Lack of CEO just one of Red Lobster’s challenges

Red Lobster still has not named a new chief executive officer nearly six months after Kelli Valade resigned from the position. But that is only one of the company’s operating challenges, a foodservice industry analyst told SeafoodSource.

Valade resigned from the Orlando, Florida-U.S.A.-based operator of more than 700 locations globally in early April after only eight months in the role. In early May, she was named the new CEO at Denny’s.

Valade took over from CEO Kim Lopdrup, who retired in 2021 after 14 years leading the restaurant chain, which was purchased in 2020 by Thai Union, Red Lobster management, and an investor group named the Seafood Alliance.

"The pandemic is finally winding down, and Red Lobster has emerged with the best menu we've ever had, vastly improved off-premise systems, a stronger business model and over 10 million members in our award-winning loyalty program …We have great initiatives in the pipeline and a terrific leadership team in place,” Lopdrup said in a press release when announcing his retirement.

Red Lobster executives are likely taking their time to find the right fit for the new CEO, since filling the role of a veteran like Lopdrup is difficult, Darren Tristano, CEO of food industry research and consultancy FoodserviceResults, told SeafoodSource.

“They saw one of the long-term leaders retire; they have had a transition and now a vacancy,” Tristano said. “The length of time the position has been vacant doesn’t bother me. They need to find the right person. When you get someone who comes and goes, you are going to focus harder to find the right person, and that may take time.”

Tristano said he wasn’t sure of the reasons behind Valade’s departure.

“The Denny’s opportunity she moved into was a better fit, I imagine,” Tristano said.

But Pacific Management Consulting Group Founding Principal John Gordon told the Orlando Sentinel in April 2022 Valade’s swift departure was “very, very, very bad.”

“No CEO anywhere wants to be on board a company only eight months. That says it all. That is an indicator of severe stress and malfunction that you can only stay on a job eight months before some sort of irreparable break occurs,” Gordon said. “This kind of [move] causes a shiver of ice to go through the management ranks.”

University of Central Florida Department of Management Chair Ron Piccolo said Valade’s move could be contributing to its difficulty in hiring a new chief executive.

“It would tell me it’s probably not a great culture to be in or the financial operating circumstance is challenging more so than it might appear on the surface,” Piccolo said. “Why so abrupt? It’s not known whose choice it is to break the relationship.”

Making matters worse, on 26 August, the Sentinel reported David Schmidt, who was named chief financial officer at Red Lobster in March 2022, will be leaving the company in September 2022 to become the president of Keke’s Breakfast Café, a restaurant chain purchased by Denny’s earlier this year.

“This sometimes is the problem with being in a company that is undergoing management change, is that it has an effect up and down the ranks in terms of difficulty in recruiting people,” Gordon said. “Anytime there’s a change at the CEO level, then that causes change all throughout the organization.”

Beyond replacing leadership, Red Lobster is facing other inherent operating challenges due to the current economic situation in the United States and its impact on the restaurant industry, Tristano said. Red Lobster faces higher labor costs and supply chain woes.

“Labor and transportation are difficult and expensive, and prices are going up. Trying to maintain the supply you need in a chain that large can be very difficult,” Tristano said.

Restaurant chains have had to raise menu prices as a result, which has “caused many customers not to go out to restaurants,” Tristano said. “It’s harder to fill seats. The prices have been increasing and the middle- and lower-income groups have struggled because of inflation and high gas prices, and a lot of unemployment.”

Red Lobster’s strengths include a strong advertising program and fairly loyal customer base, according to Tristano. But Red Lobster is feeling the brunt of broader changes in consumer trends hitting the restaurant sector, Tristano said. In response to higher menu prices caused by inflation and supply shortages, consumers typically trade down to lower-priced items, cut back on the number of items ordered, or reduce restaurant visits altogether, according to the NPD Group.

“Consumers continue to deal with rising inflation and higher prices,” NPD Group Food Industry Advisor David Portalatin echoed in a press release. NPD found that overall U.S. restaurant traffic declined by 2 percent in the second quarter of this year versus a year ago, and stood at 6 percent below the same quarter in 2019.

More specifically to Red Lobster, Tristano traced the origin of the chain’s problems all the way back to when Orlando, Florida-based Darden sold the company to Golden Gate Capital in 2014.

“They lost all of the resources that Darden would have brought to the table for them. [They] are paying for those things now,” he said.

Nonetheless, Red Lobster occupies a difficult place in the foodservice market, Tristano said. The chain’s menu prices and economic challenges facing their customers base are “going to be a problem” in the near future, he said.

“[It’s] not an easy concept to get your arms around. It’s the biggest seafood concept and is still focused on lower- to middle-income [customers], which I think is great, but it’s a tough market,” Tristano said. “I think it needs an investment and a little more rejuvenation.”

It is “very likely” that the restaurant chain needs to operate smaller restaurants, so it can build a better take-out model, such as a “Chilis to Go” concept, according to Tristano. Alternatively, it could shift to a drive-through concept, modeling itself after Long John Silver’s, which has performed very well during the COVID-19 pandemic, Tristano said.

“Long John Silver’s saw tremendous growth during COVID-19 when a lot of the restaurants were closed down. They offer very affordable bundle options for small and large families,” Tristano said.

Recently, Thai Union has doubled down on its Red Lobster investment, recently promising to guarantee as much as USD 65 million (EUR 65 million) of the chain’s outstanding credit facility balance. The total value of Thai Union’s loan guarantee now stands at USD 260 million (EUR 260 million).

A representative for Red Lobster did not respond to SeafoodSource’s request for comment, while Thai Union declined to respond.

Photo courtesy of Ashley Kamonrat/Shutterstock