moronic or brilliant dependent exclusively on whether you're the one left holding the cartoon.
All reward, no risk.
Until Americans take on a mindset of longterm/family (as I've seen many Chinese families express), they'll be doomed to make short term decisions. Right now very few Americans are able to accept an optimization that looks like "I invest today, and my grandkids will get the returns". So America is stuck in that local maxima of invest for next few quarters. The obvious tradeoff being the risks/ability to predict the future.
The short-sightedness and greed is destroying so much.
Schumpeter tells us the market operates by creative destruction. Properly killing companies is just as important as properly starting them.
Which seems crazy, since the costs of inputs are so low at most restaurants. They pay workers embarrassingly little money, and the ingredients have massive externalities. (Those "endless shrimp" are possible because of literal slave labor and environmental destruction in southeast Asia.)
And yet restaurants bleed money. There are so many invisible costs -- replacing bent silverware, repairing the walk-in fridge, shady suppliers whose produce you have to toss, etc etc etc etc. It's just a crappy business.
A private equity firm may not know how to turn a profit. Or they could run it with a tiny profit that just isn't worth their time and effort, and it's easier to just shutter it. It's a much bigger hardship to the employees than it is to them -- even the potential gains are too small.
Short term gains over a long, steady market is the current driving mentality of Western capital.
Also they often engineer things so the money the fund put into the deal comes back very fast. In this case they sold the companies real estate which got a big chunk of their initial investment back ASAP.
the simplified view - red lobster they bought it for $2.1b - they sold off the real estate for $1.5b and 25% of the equity for $575m - so the PE fund has $25m of their original investment in the deal. They borrowed a bunch of money and then paid out dividends on that $25m that were multiples times that amount.
They then gutted everything - all technology teams stripped back to nothing, or a single junior to KTLO as best as possible, all management fired, although of course kept all of sales and marketing. They handle amazingly sensitive data for manufacturers across numerous sectors, including the likes of Apple and BAE, and no longer have any infosec functions.
So in the case of the client, they didn’t sell to PE, and it’s a time bomb I’m quite looking forward to seeing go bang.
In another case, years ago, it was just a straight up hostile takeover initiated by a disgruntled investor who wanted out, and an asset strip followed by administration - we, their main technology partner, got screwed to north of £100k. One of the events that lead to me deciding to quit my previous business, as I couldn’t put down the murderous rage it incited in me. The money was almost immaterial, it was the fact that these fuckers essentially burgled a perfectly good and profitable business and then robbed their entire supply chain, from services to product, and cost several hundred people their livelihoods. Fire and ice in lucifer’s mouth for all eternity for these bastards.
Yeah, a decade on, still haven’t quite put that down - but again, not initiated by anyone who actually had anything to do with the business - I felt terribly sorry for all of them.
There is a finite amount of capital in the world (with a little more printed each year of course). But they're not printing 20% more every year, so companies can't keep expecting to grow by 20% every year forever. It's just not possible and once a company reaches certain thresholds, we need regulations that prevent them from destroying the good parts of capitalism for simply more money than they had last year.
It's likely that the real estate that the Red Lobsters were built on was worth more than the entire enterprise. In such a case the implication is that the ongoing operation is negatively valued. Splitting the real estate off and valuing the restaurants at zero is a rational action -- and good for the economy.
Put a mom and pop restaurant on the spot. Or a nail salon. Or anything that can justify its costs.
They usually involve PE taking over firms that were already in financial trouble, which is what made them attractively priced to PE in the first place. The PE firm would also prefer to have a nice profitable business, but if they can't turn it around, they have options like asset stripping or selling the name to a different company.
Here TFA mentions "flagging sales" already in 2014.
The most likely alternative to PE "killing" Red Lobster or Sears or Toys R Us wasn't that the businesses restructured with the same management and business model but 25% fewer stores. It was that they went out of business altogether.
I'm worried by PE buying up successful natural mom-and-pop businesses like dentists and vets and worsening the consumer experience at those. Not so worried about them managing the decline of massive national brands slightly more aggressively than another billionaire owner might.
> To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company called American Realty Capital Properties — and then immediately leased the restaurants back.
So private equity didn't try to make Red Lobster profitable before stripping it of its assets. That was literally their first move.
With that said, the tax code and employee law could be improved so there are stronger guardrails to protect some stakeholders more.
That's not so clear to me. The real estate wouldn't have been worth so much without the existing restaurants having to pay rent.
The above is something people often fail to think of. If you (as is common) have something that could be two independent business with one supplying the other, then you should have your accountants figure out the numbers for each separately. (this is not easy, and eventually not worth it)
Obviously deal terms are important, but that action on its own isn't stripping for the sake of stripping.
What is "stripping for the sake of stripping" of not this?
If you will be there for decades it is worth owning. The land can be paid off and still working for you. Likewise the building is depreciated and paid for (check with an accountant!), but you are still there using it - you still need to remodel and maintain it though. You pay more upfront, but long term it is a better investment.
However many businesses are fad - they do well for a few years and then people move on to the next fad and you should close up. If you only need the real estate for a couple years you should rent/lease: you won't see a payoff from the upfront costs, and you are stuck with the real estate while trying to sell it.
This is so suspiciously MBA-esque: - Owning real estate (and responsibilities associated with it) are not distractions: they are the cost (and responsibilities) associated with running a business. - "a huge cash infusion" followed by [correspondingly] huge rent payments; the business becomes a prisoner.
There certainly are distractions when running a business, but owning the spot of land where it's installed is not one of them.
However it is an accounting distraction. If you own real estate you need to figure out which share of your profits comes from rent of real estate and which from the restaurant. If you cannot make both business profitable that means you should get rid of one. (sometimes that means sell the real estate and rent, sometimes it means close the business and rent the real estate to someone else). If both work out profitable, then keep going as is. (don't forget about intangibles, if real estate is a small loser it might be worth it just because you don't have to move and so can get loyal customers - but you should be intentionalable about accepting this loss)
What are some well known examples of "private equity turned troubled brand into wild success" where products become better than ever and consumers couldn't be happier? It seems like all I ever hear are stories where a brand is "rescued" only for it to be butchered for parts in a couple years time.
There was a side plot of "PE partners with charismatic former founder", but the main story was PE cost-cutting, layoffs and loading the company up with debt.
They were taken private a few years back, and after a long slow period they're expanding again.
Quotation needed. Usually they put no or little effort in this. They want to get their profit by destroying the business, either by breaking it down and selling the parts or by turning it into a shitty consumer-hostile money-grabbing version of its former self
Reducing the friction of starting new business is good. But I don't think it's sufficient to protect consumers. (If it was sufficient, we wouldn't need antitrust law at all, right?) For example, the rolled-up firms might have economies of scale that allow it to undercut new competitors.
i.e. these vet clinics - a PE firm can buy up 40 disparate vet clinics in a large city then raise fees and cut staff. You may be lucky if a few new clinics appear over the next couple years once customers are fed up with the increased price and reduced quality.
It's still a win for the PE firm and a loss for most of the consumers.
And if you have a vet, say, who is near the end of his career, he's already amortized all the training/educational expenses, and so can run out until retirement at relatively low rates compared to a brand new one.
The companies take advantage of this, but the customers also like it, too, because the offices will be fancy and feel new and they can schedule an appointment online.
Same thing that Great Clips et al did to barber shops.
Because they have a connection to their community, which means both (1) they're more vulnerable to backlash, and (2) they don't want to, because it would be taking directly from other members of their community.
Mom-and-pop shops tend to price based on what is fair. PE firms tend to price based on what is profit-maximizing.
If the PE firm raises prices too high, they don't punish themselves at all, because those customers go elsewhere. "Elsewhere" being just another office/practice which they also own. Mom and pop couldn't do that themselves. They didn't have monopoly-like powers to ensure their success.
> Why is there a barrier to entry that prevents some new young doctor or vet
Because the young ones are getting started, and do not have the capital to start a practice (or to buy an existing one). How much does a dental x-ray machine cost? How much do the dental chairs cost? How much does the lawyer that fills out the paperwork to get the permits for that retail space to be a dental office cost, per hour, and how many hours of paperwork?
