Rivera latest to exit Red Lobster as chain’s sales continue to sink

Rivera latest to exit Red Lobster as chain’s sales continue to sink

Ron Ruggless

ORLANDO, FLA. — Less than four months after taking the helm at Red Lobster in a leadership shakeup, former Darden Restaurants vice chairman Richard Rivera resigned Jan. 6 as still-sinking sales at the seafood leader sent a wave of concern through the investment community.

Concerns ranged from the timetable for replacing Rivera and management instability to questions about Darden’s marketing strategy for Red Lobster and tactics for building guest traffic amid an apparent negative consumer backlash to menu price inflation.

Darden, the $4.7 billion-a-year operator of more than 1,300 restaurants, said Rivera had resigned as president, chief operating officer and board member “to look at entrepreneurial opportunities in the industry.” He would remain a consultant, the company said.

A spokesman for Darden’s leaders said Rivera “came to us during the holidays and wanted to pursue something more entrepreneurial.” Darden’s chairman and chief executive, Joe Lee, assumed operating responsibilities for Darden and the 680-unit Red Lobster chain.

The company said it had expected to name a new Red Lobster president by the end of May, but that timetable raised eyebrows on Wall Street.

“It shouldn’t take that long to find somebody,” said Matthew DiFrisco, restaurant analyst with Harris Nesbitt Gerard and Associates. “You’d like to see them be a little more aggressive. It should be a nice position if you are a casual-dining executive.”

DiFrisco also said a rapid replacement for Rivera was “required to forecast a good direction for the company. They are sort of throwing up their arms to [Wall] Street by not putting someone in there sooner.”

Rivera, who joined Red Lobster in December 1997 and later was promoted into a corporate leadership role, regained the reins of Red Lobster in September, when Edna Morris resigned as president after the division’s disappointing profits during the summer.

Rivera this month was traveling with his wife, a Darden spokesman said, and was unavailable for comment. In a prepared statement Rivera said: “I’d like to look at some exciting startup opportunities as well as smaller companies with growth potential. Darden is a great organization, and I’ve enjoyed my time there. I’m looking forward to my next opportunity.”

Lee said: “Dick has made many contributions to our company. He is an industry leader with a great passion for restaurants, and we wish him the very best.”

Besides the departures of Rivera and Morris over the past year and half, Darden also saw the exits of several other high-level executives. Vice chairman Brad Blum, who headed the now-52-unit Olive Garden chain, left to become chief executive of Burger King Corp. Other departures included those of Bob Mock, who headed the now-52 unit Smokey Bones BBQ division, and Gary Heckel, who headed the now-37-unit Bahama Breeze chain. Darden also has one unit of the upscale, nutrition-and seasonal-food-oriented Seasons 52 concept.

Coinciding with the announcement of Rivera’s resignation, Darden reported that same-store sales at Red Lobster continued to slip in December.

For the five weeks ended Dec. 28, the first period of Darden’s fiscal 2004 third quarter, Red Lobster’s same-store sales declined between 12 percent and 13 percent despite a 1to 2-percent increase in check average. Guest counts were down 14 percent to 15 percent, the company said.

During the same period last year, Red Lobster saw an increase of 2 percent to 3 percent in same-store sales. Darden’s Olive Garden had an increase of 3 percent to 4 percent in same-store sales for the same period as its check average rose 3 percent to 4 percent and guest counts increased slightly.

Analyst DiFrisco said: “You can’t nail it down as to one competitor taking [market] share from them. We can’t look at it in a vacuum…. Red Lobster had some of the strongest growth in 2000 and 2001 and even into ’02. This was during a rejuvenation program for both the Red Lobster and Olive Garden brands.

“With the remodels and refreshing of the brand, they drove the average check up, introduced some higher-ticket items and sort of repositioned the brand but were getting a little risky and not making it sustainable,” he said. “They got away from the value a little bit, and they are seeing some retrenchment as they lose that trial traffic.”

When Rivera took over for Morris in September, he acknowledged that the “Share the Love” marketing campaign, high-cost crab promotions, customer satisfaction and menu-pricing problems would need to be addressed. Rivera later said Red Lobster needed to consider adding more items in the $10-to-$15 level.

DiFrisco said, “Their new-product offerings were a little more higher end than you would expect from a broad chain that is dependent on Joe Sixpack.”

Marketing, including last summer’s “Love” campaign, tended to get away from an emphasis on food, analysts said. While some observers suggested that shifts to Atkins-style beef diets might be cutting into the seafood segment, most analysts didn’t think that was a concern. For example, Red Lobster’s nearest seafood competitor, Landry’s Restaurants Inc. of Houston, on Jan. 9 reported that its same-store sales for the fourth quarter of 2003 were up about 3 percent.

Darden in November hired Kim Lodrup, former chief operating officer for Burger King, as its marketing chief. The company said a full review of the marketing strategies was in progress.

Analysts warned that continuing turnover of management at Darden would go on affecting its stock price. “You don’t know if new management is going to come on board and say that the way to fix this problem is to close stores or to reposition the brand aggressively and take down the average check,” DiFrisco said. “That could hurt earnings potential in the near-term.”

DiFrisco has downgraded Darden stock to “under-perform.” Similar reappraisals of the company’s stock also came from Credit Suisse First Boston, J.E Morgan Securities, A.G. Edwards & Sons, McDonald Investments and Oppenheimer.

Other analysts raised concerns about a succession strategy or “bench strength” at Darden to support the 62-year-old Lee, who has more than 35 years of experience at Red Lobster and Darden since its first unit opened in 1968.

Lee said in the company’s statement: “Today our primary challenge is restoring guest traffic increases and profitable sales growth at Red Lobster.”

Linda Dimopoulos, Darden’s chief financial officer, added: “We were experiencing declining trends at Red Lobster during the month [of December] similar to those we saw in November and October. We continue to believe that our action plan to strengthen the business at Red Lobster will lead to improving trends in the near future.”

COPYRIGHT 2004 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

COPYRIGHT 2004 Gale Group