Unemployment Makes IHOP-to-Red Lobster Target Higher Incomes

From Ye olde Bloomberg today comes a piece that provides a telling snapshot of the decline of the middle class.

It is disturbing to see the beacons and markers of middle class existence -- being able to dine out at a non-pretentious chain restaurant, for example -- slowly wink out of existence.

Red Lobster is trying to create the ambiance of a small, seaside town in Maine as it rolls out a three-year remodeling plan for its 700 U.S. and Canadian restaurants.

The seafood chain is the latest eatery to spruce up its menu, décor and architecture to lure consumers who can afford to eat out more frequently. With economists trimming growth forecasts and unemployment at 9.1 percent, restaurants are becoming increasingly dependent on households earning more than $70,000 to keep sales growing, according to Malcolm Knapp, a New York-based consultant who has monitored the industry since 1970.

“We’ve really become an ‘allocation nation,’ where every month, people look at what’s left from their paycheck and decide how they’re going to spend that money,” said Knapp, creator of the Knapp-Track Index of monthly restaurant sales and guest counts. “Restaurants are re-conceptualizing their brands to appeal to a broader demographic.”

Americans in lower-income brackets have been forced to cut back on dining out to live within their means, according to Robert Dye, senior economist at PNC Financial Services Group Inc. in Pittsburgh. Real disposable incomes, the money left over after taxes and adjusted for inflation, are essentially flat since December 2010, he said. Meanwhile, more-affluent households are benefiting from higher dividend payments and earnings from rental properties, which have grown 10 percent and 20 percent, respectively, since the September 2009, Bloomberg data show.

“More and more, restaurants are competing for a slice of a pie that’s not getting any bigger,” Dye said.

Well the people aren't eating out anymore like the used to so that's forcing some restaurants to either change the way the work or go out of business.

Kinda sad that they may raise prices but that's life. Certainly not the fault of the restaraunt however.

That is great news. F 'em. Big Business will soon discover that the top 1% can only fill so many restaurants at a time, by so much at the home improvement store, wear so many clothes. Your pool of buyers with money is getting smaller and smaller. Good luck. Welcome to our world. America, you killed the middle class. Deal with it.

I love Red Lobster my wife and myself eat there every weekend. I have noticed the prices rising, but no menu changes yet. Its pretty easy to drop 60 bucks a meal for the two of us, but worth every penny to me.

Yep, this means these chains will also have to relocate or close a lot of their locations due to a smaller consumer base. Imagine Red Lobster turning up on Rodeo Drive and serving caviar. Once the high-end consumers start feeling the pinch, and they will,it's game over. This type of maneuvering appears to be a last,desperate attempt to stay in business.

If their plan is going to take several years to roll out, I don't think they're going to be able to meet their target. The economy is so unstable they are probably in denial or going for a 'Hail Mary' where the decline of the US is concerned.

Changing over all of there restaurants to service a higher-end clientele is ominous sign. I take this to mean that they've determined that things are NOT going to recover where the middle class is concerned. Be afraid,be very afraid....

reply to post by silent thunder


The smart thing to do (what do I know I studied history not business!) would be to LOWER prices. If every "upscale" (I would enter here a rant toward ANYONE who considers the likes of Red Lobster to be upscale...... but I won't) restaurant is trying to take a piece of the pie that is 70k+ income earners .. would it not make sense to market your goods towards people who CAN afford your product?

Personally I like going out on the weekends. I hate chain restaurants though, especially olive garden, red lobster, outback etc .. their prices have increased nearly double in a 8 year period. I pay sometimes a little more, sometimes a little less to go to locally owned places. Sometimes you find a wonderful little hole in the wall restaurant or gastro-pub (a pub like atmosphere with gourmet food) that not only is cheaper but taste a thousand times better. Luckily where I live there are a lot of people that support non-chain businesses of all kinds. I try and drink wine made in state, beer made in the city, groceries where the meat, milk and vegies came from farms I could drive to, coffee stands owned and operated by my neighbors (literally), restaurants you can't find anywhere else, and I admit I only go to walmart for cat food.

Small businesses employ more people than corporations, and they also pay quadruple the taxes.. so everyone should be conscience about where they put their dollar. Do you want it to stay where you live, supporting your friends and neighbors .. or send it to China, or corporate coffers in a far away place?

