--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
--:-- Damola Adamolekun: I'm Damola Adamolekun, the new CEO of Red Lobster.
--:-- Ryan Knutson: It's Tuesday, September 24th. Today, we're talking about Red Lobster, which has been a staple of strip mall casual dining for more than 50 years. You might remember some of those classic ads.
--:-- Damola Adamolekun: Home of the free Cheddar Bay Biscuits Popcorn Shrimp The Admiral's Feast Brownie Overboard And Endless Shrimp Red Lobster for the seafood lover in you.
--:-- Ryan Knutson: But over the past few years, Red Lobster has been floundering. It faced declining sales in aging restaurants. And this spring, it looked like Red Lobster was cooked. Red Lobster is officially underwater. The restaurant chain has filed for Chapter 11 bankruptcy.
--:-- Damola Adamolekun: America's largest seafood restaurant chain, Red Lobster, is in a serious financial pinch. Branches in at least 27 states suddenly closing. The seafood chain was hundreds of millions of dollars in debt.
--:-- Ryan Knutson: Dozens of restaurants were turning off the lights. Some were auctioning off the microwaves, fryers, and lobster tanks.
--:-- Damola Adamolekun: Amid all these problems, one very important customer started dining at Red Lobsters across the country. He'd show up kind of incognito, sample the lobster tails, try the crab legs.
--:-- Ryan Knutson: And so when you'd go in, would you normally sit by yourself? Would you order the same thing?
--:-- Damola Adamolekun: If I'm by myself, I'll sit at the bar. If I'm with some friends, I'll sit at a table and just feel the experience.
--:-- Ryan Knutson: What's the ambiance like? What's the lighting? What's the music that's playing? Where's I greeted? Is there even a host? What was I quoted in terms of a wait time? What was it actually?
--:-- Damola Adamolekun: The food I thought was quite good and relatively consistent, right? All things considered, given what the business has been through over the last few years especially.
--:-- Ryan Knutson: This has been a story of underinvestment. This month, Red Lobster is emerging from bankruptcy with new owners. And that mystery diner?
--:-- Damola Adamolekun: Turns out he's the new boss.
--:-- Ryan Knutson: Do you mind just doing what we ask all of our guests to do, which is introduce yourself?
--:-- Damola Adamolekun: Absolutely. My name is Damola Adamolekun. I'm the CEO of Red Lobster.
--:-- Ryan Knutson: It's on us to make this what I think can be the greatest comeback in the history of the restaurant industry.
--:-- Damola Adamolekun: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson. It's Tuesday, September 24th.
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--:-- Ryan Knutson: If you were a detective investigating what killed Red Lobster, a leading suspect might be Shrimp. Ultimate Endless Shrimp is here.
--:-- Ryan Knutson: Endless Shrimp is kind of a big deal. It's Endless Shrimp at Red Lobster. Indulge in Endless Joys.
--:-- Ryan Knutson: Last year, what was once an occasional promotion was made permanent. Customers could come in all day, every day, and for as little as $20, get all the shrimp they could possibly eat.
--:-- Ryan Knutson: And people were really into it. It set off a bit of a feeding frenzy.
--:-- Ryan Knutson: I'm Dina. This is my first shrimp, and my goal is to eat 65 shrimps tonight.
--:-- Ryan Knutson: And we got some more shrimp. This is how much shrimp you need to eat at Red Lobster for their endless shrimp deal to not only break even, but to profit.
--:-- Ryan Knutson: They underestimated how much shrimp people can eat.
--:-- Ryan Knutson: Eat more shrimp. Eat more shrimp. Eat more shrimp.
--:-- Ryan Knutson: It was, and I don't think this is debatable, a disaster.
--:-- Ryan Knutson: It cost Red Lobster $11 million in one three-month period.
--:-- Ryan Knutson: Not long afterward the restaurant chain filed for bankruptcy.
--:-- Ryan Knutson: Damola Ademalakin the new CEO did not work for Red Lobster during the Endless Shrimp debacle but I did have to ask him about it.
--:-- Ryan Knutson: So when you would go into these Red Lobsters on your sort of undercover tour, would you ever order the Endless Shrimp?
--:-- Damola Adamolekun: The Endless Shrimp? I missed the period where it was a complete free-for-all, where people were leaving Tupperware tubs full of shrimp, and it was a total operational nightmare.