I'm curious if anyone who has a negative reaction to this article has actually been to a Red Lobster in the last 10 years. They serve poor quality food for similar prices as other sit-down restaurants. You're as likely to get poor service as you are anywhere else (maybe more so), but you'll still have to tip the same amount and spend the same amount of time there. There is no value proposition and certainly no cause for mourning or hagiographies.
From the article:
> In 2014, amid flagging sales and pressure from investors, Darden sold Red Lobster for $2.1 billion to Golden Gate Capital, a San Francisco private-equity firm.
Nitpick: You'll have to tip the same amount as another restaurant with bad service. If it's awful enough, that works out to about a 20% discount on the meal.
If it's a normal night and I see our waiter playing with their phone or chatting with the bartender while I unsuccessfully try to wave them down for a drink refill, I'll remember that when I'm paying the bill.
Dental cleaning requires dental tools and anesthesia.
The affected teeth got loose. We pulled them. The dog is happy and healthy. I would have liked for a professional to have done that for us in a more controlled and methodical manner, but there's no way I could justify spending at least ten thousand freaking dollars on a 13 year old dog who was at significant risk of dying on the table.
I love my dog and spend pretty freely on him, but no way is he getting an $800 teeth cleaning. At that point, you might as well locate your practice on the airport and cater only to people who fly their dog in on a private jet.
The actual cost to the clinic of a dental cleaning is ridiculous for how often it needs to be done.
https://en.wikipedia.org/wiki/Mars_Inc.#Mars_Petcare
I still hate it though.
My vet is absolutely considering selling his practice. We (selfishly, not seriously) suggested selling his practice and then opening a new one closer to where we live. (We moved out of the area several years ago, but continue to drag the cats in to see him.)
We said it in gest but he said he was already giving it serious consideration. When he bought his practice from the previous vet, the original owner did exactly that —- opening a new practice elsewhere.
https://freakonomics.com/podcast/do-you-know-who-owns-your-v...
There must be some barrier to entry in the market that prevents that, and that's what I would target. Because the PE firm isn't the root cause. After all, if you can't just enter a market and charge whatever you want as a standalone vet, what makes a PE firm different?
The people with the cash to start the business and get the space and equipment just sold to PE and you have people that were employees and a much smaller number of these people are going to be able to just quit and fire up a business.
Finance.
Throwing in with the PE firm means you don't have to negotiate real estate leases, don't have to think about POS systems, and don't have to worry about collections.
So, the vet probably gets paid the same and spends a lot more time on being a vet. On the other hand, the consumers spend a LOT more once the PE firm has a monopoly position and switches to gouging them.
Training to be a vet is a long process. The patients are nice (mostly), but don't communicate well, and some of the customers are terrible. In my area, there's a shortage of small animal vets because they can make a lot more money in the big city. There's an even worse shortage of large animal vets because the job is worse, and they can make a lot more money working with small animals in the big city. Our large animal vet won't do callouts for emergency/urgent services anymore unless you're on contract for annual checkups; routine visits are good for vet morale and help the budget.
A couple of things that they observed between them: A) a lot less interest among newly graduated pharmacists and vets for going into business themselves- they are deeply in debt from school, taking out business loans to start up a new business on top of those loans is a real threat to their financial stability B) they want to do vet/pharmacy things with a reasonable work/life balance, not running a business things with an insane work/life balance while carrying that huge risk C) (unique to vet) people want the convenience of big, one stop shops that can offer complimentary goods like grooming, boarding, surgeries, and their medications all in one place, which requires large capital investments- the vet firm my s-i-l works for just got a nice brand new facility with brand new fancy equipment and surgery centers etc. D) (unique to pharmacy) Pharmacy Benefit Managers are destroying the reimbursement rates of small pharmacies, if you aren't a national chain you don't have the scale to effectively negotiate with the three PBM's that control 80% of the drug insurance business, and they are getting gutted by those PBM's, forcing pharmacy consolidation (one of those three PBM's is actually one of those national drug stores, CVS Caremark- thank the George W Bush administration for that bit of anti-competitive nonsense).
I'm not as sure about vet as I am about pharmacy, but at least in pharmacy it is not generally any harder because of regulations or anything like that, to start up than it was decades ago. My wife also points out that because we have more drugs than before, with more varied storage requirements, and they are more expensive than before, inventory costs a lot more than it did decades ago. So these newly graduated Pharm.D's with their 200k in debt would need to get even larger loans to start up a new business, and they get reimbursed less for it thanks to PBMs, making it hard for the indy pharmacies to stay in business whether they are new or old alike.
It takes capital to start a business and people don't have that.
> There must be some barrier to entry in the market that prevents that
People retiring are selling their brick and mortars and the next generation don't have the personal wealth to buy them because they're saddled with medical/education/credit card debt and stuck with bad rent terms that caused low savings.
The only people around to buy the places are private equity.
https://www.theatlantic.com/ideas/archive/2024/04/vet-privat...
I agree. I uh, hope they don't do the same thing to Olive Garden, or Applebee's. That would be tragic..
Perhaps because the latter are associated with aspirational working class, which is to be mocked.
The upper middle class and higher going to coffee shops and restaurants targeting them and dialing the pretentiousness and crap fusion food and such to 11 is OK though, that's in high taste. And McDonalds is acceptable too, since it's seen as neutral.
No, what’s being mocked is the quality of the food. The “aspirational working class” in Europe has much better food options for even better prices—has nothing to do with classism and everything to do with the development of an American culture that ruined food in this country.
My grandparents grew up in rural Appalachia and what they prepared themselves and ate back then was much tastier and fresher than Olive Garden.
If that was the case the "quality of the food" would be mocked elsewhere, in tons of brands with crap quality. But those seem to be particular targets in the way that say McDonalds and other fast food or higher tier but still crappy brands are not.
Besides, most references/parodies I've seen (like online, on SNL, movies, and so on) always seem to mock the working class in that context (or the ignorant lower middle class), in some "lol, these people think they're eating fancy" - usually with stereotypes about their appereance and mannerisms to match.
Note, but quality what we really mean is either health or taste. Both McDonalds and Olive Garden are extremely high quality in that everything is exactly the same and so you can go into any one around the country (and most of the world) and order something and be unable to tell the difference from any other.
The fundamental problem is that all of these businesses are devoid of soul, and the majority of the profits don't go to the people working them.
That however is a problem of capitalism in general, not Olive Garden in particular.
And I'd say class snobbism against lower class "taste" (independent of unhealthy fast food vs fine cuisine, since for example something like In and Out is totally acceptable by the same people) is also a problem of capitalism.
Sure, but the lengths Olive Garden's marketing goes to present the facade of a soul is so cringe that they deserve to be emblematic of said problem.
>And I'd say class snobbism against lower class "taste" (independent of unhealthy fast food vs fine cuisine, since for example something like In and Out is totally acceptable by the same people) is also a problem of capitalism.
Not to burst your class snobbism bubble, but as a former poor person I have to say the Dollar Menu kicks Olive Garden's ass all day long. For one (dollar), it isn't reheated cardboard!
I don't think fast food somehow being comparatively acceptable is a problem in and of itself, because fast food isn't pretentious. If anything, narratives that make it seem as if the "lower class" has no choice but to eat cardboard at Olive Garden if they want a dining experience, and that doing so is just a taste that's forced upon them, is laughable.
False. A well run restaurant might make 10% profit. But they pay double or triple that to the staff and managers.
Business profits, if any, accrue to owners.
The popular disdain for family dining comes from people who don't want to sacrifice food quality for table service. Olive Garden isn't competing against fine dining, it's competing against fast casual restaurants. And that's far less of a class divide than a generational divide: restaurant dining as widely available phenomenon is a relatively new concept, with it being a relatively rare luxury for the Greatest Generation. This put a level of perceived prestige on being served, which the family dining restaurants managed to reduce the cost of substantially the latter half of the century.
