A deep dive into the dying of Red Lobster

When it became clear that seafood chain Red Lobster was headed for bankruptcy, media were eager to blame expensive promotions such as all-you-can-eat shrimp and mountains of free cheddar biscuits. But greed in the restaurants wasn't the problem—greed on Wall Street was.

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. 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. The next year, Red Lobster bought back some sites, but many of its restaurants were suddenly strapped with added rent expenses. Even if Darden had kept Red Lobster, it's not clear it would have taken a different route: A press release from the time says it had contacted buyers to explore such a transaction. But in Maze's view, the sale of the real estate was sort of an original sin for Red Lobster's current troubles. He compared it to throwing out a spare parachute — chances are, you'll be OK, but if the first parachute fails, you're in deep trouble.

Buy the company with loaned money, profit by selling everything in the company that's valuable, then leave what's left with the debt. A specific pattern with restaurant chains is that many of them owned their real estate, something private equity could sell very easily without killing the business—until it came time to renew leases years later. You might compare it to a slow-burning fire in a trashcan, perhaps, or … lobsters boiling in a pot.

With Red Lobster, though, that's just the beginning. Plenty more went wrong.

"What's truly happened with Red Lobster is that the consumer base has changed and Red Lobster hasn't," he said. "Red Lobster isn't losing to a competitor in their space — they're losing to competitors outside their space."

Welcome to the inescapable consumer Boomer Loop.