--:-- Ryan Knutson: So it was under control by this point. But yes, I did see what that was all about.
--:-- Ryan Knutson: How many shrimp could you eat in one sitting?
--:-- Damola Adamolekun: I wasn't trying to max out, my friend.
--:-- Ryan Knutson: So I can't tell you.
--:-- Ryan Knutson: Endless shrimp will get talked about as the final nail in the coffin. And it was, that is true.
--:-- Ryan Knutson: But you don't get from great to bankrupt by one decision. It's a culmination of multiple decisions across multiple owners that led the company here.
--:-- Ryan Knutson: In what ways was Endless Shrimp the nail in the coffin?
--:-- Damola Adamolekun: I'll say three things. Number one, financially, it didn't make sense.
--:-- Ryan Knutson: The cost of the product that was being given away was greater than the cost of the product that consumers were paying for.
--:-- Damola Adamolekun: So they're selling shrimp at a loss. Which isn't a great recipe for business success, right?
--:-- Ryan Knutson: So there's a simple financial evaluation that didn't work, right?
--:-- Damola Adamolekun: Two other things that it did. It created operational chaos within the restaurants, right?
--:-- Ryan Knutson: So when you have guests that are coming in and ordering one product in that much volume, it puts a lot of stress on the kitchen.
--:-- Damola Adamolekun: Stresses out the operators, makes it difficult to do their job, ultimately causes turnover, people quit.
--:-- Ryan Knutson: And then finally, I'll say there's a brand impact.
--:-- Damola Adamolekun: When you're giving away free shrimp, people start to believe that it's not high quality, whether or not that's the case.
--:-- Ryan Knutson: So why do you think the prior ownership did that?
--:-- Damola Adamolekun: I'm speculating because I wasn't there. Obviously, there's some element of traffic that they wanted to drive, which was successful.
--:-- Ryan Knutson: Now, not all traffic is good traffic. Just because you get people in a restaurant doesn't mean it's good for the business. Right.
--:-- Damola Adamolekun: So I call it empty calories. Right.
--:-- Ryan Knutson: But they did get traffic. So that's one reason.
--:-- Damola Adamolekun: And then, you know, if you read the bankruptcy report, there's at least speculation that, you know, this was the shrimp supplier that owned the business. Right.
--:-- Ryan Knutson: So there's a case to be made that they benefit in some way or another if a lot of shrimp leaves the building, whatever it's priced at for the restaurant. Right.
--:-- Damola Adamolekun: So like, yeah, the owner that owns the shrimp company, they can just buy as much shrimp from Red Lobster and just make money that way.
--:-- Ryan Knutson: Speculating, they haven't said that, but if you read the bankruptcy report, that's certainly a theory.
--:-- Ryan Knutson: In a statement, Thai Union, the shrimp supplier that used to be the largest owner of Red Lobster, said it had invested hundreds of millions of dollars into the chain.
--:-- Ryan Knutson: It said its decisions were, quote, conducted in accordance with the highest standards.
--:-- Damola Adamolekun: Damola says Red Lobster's problems didn't begin or end with endless shrimp.
--:-- Ryan Knutson: I think fundamentally it's restaurants require investment to continue to grow, right?
--:-- Damola Adamolekun: You need to invest in the product. You need to invest in the infrastructure. You need to invest in the systems and technology.
--:-- Ryan Knutson: You need to invest in the people, most importantly.
--:-- Damola Adamolekun: And when that investment doesn't take place, the brand can stagnate and start to decline.
--:-- Ryan Knutson: Now, first, it's gradual. But gradual declines over many, many years can lead to a significant decrease in overall performance.
--:-- Damola Adamolekun: So you said that Red Lobster was a company that was under-invested in.
--:-- Ryan Knutson: In what ways, when you were going to all these Red Lobster locations, in what ways would you see that manifest?
--:-- Damola Adamolekun: Well, the obvious thing that anybody will notice is the physical infrastructure, right?
--:-- Ryan Knutson: So it's easy to spot a carpet that looks too old or something that's torn or, you know, a chair that looks like it needs to be replaced.
--:-- Damola Adamolekun: So things like that are pretty obvious.
--:-- Ryan Knutson: And now the good news is they're pretty also easy to fix, right?