With ubiquity, though, the novelty wore off. Young people who grew up regularly eating restaurant fare aren't particularly impressed by table service, and thus for a given price point, on average, Millenials and younger tend to choose a fast-casual restaurant with better food quality over a family dining establishment that has to cut into their food quality to pay for table service.
What you're perceiving as a class divide is a urban/rural divide, where trends of all sorts (including this one) lag a decade or two behind in rural areas relative to urban ones.
But people can eat whatever they like/can afford/find convenient.
Only Olive Garden and Chipotle have managed to give me a stomach ache.
Like sharks in the sea or wolves in the wilderness, they identify and remove sick and ailing businesses. Additionally they offer a convenient exit to tired owners and investors, thus incentivizing further business creation. Finally, they identify and exploit regulation-created monopolies, enabling the government to re-allow competition through deregulation - something more and more important in today's populist and regulation-happy climate.
If you have a company that's been slowly failing for a while, PE is here to help you out.
They will pay you money today and take over the company and in 3-5 years it will go out of business in a convincing way. And PE will take the heat.
If these businesses had a promising future, the owners would have been less interested in selling, someone interested in actually operating the business would have made an offer, or it could have been publicly traded.
I never eat the stuff including lobster (non allergic) but one time I was relocated to Germany to help ship a new software release (English technical documentation) and was invited to a meal with my colleagues and his family.
Out comes a big bowl of shrimp for everybody with the skins and feet and antlers on - think we had a language misunderstanding.
Not wanting to offend and send it back - did not even know how to disassemble it - ate a few and back at the hotel you know what happened :).
Ah, culinary wisdom based on internet memes and bro quotes: the cockroach of the mind!
>ate a few and back at the hotel you know what happened :)
Reverted to the fast-food baseline?
I'll also mention that folks allergic to shellfish also have to be careful with crickets and other land insects. They have their similarities.
In most cases, the brand name stays the same but the quality falls off a cliff.
On one side this is a study in destroying a chain restaurant, but what'll be taught in business school will be the other side: was this transaction profitable for one party and if so how do we repeat it? It won't be taught as a cautionary tale unless the hedge fund lost out.
[1] https://en.wikipedia.org/wiki/Tim_Hortons
https://www.rbi.com/English/news/news-details/2014/Worlds-Th...
> 3G Capital to own approximately 51% of new company
https://news.ycombinator.com/item?id=40238807
https://news.ycombinator.com/item?id=40238807
https://www.tiktok.com/@tiffanycianci
I’ve been through a few depositions and anyone can leave for medical reasons. It’s not like there are bailiffs there forcing you to attend. Even with the most basic of cases, I can just walk out and tell my attorney to reschedule. I may have to pay other counsel’s fees, but I expect with the reason “I’m having a miscarriage” no judge is going to uphold their claim.
https://www.washingtonian.com/2023/07/24/how-a-battle-over-a...
I wonder if the Golden Gate investors also own American Realty, or are good friends of theirs. Sure GG made their money, but owning the real estate seems like a second good investment so long as the chain doesn't go under and the lease terms are favorable.
In fact you could argue that Red Lobster has suffered from a long term decline due to poor positioning in the marketplace, and the PE shops are accelerating what was likely to happen anyway.
The most obvious is low interest rates, which is fortunately dying off. The ability to borrow lots of money is something that smaller, well-run companies, are reluctant to do. Why bring in a bunch of cash to expand and take on debt when you are operating at a reasonable profit?
The secondary is the undervaluing of customer goodwill -- what PE firms can do is directly monetize that goodwill by squeezing those customers. The income stream from a reliable customer can be translated into present value, and prices and quality can be adjusted to the point where you can drive a customer's goodwill down to zero while extracting something that approximates the present value of the lifetime income stream from that customer.
Inflation plays a role -- businesses are reluctant to raise prices because they don't want to sacrifice goodwill, but the supply chain costs keep going up. They have to somehow maintain margins, but they do so by raising prices slowly. PE has no such scruples.
You can get away with cutting quality for a little while, but eventually customers are going to lose trust and you're not going to get it back.
https://www.nytimes.com/2023/04/28/opinion/private-equity.ht...
Optimistically, you could see this as a way of freeing operating assets from underperforming businesses and putting them back into circulation, clearing the way for superior competition. But that only works if there is superior competition to fill the gap, and the whole economy isn't saddled with dysfuction, perverse incentives, and bad leadership. Unfortunately, it seems like we're getting closer and closer to that latter situation every day.
Some recent news stories I have enjoyed on the matter
*about Authentic Brands Inc - which in short parks on defunct retail brands and liscences out the manufacture while owning no capital themselves. https://www.npr.org/2023/11/02/1209684529/retail-bankruptcy-...
Two part podcast on implications of private equity form Freakonomics (I find balanced, rigorous, and asks challenging questions of its contributors)
1) https://freakonomics.com/podcast/should-you-trust-private-eq...
2) https://freakonomics.com/podcast/are-private-equity-firms-pl...
A good portion of this is cartels that could be squashed. Notably, real estate (commercial and otherwise, driving up the single biggest cost of business/living). But, then, you'd have to deal with the people who rely on cartel-ized pricing power for their income, investment collateral, etc. (But someone is going to get thrown under the bus, so might as well be them.)
Take a small restaurant. Grandad bought the building 50 years ago. That's long since paid off.
The restaurant makes say 10k a month. Good honest business. But the building/land is worth say a million.
The owners don't care, it's paid off. The business makes a good living.
So I come along and offer 500k for the business. That's basically 4 years profit up front. They want to retire soon, so that's good deal. But I turn around and sell the land for a mil. I've made a big profit, and since rent is now 10k, in only a few months the restaurant goes under.
The root problem is that the business is delivering a really poor return on asset value. Which opens the door to someone buying the assets, not the business.
It's pretty much a license to print money as long as the restaurant can maintain competitiveness in quality and cost. All of the restaurants in the strip mall that holds my nearest Red Lobster have been around for over a decade and half of them for over twenty years. The turnover is really low because everyone rakes it in as long as they don't mess it up. Looks like Red Lobster messed it up.
People will say it's all about greed, or whatever. But it's not 'the rich' buying these PE investments. It's public pension funds (i.e., government workers, teachers, mailmen). It also has nothing to do with the interest rate (although that certainly enables it, it doesn't explain the demand for the investment vehicle itself or the source of funds).
According to a study from UNC Chapel Hill [1], public pensions comprise 31% of investors at PE funds and 67% of capital.
That means that, while it's true that perhaps the other 69% of investors are the supposedly greedy rich, if it were just them investing, PE would be 3x smaller than it is today.
We have to face the truth which is that these sorts of deleterious economic effects that occur as a result of PE takeovers are due to unfunded public pension liablities.
[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4283853
The whole industry is on the verge of collapse, and we’ve had a ton of restaurant closures over in my neck of the woods since Covid. These aren’t Red Lobsters closing but beloved local places.
Anyone that has worked food in the last couple years knows how bad it really is.
Less well known is what happens in much of the baking world: pre-made mixes. Most commonly, this means a 50-pound bag of all a product's dry ingredients and only wet ingredients are necessary. These products reduce labor, simplify employee training, are more consistent, and bigger buyers can get customization.
All big bakery retailers are using these: Panera, Whole Foods, Costco, HEB supermarkets, etc. Smaller establishments and franchises also. Less obvious uses are industries with constraints that benefit from what these products offer, cruise lines maybe being the best example. While this sounds like just more ultra-processed food, many of the products are legitimately good quality. Yes, a donut is a donut, but products like breads can be fantastic quality and respectably healthful.
They used to at least be better than high-side-of-mid-tier frozen grocery store meals. Not anymore. Their continued existence confuses me.
I guess people just like the breadsticks that much (it is, admittedly, a lot more work to replicate those at home than the dump-frozen-bag-in-a-frying-pan process for beating most of their main dishes at home)
I don't understand why these huge restaurant companies have such a hard time with the "make good food" part of their business model. It clearly can't be that hard if so many small businesses are able to do do it better.
The big chains also tend to aim for excessive variety on their menus, which again leads to food needing to be designed to be less perishable.