Originally posted by Rockpuck
reply to post by silent thunder

 

The smart thing to do (what do I know I studied history not business!) would be to LOWER prices. If every "upscale" (I would enter here a rant toward ANYONE who considers the likes of Red Lobster to be upscale...... but I won't) restaurant is trying to take a piece of the pie that is 70k+ income earners .. would it not make sense to market your goods towards people who CAN afford your product?

Personally I like going out on the weekends. I hate chain restaurants though, especially olive garden, red lobster, outback etc .. their prices have increased nearly double in a 8 year period. I pay sometimes a little more, sometimes a little less to go to locally owned places. Sometimes you find a wonderful little hole in the wall restaurant or gastro-pub (a pub like atmosphere with gourmet food) that not only is cheaper but taste a thousand times better. Luckily where I live there are a lot of people that support non-chain businesses of all kinds. I try and drink wine made in state, beer made in the city, groceries where the meat, milk and vegies came from farms I could drive to, coffee stands owned and operated by my neighbors (literally), restaurants you can't find anywhere else, and I admit I only go to walmart for cat food.

Small businesses employ more people than corporations, and they also pay quadruple the taxes.. so everyone should be conscience about where they put their dollar. Do you want it to stay where you live, supporting your friends and neighbors .. or send it to China, or corporate coffers in a far away place?

You should notice that the lower income people have already stopped dining there and that is the problem. The business are being forced to either change their demographic or go out of business. I am not privy to their financial records but i'm assuming that lowering prices is not cost effective for them. I've worked in restaraunts a very long time and their overhead is crazy.

reply to post by kro32


If prices were lower it wouldn't be such a pain to dine there. I used to go to Olive Garden when I was in college all the time, average meal was $9-12 and their "special" was usually around $15. We could both eat there and spend about 25-30. Why, I could even afford a beer!

Now I could easily drop $50-60. Sorry, that's not worth it for Italian food in a can quality. There are far to many better and more exotic locals I could frequent for the same price. OR .. for $10 a could prepare the same meal at my house for 6.



The problem with corporations like the conglomerate that owns Olive Garden is that it's a matter of making a few hundred million more dollars. Instead of lowering costs of meals and taking a smaller profit, they keep the same profit by milking an ever smaller portion of their consumers, as many flee to never return. That's bad business. Eventually they will get to the point where they have no consumers.

Is this a good or bad thing?

People earning over $70K a year tucking into their Gulf Seafood?
Well folks, dig in, eat as much of that as you want.

reply to post by Rockpuck


I have worked as a bartender for Olive Garden for a number of years and can tell you that their profit margins are sometimes very minimal. That fancy silverware you eat off costs around 4 bucks a pop per piece and steak knives are like 7 dollars.

Don't ask me why that is but i've seen the inventory sheets when they order it. I've seen weeks when they've pulled in less than 15,000 profit and that's before they have to pay rent or utilities, that's just cost of goods vs. sales so cutting prices may not be an option for them.

Also let's not forget that these are business's whose sole aim is to make a profit. They are not there to take care of the United States and they shouldn't be expected to do that, that's not why people start up companies.

reply to post by kro32


Darden, who owns places like Olive Garden and Red Lobster bring in around 7 billion in sales. Down from about 10 billion in sales. Their profit margin is around 100 million right now, before 2008 their sales were much higher, and profit margin of almost half a billion.

Since they started raising prices, the number of guest declined. The margin of profit per guest has thus decreased.. they sell less and profit less than they did when they were cheaper.

Corporate greed. Give my a tiny violin and I could sing the theme song to America's economy. It has nothing to do with corporations "helping" the country.. it has everything to do with the psychopathic paths of self destruction in the quest for a few more dollar bills that most major corporations choose.

reply to post by Rockpuck


Neither of us sit in on their board meetings so actual facts we do not have. I will tell you this with confidence however, I know they look at the numbers and if they thought they could make more money by lowering prices they would do that.

They are in the business to make money as they should be so playing your little violin is really unnecessary. If it was my business or if I had any other type of business no matter what the size I am going to take steps that allow me to make the most money I can.

Alot of you on here seem to have a problem with businesses making money which I don't understand. Instead of complaining about it just don't go there to dine.