--:-- Damola Adamolekun: If you have the money and you have the dedication to correct it, it's just a matter of organizing your facilities teams and your vendors and your management companies and just dealing with it.
--:-- Ryan Knutson: Another area where Damola says Red Lobster was lagging was in technology.
--:-- Damola Adamolekun: For example, he says the restaurants didn't have those handheld credit card processors that let people pay their bills at the table.
--:-- Ryan Knutson: And you know another example I walk into a restaurant and I get quoted for 25 minutes wait time by the host right now it ends up being 10 minutes and I wait because I'm dedicated I'm determined to go there but a lot of people would leave right now.
--:-- Damola Adamolekun: Why did that happen it's easy to kind of say the host made a mistake but I know there's technology that will give you quote times based on your capacity based on how long people have been sitting based on what the turn times are for your tables.
--:-- Ryan Knutson: And you can get that answer precisely with technology.
--:-- Damola Adamolekun: Now, they don't have that. So that's a systems underinvestment to me, right?
--:-- Ryan Knutson: So these things are, again, it takes investment, it takes capital, it takes determination, it takes some training.
--:-- Damola Adamolekun: But once you get that in place, your quote times become more accurate. People can pay more easily. They're not abandoning tables this frequently, and that improves the whole operation.
--:-- Ryan Knutson: And then there's the staff. or sometimes lack thereof.
--:-- Damola Adamolekun: When Damolo walked into some Red Lobsters, he says there wasn't even a host there to greet him or a bartender to make drinks.
--:-- Ryan Knutson: Some of the less busy restaurants cut those positions to save money I think that a mistake right
--:-- Damola Adamolekun: Because it creates a bad experience for the customer that creates this in virtual cycle of things consistently getting worse and sales continue to drop and now you have less to invest, now you have to cut another position.
--:-- Ryan Knutson: So that's a process and people investment decision, right?
--:-- Damola Adamolekun: Where I would say have a host in every restaurant, have a bartender in every restaurant.
--:-- Ryan Knutson: And are these actual things that you experienced?
--:-- Damola Adamolekun: Absolutely. Absolutely. Absolutely. Absolutely.
--:-- Ryan Knutson: And it's frustrating. You know, and people, if you don't know the restaurant business, you'll just sit there frustrated and not understand why. Right.
--:-- Damola Adamolekun: Why is there no host? Why is there no bartender? Oh, there must be. What the hell's going on here?
--:-- Ryan Knutson: It's a decision. A lot of these are just decisions. What are you willing to invest in?
--:-- Damola Adamolekun: So with all the problems that we talked about, why did you want to take this job?
--:-- Ryan Knutson: The opportunity for impact here is out of this, there's nothing else like it, right?
--:-- Damola Adamolekun: It's an important project. It's an important company. It's an important part of American history.
--:-- Ryan Knutson: And I want to see it restored. I believe it can be. I think there's a solution here, and I want to be a part of that.
--:-- Ryan Knutson: So what's Damola's plan to turn Red Lobster around? that's after the break.
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--:-- Ryan Knutson: Damola Ademalakin is 35 years old, relatively young for a CEO of a big restaurant chain.
--:-- Ryan Knutson: He got his start in finance, working in private equity.
--:-- Ryan Knutson: He made the leap into the restaurant business a few years ago when the private equity firm he worked at acquired P.F. Chang's and put him on the board.
--:-- Ryan Knutson: He eventually became CEO there in 2020.
--:-- Ryan Knutson: At P.F. Chang's, Damola updated systems for digital ordering and to-go dining, a move that paid off massively during the pandemic.
--:-- Ryan Knutson: And he earned a reputation as someone with good instincts in the restaurant business.
--:-- Ryan Knutson: It's this experience he hopes to bring to Red Lobster as its new CEO.
--:-- Ryan Knutson: But the first thing he'll need is money. There's no way to turn this around without investment.
--:-- Ryan Knutson: And so the reality is, if you can invest and turn this around, there's more value there to the owners than to continue to let it decline, right?
--:-- Ryan Knutson: And that's just the reality of the situation.
--:-- Ryan Knutson: Red Lobster's new owners do plan to invest. The company was purchased out of bankruptcy by a group of its lenders, led by the private equity firm Fortress.