And then there's the chunk of profits that are going to run the national presence, ad spend, and line the pockets of shareholders.
I think people value quality over consistency when it comes to their leisure spending, especially when small restaurants can still be consistently good. Why do I care that the pancakes at an IHOP in Tampa taste the same as the IHOP in my neighborhood when the local diner across the street makes better pancakes than either of them?
Having lots of options doesn't mean a whole lot if all of them suck.
The national presence I think works to their detriment. Being able to buy ad spots during the superbowl makes a restaurant categorically un-cool. The number of times "I don't want to eat at a chain restaurant" comes up when discussing places to eat with my friends has practically turned the sentiment into a meme.
I imagine social media has played a huge role in this shift. People posting actual pictures of the food they got somewhere does a lot to undercut deceptive advertising and elevates meals that actually get people excited.
This is probably why so many motels have chain restaurants in the parking lot: if you've just spent 7 hours in the car getting there, or are primarily staying there on the way to get somewhere else, convenient and predictable trumps good.
They would need to have people in the restaurant, tasting the food, observing the business, etc, and empowered to make decisions based upon the evidence. These companies are the opposite of that, and take away that power from the people actually conducting the operation. Even if they could get great cooks, waiters, hosts, managers, etc, to work at these restaurants, the value that they bring would be stifled.
My best guess is that the price is inflated by the huge amount of money they spend on national ad campaigns, which I'm convinced at this point do not even work. Any restaurant big enough to buy ad spots during the superbowl is by definition "not cool" to the under-40 crowd. None of the most popular restaurants among my peer-group where I live even run local TV ads, and they don't need to.
Red Lobster well... I've only been twice. Two different locations. The first time service was really, really slow. The second time it was non-existent. After about 15 mins of waiting, we grabbed another waitress who dismissively told us that our waitress just quit and hurried off like it was our problem to figure out. I don't remember the food at all, but even if it was stellar I'd not go back.
I think many millennials would be fine with Red Lobster quality food, if it were quick enough for lunch. But the format is slow, sit-down service. And the atmosphere in these restaurants is not what millennials are looking for to relax or entertain.
Individual preferences vary obviously but I'll basically never eat at McDonalds but some of the burger places like Shake Shack and In-and-Out hit the spot now and then.
I think the rise of fast casual is coincident with the rise in people visiting a restaurant when it isn't a treat. When someone is looking to just grab a quick bowl, they don't care as much about atmosphere or service, their priority is something quick, easy, and good value.
But then when these same people go out to dinner when it is a special occasion, they're looking for something measurably better quality and better experience than the fast casual they had three times for lunch that week.
It's the mediocre sit-down places that are caught in the middle. In the 90s these types of places were good enough to be considered a friday night treat. Because people weren't eating out during the middle of the week as much.
And for many, especially perhaps people out of their twenties, they want something at a level above the traditional fast food chains.
But I basically agree. If I have to I'll go to a standard dinner chain either because there aren't other options where I am or I'm dragged there by friends. But I'd never do it around home and would try to do my best to find other options when traveling--although, on the road, some brand recognition of this isn't awful may be a trigger.
But, that's assuming that the more well-off generations aren't going. I dunno if that's the case; things other than revenue can be squeezing RL.
I just came for the cheddar biscuit talk.
when the business starts out, it's high risk and low margin. Tons of capital investment. Labor intensive and hard to staff. If you are lucky you are pulling 15% margins
Besides some exceptions, if you are lucky you may get some growth for 5-10 years. Then your brand falls out of favor (trends) and you spiral into bankruptcy.
Who invests in this stuff?
Option b, you grow super fast, you have a lot locations, each one barely profitable, but you make it up on scale. You scale quickly enough that you make a lot of money before trends change. They key is that you accept that you're chasing a trend and move as quickly as possible to extract as much as you can.
Option c, you come up with the core concept, and you create a franchise program. You make your money off franchise fees & shadier stuff like making the franchisers use suppliers that you own. The franchises die when trends change but some made a profit, and your capital outlays were never very high, so you make a lot of profit.
> Tons of capital investment
I mean it's not that much capital, compared to most businesses. You need way more money to start a software shop than a restaurant.
Jokes aside, I get mom & pops. But I'm dubious on the "growth" chains like a Shake Shack or Chick Fil A.
My current theory is that they are effectively MLMs with different structures: private equity MLM, owner-operator (franchisee) MLM.
See Subway for the end result
I don't know why you'd be skeptical, franchising has been very successful for the last century (McDonalds, 7-Eleven, Ace Hardware, etc) and gives steady returns to investors. And the reason why the food business always has opportunity is because people always need to eat, and are willing to spend disposable income on food. When consumer spending goes up so does the restaurant biz, and that's not going to change. And franchises are just one efficient way to create an international restaurant business. It was actually pretty surprising when Starbucks came along and didn't franchise.
But just because the model is efficient doesn't mean you can't screw it up, like Quiznos. That's just short term thinking run amok.
$CAVA, $WING, $SG, $SHAK, $TXRH... lots of names that will either be the next $CMG or crash back to earth when the next trendy restaurant catches the attention of social media.
I think a lot of young people are abandoning older brands like McDonalds in favor of these trendier options, so there's a lot of business there if a new brand can capture it. But like you say, nothing lasts long in that industry.
Obviously a handfull of stocks have spiked with speculation. but every town has hundreds to thousands of restaurants. And regions have dozens of growth chains all receiving investment.
I get why mom & pop's invest, even if it's high risk low reward. But everything in the middle that takes on millions in capital makes no sense
Bill Ackman (founder of Pershing Square Capital Management), for one: https://lexfridman.com/bill-ackman-transcript#chapter4_inves...
this would include coffee shops and other relatively low cost establishments
Margins are good. Spoilage is a non-issue.
Orders are pickup or delivery.
I can bring 10 pizzas to every party.
The thing about a restaurant is that you'll always have business if the food and service are good. You can talk about how the market changed or whatever, but no restaurant can survive at that price point while offering so little.
We had a chain BBQ restaurant in town that had a booming business for more than a decade. Then the quality of the food went downhill and they shut down, citing lack of a market. They had a market for years but there's no market for crap. Red Lobster's situation is no different.
"Red Lobster failed because of X corporate restructuring," "Red Lobster succeeded due to Y ad campaign." People go to restaurants for reasons completely unrelated to things like that. Those things are important, but just constitute the small slice of reality that can easily be measured.
I saw a Twitter thread arguing how the video game Stardew Valley succeeded due to the way it was marketed. Marketing is important, but maybe the game succeeded because it was cute and had a soul and is fun to play. You can't measure that.
Product + Marketing + Timing + Luck = Maybe Successful
The thing is, there's no VP of Timing. There's also no VP of Luck. These factors are ignored because there's no one to champion them. Yet they are very real.
Unsuccessful Product !== Bad Product or Bad Marketing
The other thing that happens is you point out a really good game and then someone will say, yeah but that's not a good game because of the art style or it's too similar to something else etc. Everyone can always come up with a quality reason why a game didn't sell. Someone has a reason not to like every game ever made. The problem with that is you can come up with the same complaints for well reviewed games. Often the review will say something like : this has been done before, or that style is a little annoying, but.. it's a great game.
Final nail in the coffin of this theory for me is having talked to many game review editors and having worked with a few, they will often tell you that they don't always expect to shape opinion as much as parrot it back. As one person used to tell me, most people read our reviews to validate their purchase or get our take on what they are playing.
And then to your challenge. Good games that didn't succeed. How about Midnight Suns, Lock's Quest, Space Marine, Company of Heroes II, Maquette.. that's just off the top of my head. If I thought about it I could make a really long list of game you've never hear of. This is probably the same for everything: music, novels, etc.
System Shock 2
Psychonauts
Shenmue
Okami
Conkers bad fur day
They make extremely niche RPGs that routinely rate >90% in positive reviews on Steam and they've never had an actual hit. Pretty much the definition of cult classics.
You're making the assumption that the way to win is to GO ALL IN.