Talk about a target market. 32% in the US make 70K plus. that is going to be hard for any restaurant chain to achieve. what world are they living inn. One thing every business is doing, and that is Not lowering prices. It would stand to reason in this type of economy or just go out of business.

The MC Donal's concept with a twist has arrived !

This restaurant stuff gets even more strange, I walked into a local place in my town with a few friends. The place still looks nice anyway, but a lot has changed in a matter of a month. So, we are waiting for the host, someone walks up and says seat yourself, well ok. We are waiting for a waiter, none showed up so I go to manager and tell him we have been sitting for half hour. Get this. "We layed off all our wait staff we have 3 servers now." So I asked for a menu he said this is the way we do it now. There is chalk board at the front with specials, then the main menu is on the wall, so he points the way to the location of the menu. so you stand in line and pay the cashier. The servers cannot bring you a drink because there all under 21. so you have to wait in line for your drink each and every drink. This is such a pain, This is the McDonald's concept ! for a 4 star steak house. I will never go there again the food and service left much to be desired. ( sucked) This guy is going out of business fast,

Last weekend same thing new place, Ok food, again, the McDonals concept ! they had a total staff of five serving about 60 people . It took forever and once again the servers well all under 21, they only bring the food and cannot server liqueur. you have to stand in line to order.

This must be some new trend and it is awful to say the least when dinning out with friends. All of us agreed that next time we will rotate dinner at each others homes, sort of a dinner party concept, some friends are ATS'ers too which makes good dinner conversation anytime.

I do know person that owned several dinning establishments he now has 1 left. all in a matter of years time. the one he has left is a Sub-Way. I got food posing from that place one time. never again. Seafood has oil, some could be radio active. and chicken has arsenic in it, from another post I just read. I'm done with dinning out.

reply to post by kro32


You seem to miss my point.. so I'll say as clearly as possible:

Instead of rationally thinking that if they lowered prices to bring in more customers which would lower the profit per customer but raise over all profits.. the corporation opted to raise prices, thus profit per customer, but fewer customers.

The result was the corporation makes a smaller profit than they did when the prices were 50% cheaper.

If I held stock in the corporation I'd be pretty pissed off that this elitist ideology that they can support 700+ restaurants solely off the top 5% income brackets is backfiring and resulting in smaller profits. (2008 profit was 2.88 per share. 2011 estimate is .78 per share.)

Some corporatist see green and only green, through this they make stupid choices in the belief they will get larger profits.

What's good for the customer is good for the business. Otherwise you have no customer.

reply to post by pajoly


That's why the top 1% is building up the BRIC countries, silly! Coz that's where they'll do business next. Kinda like what happened a few hundred years ago. When the shadow elites purposely built up that place called the New World and left Europe to hang dry.

reply to post by Rockpuck


They can't really lower the prices even if they wanted to. Food prices are rising across the board, across the world.

Rich people eat at Red Lobster? Really?

I don't eat at Red Lobster and it has nothing to do with my income level. It is a chain and there are better, more local options out there, at least for the area where I currently live.

reply to post by silent thunder


On one hand remodeling 700 stores across the country will help the economy, but there goal to lure in those making 70k or more will eventually end this chain of restaurants.

They should be attempting to lure anyone they can get into the doors. Not attempting to lure the 30% of Americans making over 70k a year.

One of Trump's failure was when he bought a small airline, then he converted it into a luxury airline attempting to lure the big money. He failed in this venture and so will red lobster. If I owned stock in this company I would sell.

What i've realise over the years is, people dont know how to cook anymore.

Its mainly those below 40 years old but what is staggering is how women are completely uninterested into cooking and i think its the way we advertise food and pretend we dont have the time, that is my answer.

The supermarkets has become some sort of restaurant in itself, they got a cafe, take out and sushi.

reply to post by eagleeye2


Kinda. By my math, for me to cook a nice meal (funny that I do the cooking, as my wife insist that it shouldn't be her job just because she's a female. I still have to take the trash out. And pretend I know what I'm doing when I "fix" the car, sink, anything else "manly!") but anyways.. it usually cost barely a little less to cook for 2. Because when you cook for 2 you buy ingredients for 6 .. I could divide the ingredients and make smaller portions, then eat the same thing for 3 days straight... or ... I could go have someone cook the food for me. For families it's cheaper, for young couples with no children it honestly doesn't matter. As long as you stay away from $60 dinners at red lobster anyways.