--:-- Ryan Knutson: They're planning to put more than $60 million into the company.
--:-- Ryan Knutson: So let's talk about your ideas and your solutions for how to turn this business around. What are like the top, you know, three or four things on your to-do list?
--:-- Damola Adamolekun: Well, right away, we got to build the executive team.
--:-- Ryan Knutson: The executive team is depleted right now.
--:-- Damola Adamolekun: I've got positions I need to hire.
--:-- Ryan Knutson: I want to invest in the restaurants and fix things that are broken and, you know, deal with the carpet that's torn and the HVAC unit that's not working and the kitchen equipment that's dated.
--:-- Damola Adamolekun: That's starting now. We're not going to wait for that.
--:-- Ryan Knutson: Damola also said he's committed to getting turnover under control.
--:-- Damola Adamolekun: Number one is investment in people, right?
--:-- Ryan Knutson: So making sure people are paid well and turnover comes down.
--:-- Damola Adamolekun: Salaries, you're going to be raising wages?
--:-- Ryan Knutson: I take an agnostic view to wages. I let the market set the wages is my philosophy, right?
--:-- Damola Adamolekun: And that's market by market.
--:-- Ryan Knutson: So the wages in Nashville will be different than the wages in Chattanooga.
--:-- Damola Adamolekun: Are the wages at Red Lobster now adequate, or do you think that some markets need to come up?
--:-- Ryan Knutson: Some markets need to come up.
--:-- Damola Adamolekun: It's market by market.
--:-- Ryan Knutson: The other thing Damola says he wants to tweak, the menu.
--:-- Damola Adamolekun: It's gotten too big, frankly, right?
--:-- Ryan Knutson: There's a lot of non-course stuff there that not only complicates the kitchen, but it confuses the guests right
--:-- Damola Adamolekun: When you come in and you get three menus and one has 200 items on it and I exaggerating but it difficult for the ops and it difficult for the guests
--:-- Ryan Knutson: So cleaning up some menu process creating some discipline, these are the things that we can do to improve the business right away.
--:-- Ryan Knutson: Red Lobster raised prices during the pandemic, but Damola doesn't plan on adjusting prices much going forward.
--:-- Ryan Knutson: Instead, he says Red Lobster will try to promote certain menu items that are more affordable.
--:-- Damola Adamolekun: I mean, Olive Garden does this, right? they have really affordable pasta and they might have some high priced items, but there's a value item that you can always get. Right.
--:-- Ryan Knutson: And we have that too. We just don't talk about it enough.
--:-- Ryan Knutson: So that's, that's one thing is to advertise the things that are good value, you know, or you can do promotions, right?
--:-- Ryan Knutson: Now you have to be careful. You don't want endless shrimp, but there's promotions that make sense, right?
--:-- Damola Adamolekun: To get people some value in the menu.
--:-- Ryan Knutson: So this is the end, by the way, this is the end of endless shrimp. Yeah.
--:-- Damola Adamolekun: I don't want to say anything's forever, forever, but the way it was done on an endless fashion without managing, you know, how much is being given away.
--:-- Ryan Knutson: And yeah, the way it was done, it's certainly the end.
--:-- Ryan Knutson: Red Lobster has tried to change before. It's had several different owners since 2014, including private equity firms.
--:-- Ryan Knutson: And Damola is now the company's sixth CEO in three years.
--:-- Ryan Knutson: And yet it still found itself in bankruptcy.
--:-- Ryan Knutson: How confident do you think people can be that this isn't going to be another repeat of the same story?
--:-- Damola Adamolekun: Well, the good news here is that from day one, there's an understanding of what went wrong.
--:-- Ryan Knutson: And a lot of it was lack of investment and lack of long-term thinking from previous owners.
--:-- Damola Adamolekun: And so that recent history, in a way, is beneficial because fortunately, they're not going to come in and do the same thing.
--:-- Ryan Knutson: So if you want to win long-term and you want to, even if your plan is to exit in five years, you want to exit, the way to exit is to have a business that people want to own in five years.
--:-- Damola Adamolekun: And the way to do that is to have it be on this trajectory, right? to be going up.
--:-- Ryan Knutson: That requires investment. You can't cut your way to success in this business, right?
--:-- Damola Adamolekun: You need to grow your way to success.