When in reality whether you're making AAA games or a small indie digital artist like Darius Kazemi... https://www.youtube.com/watch?v=l_F9jxsfGCw (Went to high school with him. Amazing guy. His senior project in the electronics lab was a teddy bear that could detect seizures.)
You are just buying lottery tickets.
Luck. Word of mouth. Anyway, things you can't control (and can barely influence) as a developer/publisher. So, we face the notion that, perhaps, if we want people to take the risk of creating and sustaining a business for reasons other than simple profit (say, to provide a needed or pleasant service), the proposition might need to be better than, "Succeed or die (sometimes literally)." Because none of it's a sure thing, and it can't be, but sane people generally aren't going to bet their life or livelihood on a risky venture (assuming that irrational passion is a form of insanity).
https://www.snopes.com/fact-check/costco-founder-kill-hotdog...
Or maybe it’s not the CEO he threatened, but a new one.
I'm a full on stardew addict. I was waiting for a game to rekindle the feeling I had playing the original harvest moon on snes. natsume just made a ton of crap sequals focused on making it all 3d.
concernedape, distilled the snes version down to what made it fun and built it up fron there. it scratched the itch better than any of natsume's sequals ever could.
Is it the financialization of everything? Is that we reached peak growth and profit increases are only possibly through extreme optimization? Is it financial inequality?
Tax law favors debt too much.
I was just wondering if it's just me feeling like everything is on a highway to terrible.
- Prices in my city, just this year, have felt like they've jumped 10 or 15 percent.
- I've been working in tech for a decade now and for the first time a new company simply refused to negotiate salary.
- I feel financially worse off than 5 years ago making a third of what I make now.
- Housing prices have exploded. I worry I will never own a home.
- Denmark has started deleting public holidays to save our social welfare state.
- Health care is the worst it's ever been. You can not get basic health diagnostics for most things in Denmark without screaming.
- Europe has a literal war at our doorstep.
- Public transit prices have jumped in the last year.
- Good quality grocery stores have closed and been replaced with discount chains. The quality of the produce is terrible.
- Democracy feels increasingly shittier and hijacked by two extremist poles of very-online meme-thought.
- Gen Z is looking like the most garbage generation of the last two centuries with more mental illness than any generation in history.
- Everything has become a political lightning rod.
I feel exploited by invisible forces I can't see or touch or name. I feel as if I have no mastery over my own life. I no longer know why I continue to contribute to a society that does not give anything back to me for my labor and exploits the best years of my life for taxes that do not improve my lot in life.
Can someone tell me everything is going to get better?
Yes but only after it will get much worse.
Have you ever met a millennial?
t. 1992 cusper
I feel like we (the younger generations) are all sitting here holding our breath in this stasis, waiting for that generation to die, and hoping those portfolios somehow get magically spread across the population. I don't know what mechanism is available to do that spread, but if it doesn't happen, where will all that locked up wealth go?
I'm not at all Gen Z (late Gen X), but you can't put all of that on them. They've had many formative years during a lot of the points you've listed.
> Can someone tell me everything is going to get better?
That's never guaranteed. You can only control what you take in, how you cognitively frame it, and how you react to it.
Here in the US, there are what seem to be related issues. Opinions about what is wrong and why differ. It can seem that we don't address the issues or what is wrong, for example, it can appear that the media believes that making clear the issues and faults are too deep for the audience of the media. For example, so far I've yet to see good engineering style graphs of even the basic measures from the economy, health, education, happiness, etc. In simple terms, the birth rate is so low we are going extinct -- some graphs over time might provide some insight. To avoid going extinct should be worth some graphs of related data?
Here is one guess: Some people want more government involvement, activity, services, ..., at the national level. Involved are money and power, money collected from taxes and/or borrowed and then spent and the people spending the money getting power. Then for the money the guess is that the spending is too inefficient, that is, too often wasted. For the power, it can stop what might be solutions. So, with the waste, we are throwing away our efforts, and with the power we are blocked from better approaches.
For this view, the US has some old images, from history, the movies, some parts of education, and even from some of recent history: So, the old images are from, say, the movie The Big Sky from the 1830s of 20 or so men and one Native Indian woman leaving Saint Louis on the Mississippi River (major US river from the north east going south and dumping into the Gulf of Mexico) and the Missouri River (from the northwest of the US close to the Pacific Ocean and flowing ~2000 miles to the Mississippi) to trade with the Blackfoot tribe to give them woven blankets, guns, tools and get beaver pelts.
The whole effort was lawless, that is, no government, laws, police, political power, regulations. So there was fighting, killing. No medical care, so there was suffering. There were lots of injuries from struggles with the river. It was all highly risky with lots of struggles and losses but in the end successful.
There were more such movies about the US, people on their own, risking everything, fighting, struggling, having failures, in the end being successful. There was Henry Ford, the Wright Brothers (had a bicycle shop), etc.
To the present, there were two guys at Stanford University in a project for indexing the contents of libraries. They thought of indexing the Web sites on the Internet and were offered ~$1 million for their work and Web site. They turned down the $1 million, started a company, and had success. It was all risky. It's now worth ~$1 trillion, called Google. Other successes, risky, one or a few founders, include Microsoft, Walmart, FedEx, Facebook, Amazon, Burger King, McDonald's. One guy, sole, solo founder, used some old Dell computers, an early version of Microsoft's Windows and Web software ASP.NET, built a romantic matchmaking service, grew it, ..., and sold out for ~$550 million.
Mostly these successes are examples of significant increases in economic productivity, that is, how much utility get from each hour of work. Personal computers? Killed off the typewriters with just astounding increases in productivity; same for email; Zoom, .... In cars, using digital electronics to get fuel mixture and spark timing a lot better resulted in the engines lasting much longer -- if looked carefully into what was going on with the old carburetors and breaker point ignitions and the huge ways they were wrong (unburned gasoline diluted the engine oil and, thus, wore out the main engine parts) can understand. Tires -- progress in the synthetic rubber chemistry made the tires last much longer, maybe 5 times as long.
The theme is, as in the movie, leave individuals with a minimum of taxes and government power and let...
With all the significant increases in economic productivity that has not benefited the average American. We can see historically that as productivity has increased, the wealth of individuals has decreased. We like to think of utopia where increased productivity means we would all get to work less and have more but that isn't how capitalism works. We have made everything significantly more efficient and continue to do so but who is benefiting? For most people things are getting worse because that is actually more efficient.
> leave individuals with a minimum of taxes and government power and let them try and take the risks.
Living in a country with a good social safety net is pretty helpful for risk taking. It's a lot easier to quit your job and start a business when you don't have to worry about losing health care and potentially dying or going bankrupt.
So, $1 trillion companies versus some guy with $400K a year from 15 well run convenience stores, .... We have a lot of both.
> With all the significant increases in economic productivity that has not benefited the average American.
Maybe not in comparative terms, i.e., maybe the distribution curve for wealth has not changed much.
But in absolute terms, some of what I listed are huge benefits for "the average American":
Nearly no one in the US would want a 1950 Ford, forced to use a typewriter instead of a word processor on a computer, news papers on paper instead of the Internet, no mobile phone or Zoom, 1950s health care, lath and plaster instead of drywall, oak flooring instead of vinyl (cheaper and more durable), microwave ovens, synthetic yarn in cloth and clothing, in general, as in the famous movie, no "plastics", railroads and busses instead of airplanes, no summer air conditioning, no gasoline powered lawn mowers, no calculator aps or pocket calculators instead of adding machines, no computers instead of punched cards, car tires that wear out in 20,000 miles instead of 100,000 miles, elevator operators instead of electrically controlled elevators, etc. ....
My parents owned different homes their entire lives. I make significantly more than they ever did and don't and could never afford my own childhood home. My children are even worse off than that.
Maybe some news source would publish a graph over time of the ratio of house prices to, say, prices of gasoline, ground beef, carrots, a wool blanket, a car, a refrigerator, etc.
We are very short on news that has credible information, gets to causes, presents like STEM field information, etc.
If it wasn't for government safety regulations that 1950's Ford might actually be safer than what would be produced now without them.