--:-- Ryan Knutson: And people are recognizing that.
--:-- Ryan Knutson: And I think you're seeing a fresh approach to the restaurant business.
--:-- Ryan Knutson: So I have to admit something to you, which is that I have never been to Red Lobster as far as I'm aware.
--:-- Damola Adamolekun: Oh, man.
--:-- Ryan Knutson: Ryan, what's stopping you?
--:-- Damola Adamolekun: We got to get you out there ASAP.
--:-- Ryan Knutson: Well, yeah. So I mean, like, you know, you and I are around the same age, but what's your plan to try to get people like me to come in and try the restaurant?
--:-- Damola Adamolekun: Well, I think the first thing you can always do is improve the product quality to appeal to new customers, right?
--:-- Ryan Knutson: So the first thing is the investments that I want to make in people and service and infrastructure and technology.
--:-- Damola Adamolekun: Number two is marketing more effectively to younger people, which I don't know that we do a great job of now.
--:-- Ryan Knutson: But the order is product and then marketing, because once the product is great, marketing is more effective.
--:-- Damola Adamolekun: The first step is to speak to our core customers that are there today.
--:-- Ryan Knutson: And the second step is to expand the tent.
--:-- Damola Adamolekun: And we'll find great ways to do that.
--:-- Ryan Knutson: So how long do you think it'll take before you start to see these kinds of changes at Red Lobster, both from a customer point of view and then also from a financial point of view?
--:-- Damola Adamolekun: So it'll take, you know, the better part of a year to make these investments that we want to make, right?
--:-- Ryan Knutson: And then on the financial side, you know, we're starting now, but all of that, again, will take some quarters, right?
--:-- Damola Adamolekun: So I think the best way to think about it is the first year is an investment year.
--:-- Ryan Knutson: And then after that, you'll start to see meaningful improvement in the financials and hopefully a great outcome for everybody involved.
--:-- Ryan Knutson: Red Lobster has closed about 100 of its locations, meaning it's down to about 550 restaurants.
--:-- Ryan Knutson: Damola doesn't plan to close anymore.
--:-- Ryan Knutson: He wants to make sure the customers know that Red Lobster is still open for business.
--:-- Ryan Knutson: The bankruptcy was but one chapter in the restaurant's story.
--:-- Ryan Knutson: Did you know that lobsters can live to over 100 years old?
--:-- Damola Adamolekun: I didn't know that.
--:-- Ryan Knutson: I didn't know that.
--:-- Damola Adamolekun: I'm learning a lot about lobsters, but they're very interesting little creatures, absolutely.
--:-- Ryan Knutson: So where would you say that red lobster is in its life cycle?
--:-- Damola Adamolekun: That's an interesting question.
--:-- Ryan Knutson: I mean, we're 56 years old, so it's easy to say almost directly halfway through, right?
--:-- Damola Adamolekun: Middle age. A little midlife crisis maybe for red lobsters?
--:-- Ryan Knutson: It's easy to say we're in a midlife crisis phase.
--:-- Damola Adamolekun: But listen, it's peaks and valleys in life.
--:-- Ryan Knutson: It's peaks and valleys in business.
--:-- Damola Adamolekun: And certainly in the restaurant industry, you'll see a lot of peaks and valleys, right?
--:-- Ryan Knutson: It's unquestionable that we're coming out of a valley and the goal is to climb to the next peak.
--:-- Damola Adamolekun: There's no reason this business can't be around as long as restaurant businesses exist in America.
--:-- Ryan Knutson: It's got the foundational elements that you want.
--:-- Damola Adamolekun: Without putting a timeline on it, I think this can be a great business for the foreseeable future.
--:-- Ryan Knutson: All right. Thanks so much for your time. Really appreciate it.
--:-- Damola Adamolekun: All right. Thank you. I appreciate it.
--:-- Ryan Knutson: This episode has been updated. A previous version incorrectly stated that Thai Union took the company into bankruptcy.
--:-- Ryan Knutson: It was actually an independent director who made the filing.
--:-- Ryan Knutson: That's all for today. Tuesday, September 24th.
--:-- Ryan Knutson: The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Ryan Knutson: Additional reporting in this episode from Heather Haddon.
--:-- Ryan Knutson: Thanks for listening. See you tomorrow.