We have a total lack of competent leadership across all institutions -- political, commercial and social -- increasing extremism and authoritarianism from every political faction, and cynical short-term thinking from every economic institution. Everything is drowning in mediocrity and pessimism, and society is increasingly dysfunctional in every aspect. Extremists keep proposing authoritarian political solutions, but I see their proposals only as even worse iterations of the problem. What can we do about it, apart from admitting defeat and going off-grid in the mountains?
Just how these things work.
Over the decades, people turned away from God and those values to chase new ones: money first, pleasure first, self/ego first, atheism, subjectivism, Marxism. These by themselves, if increasing enough, guarantee massive amounts of suffering for people. Whereas, the fruit of the Spirit in Galatians only does good for people when you increase it. Society made their choice.
As in Romans 1, God handed us over to our depraved minds and sins to let us feel the full consequences of selfish, godless, subjective societies. Everything has gotten worse. The solution is to repent and turn back to what God gave that worked before. Then, gradually improve ourselves in any weak areas. Wr must bake righteous values back into our families, businesses, and government. Inward change creates positive, outward results.
Let’s compare two sets of things on a basic level.
1. You know God will judge what good or evil you did at the end of your life. You factor that into your decisions.
2. You think we’re an accident, nothing matters, people are just over animals, actually just chemical reactions, universe itself disappears in enough time, nothing matters in the long term unless you say so, and no accountability for any horrible thing you did.
Which is more likely to lead to righteous behavior? Which is more likely to lead to destructive behavior?
Next set are Christ’s basic commandments vs the world’s:
1. Love and obey God first. That means truth, justice, avoiding self-destructive behavior, family, and good work ethic. From there, love others as you would yourself in all your interactions with them.
2. Do whatever you want to whoever you want. It might be limited by whatever is popular at the time which will change. The Devil has most media focusing on individualism over family, squeezing max profit out of everything, and chasing pleasures with reckless abandon.
Which of these logically creates more good? Which leads to more damage?
I think we could stop there. The consequences of just those differences in believes are tremendous. Those in set 2 are currently doing the most damage in all areas of life. They include people who identify as Christian but don’t live like it. Lip service.
Whereas, my first-hand experience with hundreds of people following Christ and Biblical teaching is that it’s working. Their problems often come from sin, not obedience.
I'm an atheist, and I do my best to live those virtues because it's just the right thing to do, and because it feels better than the alternatives. I don't think I'm exceptional in not needing a final judgement to make me want to be kind, honest, work for justice, live with integrity, etc.
Much respect to my theist brothers and sisters, and please consider that your atheist brothers and sisters are worthy of respect as well.
And humorously, the latter of each of GP's respective points map pretty well to the destructive effects of what Nietzsche most feared of what he sensed was impending nihilism. Tho the difference, among many, is that "belief in the Christian God has become unbelievable".
A sovereign ruler who is just necessarily has to enforce the law. That sinning against a perfect, loving, and good being would be punished severely shouldn’t shock you. It would happen in human, legal systems and likely your own house.
The beauty is God’s mercy outweighs His wrath. The wages of sin are death but the free gift of God is eternal life in Christ Jesus. He took the punishment for us so we can just turn away from sin and back to God. Then, He never lets us go. You do have to put your God first, though.
There were also predictions about what would happen if we followed Christ and His model vs other models centered on selfish gain. The other side denied the Biblical truth saying we’d have a better America with godlessness, capitalism, and/or communism. We’ve had time to see where those philosophies would take us. What happened?
God’s Word came true quite literally in many ways while the godless’ predictions were wrong with damaging results. So, the rational choice between multiple worldviews is to think the one that works and has correct predictions is true (or better). And then commit to Christ and repent.
Now, let’s tie that directly into Red Lobster:
1. Christ-like business over worldly greed would have the new owners not sell the real estate the business depended on.
2. Jethro and Paul said to pick leaders of great character and wisdom who aren’t sellouts. They’d have managed it better.
3. Humility in the service sector means constantly listening to customers to adapt to their needs since we put others first. Red Lobster would’ve changed with the times in some way which might have worked out (or not).
4. Proverbs focused on equitable or profitable arrangements. Jesus said to count the cost before you commit to a plan. The Bible often says to seek counsel. These would preclude all you can eat shrimp every day.
In short, Biblical morals would’ve prevented every aspect of this situation. Whereas, godless, unloving capitalism… all those together… naturally leads to things like this. If you will benefit from, but never be held accountable for, destroying the chain… why not make a fortune destroying it?
it's spot-on if you just want to feel good about yourself though. you start off with a whopper of a false dichotomy and strawman, and don't improve from there.
It turns out that Allah and Vishnu are both quite popular. And none of it supported by actual evidence. We can do better. God's plan is never to reveal that God makes any sense, just random whims. The immoral false prophets get rich and influence millions. So, gotta wait until you die to find out? Maybe. But the Abrahamic bible is so full of misinterpreted BS as to be unusable.
Get that fixed and then maybe I’ll listen.
https://web.archive.org/web/20201109005141/http://www.godand...
In another article, America was rated as the most Christian with the most missionaries. Yet, it’s had hardly any wars motivated by religion. They’re usually about the selfish motivations of non-Christian worldviews.
Whereas, Communists have killed tens of millions of people, cultural Marxism is spreading in universities, and that should worry people. You might want to cite liberal beliefs and atheism as top killers in future comments.
I'd suggest that if they want more Americans to live the values preached by Jesus, they should try starting with themselves. I don't know how many people they have turned into Atheists with this behavior, but I can say for sure they did for me, and I suspect they have alienated many others as well.
Tho really any belief system that becomes so institutionalized will inevitably attract flies and become debased over time. However one could cheekily remark that by virtue of its message and who it spoke to, early Christianity was inherently debased, and certaintly ignoble.
As I look at the Word, we see Jesus Christ promised that anyone who repents and believes in Him would receive eternal life by how good He was, not our own works. It’s a gift of grace. From there, John 15 shows real believers who are in the vine bear the fruit. We’re all steadily changed over time (sanctification) to be more like Him. So, we’ll all have faults.
Even in God’s Word, we see all kinds of sin in the churches. They have fake leaders, people about money, sexual immorality, ego, and James says they starve the poor. Yet, apostles call them “saints” because Jesus bought their future. Instead of discarding them, the apostles keep exhorting them to improve to become who they need to be. Anyone that confessed and made an effort would make it.
Whereas, we can’t let any excuse… ourselves or others… separate us from Christ. Apostasy leads to a worse fate than non-belief if one never returns. John says Christ will never let anyone snatch His real sheep out of His hand. He’ll forgive anyone that returns. I encourage you to return to your first love and find a Biblical church (eg GiveThemLife.com has help).
The book of Job was written specifically to denounce the idea that morality means that you'll prosper.
Most people leaving the church today do so because of how hateful and toxic the modern US church has become over the recent decades. If you don't like Christians leaving the church for Marxism, you shouldn't have let Marxism be the only ideology loving thy neighbors while the church was too busy chasing the delusions of white supremacy and Christian Nationalism.
TVs: I get a much nicer TV now for the same amount what I paid for a crappier one in 2012
Smartphones: very powerful and do a lot of things better (eg. camera, connectivity)
Entertainment: Netflix, HBO, Hulu, Prime, ... you can pick 1-2 of those, binge all you want and then rotate. Costs < 30$/mo
Travel options: Ok, even in 2014, there were very good travel options. But I see a lot more options these days (direct flights from SF, more obscure locations on the travel map etc)
Cars: I bought a new car in 2021 (previous one was 2010). New one is cheaper and has some nicer features (rear view & other cameras, various warning signals)
The vast majority of these things are not all that important to most people, not like prices of groceries, household goods, clothing, energy, childcare costs, transport costs..etc.
I don't care that cars have nicer features now, if buying a new car is most of my annual wages pre-tax. I don't care that I can fly to more interesting destinations from SF when I can't afford to go to urgent care without having to switch to rice and beans for a week. I do on the other hand care when my grocery bills double unless I spent multiple hours a week collecting coupons and driving around to find sales. I care when I have to wake up in the morning shivering because I can't afford to keep the heat at even close to a comfortable temperature.
Hmm I don't think you and I share the same definitions of "most people" then, or "important" for that matter. Just to give 2 examples:
>85% of US adult population uses smartphone. The way smartphone revolution has occurred and the big role they play in our lives (entertainment, communication, public services, finances) in just 15-16 years since its invention is truly astonishing.
>90% US households have a car. ~40K Americans die every year in car road accidents. Improving car safety is literally a matter of life and death and numbers prove[1] that we are doing better over time.
[1] https://injuryfacts.nsc.org/motor-vehicle/historical-fatalit...
That kinda works— Until a small handful of corporations gain enough power that there is not really any meaningful competition anymore, and they can effectively engage in price-gouging with monopoly power. Which has now happened, apparently, in most industries. …Hence everything getting worse.
…I think there was an article I read some time back that explained it really well. But I can't seem to find it, so these links will have to do. The Guardian/Youtube ones might seem clickbaity, but that man was also Clinton's Secretary of Labor:
https://en.wikipedia.org/wiki/The_Antitrust_Paradox
https://www.theguardian.com/commentisfree/2024/apr/11/compan...
https://www.youtube.com/watch?v=YMZKegjJurk
https://www.politico.com/news/2021/07/08/biden-assault-monop...
https://pluralistic.net/2021/08/13/post-bork-era/#manne-down
https://www.theverge.com/23645057/taylor-swift-ticketmaster-...
https://news.yale.edu/2024/04/24/lax-antitrust-enforcement-l...
https://www.journals.uchicago.edu/doi/abs/10.1086/675862
Ticketmaster, Facebook, grocery prices, even the Boeing 737 mess— I suppose a lot of these problems do basically come down to a company or an oligopoly getting so powerful that nobody can hold it accountable anymore.
We are slowly in the midst of going through a black plague of sorts when it comes to the % change in population that is occurring, except we will be left with an elderly population instead of a dynamic healthy and young population.
But what ends up often happening is data-driven myopia. You see some statistic that doesn't seem optimal and you end up optimizing for that instead of figuring out how it fits into the big picture.
Restaurants, at the end of the day boil down to food. You serve food. People either like the food or they don't. How many customers you get is a function of how much people like the food, how competitive the pricing on the food is, and the market you're in.
Red lobster at the end of the day suffered from people not wanting to pay what they were charging for low quality, uninspiring seafood dishes.
People nowadays are struggling more (spare me the CPI data, hedonics and other basket adjustments mean the situation for most people is quite a bit worse than it was a few years ago) and there needs to be a value prop for dining out.
Some cannot be.
The executives who sits in their office are not going to be able to smell and taste or care about the food.
To expand on this a little, restaurants serve food in a building brought to your table by people. If the building/table/environment is dirty or just uncomfortable people don't want to be in it. If the people preparing and serving the food are doing a bad job people won't want them doing it. If a restaurant drops the quality of the food, environment, or personnel they are going to lose business.
As you say it's the value proposition. I go to a restaurant because I want to just pick a food, eat it, and leave. The "hard" parts of cooking and cleaning are someone else's job. All restaurant patrons are willing to pay some premium over the cost of the raw ingredients to save their time and effort. But as the experience gets worse that value proposition starts to erode.
For me and I imagine many people the experience doesn't need to be mind blowing. It just needs to be not shitty.
Glad to be of assistance my friend.
AHA! IT'S YOU!
You're the person who has encouraged this bizarre behavior where waitstaff come to pull away my plate the second they think I'm done. No! Leave it unless it's completely empty, I've asked you to take it, or the next course is about to arrive.
For a 1000+ page exposition on why this is such a fatal flaw see James C. Scott's 1990s tome "Seeing Like a State" which addresses precisely this issue with receipts brought from fields ranging from agriculture, urban planning, politics, family naming systems, and more across at least 4 or 5 continents and a century.
It's an essential non-partisan read that manages to piss everyone off by being a peon to left anarchism in many ways while saying "actually yes Hayek was right about sensitivity to local conditions" and "actually the NHS and NWS are good and sometimes centralized planning isn't the worst solution".
I've not seen any direct link between them but I feel like you can draw a very firm line between it and Piketty's Capital and Ideology. You might think "wait isn't Piketty the guy who's completely data driven and publishes stupidly large amounts of xlsx files as appendices" and you'd be right except in his second book he's leaning far more heavily on sociology and just using financial data (much imputed from tax records) as support for sociological arguments that align very closely in many respects.
A developer who genuinely cares about the quality of the game, interacts positively with the community around it, and makes decisions that demonstrate his caring for the game and the community. Specifically, decisions that often leave revenue on the table, particularly in the short term but arguably in the long term as well.
That sort of caring is largely impossible for private equity, and it's really hard to successfully fake.
We humans are hardwired to hate that idea, we always want an understandable story with distinct causes and effects... So much so that we will often invent one, even for things we "know" are random, like: "Okay, now the next one will almost certainly be heads, because..."
If the olives in the salad don't taste as good or there are fewer breadsticks or the lighting makes it feel more relaxed or the greeters have more time or the menu gets shorter or the desserts arrive quicker or the pasta is less salty, that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there. There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim.
If the food gets worse and it just doesn't have that same vibe anymore and you don't want to go there next time, it's because an expert in marketing or restaurant management or food design made an error in their judgement about what they could cut, what they should improve, and what they needed to keep the same. That, or the change which turned you off attracted more customers or more desirable customers who have different preferences to you.
Your restaurant changed because its corporate policy changed. But the capital structure is totally relevant in understanding why that changed.
Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money".
Evidently not really taking the factors into account. Would the limited partners eat there? More than once?
Walmart is a family owned business. Do you think that the Walton family buy groceries and home furnishings there? McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there?
Yes: https://financialpost.com/executive/mcdonalds-new-ceo-eats-a...
Why would you think that private equity owners would ever make things worse to improve margins without giving careful consideration to whether or not the changes will make people less likely to spend money at their restaurants??
PE is incentivised to squeeze the business and extract the value built up over time, to get large, quick returns, even if it destroys the business (they can sell the corpse after). A restaurant which delivers regular, single-digit restaurant margins indefinitely would be considered a PE investment failure.
So, the answer your 2nd question is also "because it's true". I'm happy to be convinced otherwise on either count, if you think differently.
Can you explain how the math works that PE owners make money from discouraging people from going to a restaurant, and other owners don't have the same incentives?
Add to that, the leveraged buyout mechanism that Red Lobster went through is famous for siphoning value off the target in the form of fees and other schemes, and then leaving the empty husk to die under crippling debt[1]. A clue here is that the 2nd paragraph of the article we're discussing is, "In mid-April, Bloomberg reported the debt-laden seafood chain...", and it sounded like they had trouble paying it in part because of the rent payments that started when the PE firm sold their real estate to pay for the buyout.
Can you explain why you think anything I've said so far is untrue? After all, we can't assume a PE LBO executor and a small business owner have the same incentives unless we have sufficiently convincing evidence to support that assumption.
0: https://www.indeed.com/hire/c/info/restaurant-profit-margins...
1: https://www.investopedia.com/articles/stocks/09/corporate-kl...
You've compared the incentives of private equity and a small business owner. Do you think that Red Lobster was previously a small business?
Why can't you answer the question on the different incentives that apply to different owners of large businesses? If a private equity fund can make a profit by buying a successful business, discouraging all its customers and then "selling the corpse", why can't other owners do the same thing?
Why does the company having a large amount of debt change the decision a restaurant chain's management makes between selling cheap and good food, or cheap and bad food, or expensive and bad food, or expensive and good food?
Literally everything that you've said about this has been handwaving and rumours. Explain the decisions based on where the money comes from and where it has to go to, if you can (you clearly can't).
You citing Nabisco as the best example of what you believe is comical since it's from 40 years ago (and famously fraudulent).
Other end goals than making people happy by serving good quality shrimps for a reasonable price? Obviously they do.
Other end goals than making money? Of course they don't. But neither did Ray Kroc, who was extremely upfront about how McDonald's is a business whose strategy is to acquire real estate, funded by burger sales. Neither do the Waltons, who aggressively cut margins on all their products and compete to drive other retailers out of business. (Neither does General Mills, who used to own Red Lobster, nor Darden Restaurants, the public spin-off that owned Olive Garden and Red Lobster, nor Starboard Value, the activist investor that pushed for Red Lobster to be sold.) None of these companies exists because of a high-minded commitment to customer service, or fair play, or delicious food.
If turning a viable restaurant chain into a chain that no one wants to go to and then selling it is an attractive business proposition for private equity, than it should be for McDonald's and Walmart too. Unless you can point to some specific causal connection between the ownership structure and the decision about whether or not a restaurant should serve stuff that people actually want to eat?
Why did the PE firm do that when McDonald's didn't?
I'm sure that there are PE firms that really do try to make businesses successful and profitable, but the vast majority are in it to sell off anything of value and dump all the ensuing debt into a company that will shortly go bankrupt.
If you own a company, and a PE firm buys one of your clients, that should be a hint to require prepayment for everything they ask for after that. They will leave you holding the bag as a creditor.
Your second point: why would someone lend money to a company which was going to go bankrupt? If PE firms always made the companies they controlled bankrupt, no one would lend to them.
Your third point: if someone buys a company from you, how does it make you a creditor of the bought company?
For 2), people loan to the PE firm because they extract all the value for themselves. Their creditors get paid. People who loan to PE-controlled firms don’t seem terribly wise to me, but maybe they can model them like junk bonds.
For 3), if the firm buys one of your clients, be cautious.
Thought leaders seem to know everything except when to keep their mouth shut for once. But I digress...
If firms are being punished for poor quality, then the system is working, even with enshittification becoming more commonplace. All of the Very Important Business People can sit around and scratch their heads about why the market seems to change on them when they screw up their offering, and they can consult overpriced business fortune tellers to reassure them that it was that pesky market's fault, but that doesn't change the outcome.
I'll miss Red Lobster's cheesy biscuits, but if they've dropped the ball on quality they had this coming to them.
I too have a few local places that despite being busy and great food for ages, suddenly couldn't keep good people working there. They were doing great then just fell on their face.
I suspect that they just couldn't adapt to it being more difficult to retain / keep good people and everything else suffered.
Dominoes Pizza (US national pizza chain), seems to be the alternate story, long time bargain pizza chain with poor quality.... got better quality pizza and reportedly took off again.
Lately for pizza I've only been ordering from Dominoes, mostly because it's sort of cheap but also consistent.
Not fantastic, not bad, but always pretty good.
I hope they keep up with it, whenever I go in they always appear fully staffed and in good spirits.
This is just demonstrably false. Good food and service is no guarantee of product-market fit.
I'm not so sure that Red Lobster would have survived if instead of lowering the quality of the product they'd have just raised the prices by say 80% overnight. I mention 80% because that's how much many hospitality businesses have raised prices in my area in London since the pandemic.
I've seen businesses go bust here that have tried both things:
- lowering quality and raising the prices by less than the average
- maintaining roughly the same quality and service but raising prices drastically
Plenty of examples in my area of businesses just collapsing with either strategy. People simply would not accept the new prices in many cases.
A business that is sort-of a luxury business like those specialised in oysters, shellfish in general, high-end cuisine etc only a very select few have survived. Those that are large chains have suffered the most, because they are not seen as so much of a special expenditure and people would just stop going.
Red Lobster perhaps would have fared better by not reacting and simply raising prices. Who knows, it's easy to make the counterfactual scenario in the abstract.
If that is codified and taught, then journalists can point to that in all cases (of which we are overrun). It's pathetic.
In this context (the idea of making this unethical), a brand is built on investor money (not profits) and then later profits are achieved by cashing out the brand value.
But I'm guessing you knew that and disagree. Care to be more forthright?
Well for one, every new business is initially built on investor money, not profits, and "cashing out" is in the eye of the beholder, so I'm not sure how you're going to get everyone to agree on where the line is.
Furthermore, I think cory (and many of the folks here who have fallen in love with the term) misunderstands why platforms decay. Facebook doesn't suck because it is trying to please business customers at the expense of its users. Facebook sucks because it is attempting to please 2B users all at once. Every new little feature or notification or ranking change is loved by millions of people and hated by millions more (and merely tolerated by the vast majority). If the former is greater than the latter, it gets shipped to production. Rinse and repeat for 10 years across a myriad of teams, and you get a muddled, confusing mess that has a wider audience but much worse experience for most. That is the root cause of the decay.
Private equity firms prey on companies that are already struggling. Yes, they take a struggling company and hasten its demise. But healthy companies don't end up getting bought by private equity in the first place.
In this case, I think dining culture has just changed in a way that's incompatible with Red Lobster's brand. It used to be considered higher-class fare, but drifted down market like almost every large restaurant chain does (see also: Friday's, Applebee's, etc.). For a while, it survived on the unusual combination of being a nice-seeming sit-down seafood restaurant, but not actually that expensive or close to the sea.
But, of course, the way they were able to do that was by cutting every possible corner (for example, calling langostino "lobster"). Diners today care more about their health and where their food is coming from. The post-WWII culture of "we can trust big companies because they're successful business" has been replaced by "we can't trust big companies because they must have grown by doing shady shit".
Frankly, a cheap restaurant in the midwest that lets you eat unlimited lobster no longer seems a delightful treat and a hell of a lot more like a suspicious food poisoning trap.
People thinking that Red Lobster is a good place to eat is a valuable asset, which can be traded for short-term profits until they catch onto what's actually going on.
One way to look at private equity is that they are playing an arbitrage game between the perceived value of a brand and the actual worth of the products the brand produces.
In a world where people had better access to true, recent information, perceived brand value wouldn't lag actual product value as much and there would be less opportunity to exploit the arbitrage.
This is honestly fair given bacteria’s ecological role as digesters/recyclers. There are probably better things to do with Red Lobster’s locations and people than serving terrible seafood.
From the finance/economics perspective, what should be the ideal replacement for Private Equity?
At least for me they seem like a part of the ecosystem responsible for extending the lifespan of some companies and eventually maximizing revenue in those that has success, and this premium is used to cover the losses in other bets.
The vampire capitalists did the standard playbook:
In the short term, profits go up. Long term, the once healthy company slowly dies, as customers get pissed to the point they are willing to incur the cost of transitioning to a new vendor.Not only was this company once healthy, it had astonishing employee retention. We are talking many programmers and support people with 20+ years of specialized knowledge. People seem to forget how much productivity is lost with high turnover.
When I started making my own money, it was one of my regular indulgences.
As an adult, I rarely ever see them anymore. And when I do go (it's been years), I'm always left feeling sick to my stomach, and yet still hungry. The portions sizes have shrunk considerably, even more shrinkflation. The greasiness, while expected with that kind of food, it so much worse. The fries are soggy, and you hardly ever get any crunchies anymore!
I missed the late 90's LJS something terrible. :)
My kids love crap food, and I sometimes have to sigh and go to places I'd rather not go because my kids think it's the best thing since sliced bread.
Granted, my only experience with LJS are stories from https://en.wikipedia.org/wiki/Wayne_Coyne (2nd paragraph, "Early Life" section.)
ownersip here should wake up before it worsens further
Going into bankruptcy might actually allow them to address their debt and operational losses
They did the same thing with Sears and many others.They short sell the company, buy it, sell anything valuable and destroy it.
Interesting story of how some private equity guys would
- buy hospitals
- sell the real estate for more than they paid for the hospital, signing a long-term lease at a high rent
- pay themselves an immediate huge profit. the higher the rent the hospital promised, the bigger the sale/leaseback deal, so the bigger the profit.
- default, hospital goes bankrupt, the community and the dumb patsy who bought the hospital gets left holding the bag.
classic bustout from Goodfellas or The Sopranos, but mobsters get investigated, PE guys don't.