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511-052 Red Lobster 
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food quickly, and at low cost, so mainstream consumers could afford it. In 1963, Darden and some 
partners acquired a successful high end seafood restaurant in Orlando called Gary's Duck Inn. At that 
time, mainstream Americans, especially in non-coastal regions, ate very little seafood, finding it hard 
to get, difficult to cook at home, and expensive. In the late 1960s, Darden realized that his skill set put 
him in a great position to deliver what was at the time a unique offering – top quality seafood that 
was still affordable. 
The first Red Lobster opened in January 1968 in Lakeland, Florida. It was an instant success. 
Darden himself had to work kitchen shifts just to get the food out.1 A month later he was forced to 
expand the restaurant because demand was so high. Over the next two years he opened four more 
locations, all in central Florida. For Darden, it was important that this concept had succeeded inland, 
in an underserved market, over an hour from the coastline. 
The chain was sold to General Mills in 1970, but Bill Darden was kept on as president. In 1975 Joe 
Lee, the General Manager of the first Red Lobster restaurant, succeeded Darden as president. The 
chain grew quickly, and was the first casual dining chain to achieve national scale, and hence was the 
first to advertise on network television. Red Lobster developed the first national seafood distribution 
system in the 1970’s – this system became an important competitive asset (See Exhibit 2 for supply 
chain and distribution details). It was also the first chain to use a computerized point of sale system. 
By 1985 it had grown to 400 locations and had introduced much of America to many “new” types of 
seafood such as live Maine lobster, snow crab, and jumbo shrimp. It even popularized some non-
seafood items, such as key lime pie and white zinfandel wine. 
In 1982, encouraged by strong earnings from Red Lobster, General Mills Restaurants, Inc. (a 
subsidiary of General Mills) used the Red Lobster operations platform to create Olive Garden, an 
Italian-themed casual dining restaurant which by 1989 had 145 locations. In 1990, the company’s 
attempt to create a Chinese themed casual dining restaurant, China Coast, was not as successful 
closing just 5 years later. General Mills spun off its restaurant unit in 1995, creating Darden 
Restaurants, Inc.2 By the end of Fiscal 2010, Darden Restaurants had 694 Red Lobsters (see Exhibit 3) 
and 723 Olive Gardens including a small number in Canada.3 It also had created two specialty chains, 
Bahama Breeze and Seasons 52 (with 25 and 11 locations, respectively).4 And in 2007, it acquired 
RARE Hospitality, which owned the casual dining chain Longhorn Steakhouse and the higher end 
Capital Grille (which had 331 and 40 locations, respectively, at the end of Fiscal 2010).5 The company 
had total revenue of $7.11 Billion in Fiscal 2010. 
The Restaurant Industry in America 
Americans spent about 40% of their food dollars away from home in 2009.6 Forty-eight percent of 
this spend was in the quick serve category7 (sometimes referred to as “fast food”) – restaurants such 
as McDonalds and Subway where there was no table service.8 The next largest category, accounting 
for 31% was casual dining – full service restaurants like Applebee’s and Red Lobster where checks 
averaged $8 - $20. These restaurants usually had beer and wine licenses. The remaining categories 
were family dining (similar to casual dining but without the beer/wine license), and fine dining, 
where checks were usually well above $20 per person, and service aimed to be impeccable. More 
recently, two additional segments had emerged: “fast casual” (like quick serve, but food was usually 
made to order, restaurant environment was generally nicer, and priceswere somewhat higher) and 
“premium casual” (like casual dining, but with more culinary-forward food, a more refined 
atmosphere, and moderately higher prices). 
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Red Lobster 511-052 
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Americans ate on average two meals per month at a casual dining restaurant, and they had many 
options to choose from.9 The most common food concept within casual dining was contemporary 
American, often called bar & grill. Hamburgers and French fries were staple items at such places. The 
largest casual bar & grill chain was Applebee’s, with 1,900 locations across the country. The next 
largest were Chili’s, TGI Friday’s, and Ruby Tuesday. There were three other casual dining chains 
that were comparable in size to these large bar & grill concepts: Outback Steakhouse, Olive Garden, 
and Red Lobster. Together these were often known as the “Big 7” casual dining chains. They 
accounted for 33% of the 22,000 chain casual dining restaurants in America.10 (See Exhibit 4 for 
details.) 
Examples of medium sized chains (with fewer than 200 locations) included the Mexican concept, 
On The Border, and the Italian concept, Maggiano’s, both of which were owned by Brinker who also 
owned Chili’s. Chains were not only differentiated by their size and food concept, but also by their 
price point. Examples of more premium casual chains (where the average check was close to $20) 
were the bar/grill concept Cheesecake Factory and the Asian concept, P.F. Chang’s. These premium 
chains were more often considered by consumers to be appropriate for “special occasions” such as 
graduation dinners, or anniversaries.11 They also had a larger percentage of diners who had 
household incomes of $100,000 or more. Red Lobster, despite its higher price point, was not generally 
put in this premium category. Its price was higher primarily because of the higher cost of seafood. 
In addition to the chains, there were perhaps another 150,000 independent casual dining 
restaurants. Although the independents usually had smaller unit volume and were more 
concentrated in urban and rural areas (with the chains more concentrated in the suburbs), they were 
an important part of the competitive landscape.12 
Among seafood specialists, the only chain that compared in size to Red Lobster (in terms of 
number of locations) was Long John Silver’s but it was quick serve, rather than full service casual 
dining, so the two would rarely compete for customers. Joe’s Crab Shack, with 113 locations, was 
really the only national casual dining chain near Red Lobster’s price point ($19). Bonefish had 150 
locations, primarily in the southeast and Midwest and had an average check of $26, and McCormick 
and Schmick had 87 locations and an average check of $39. More than 80% of the roughly 8,000 casual 
dining seafood restaurants in the U.S. were independently owned or were chains of fewer than 10 
restaurants.13 At 43%, Red Lobster’s market share was the highest among casual dining seafood 
chains. 
The casual dining industry was hit hard by the recession of 2008-2009.14 Large chains were 
opening new locations at a rate of 6% per year from 2001 – 2006. The growth rate slowed somewhat 
in 2007, and restaurants actually began closing in 2008 – 2009. Slow growth was anticipated for 2010 – 
2011.15 Sales were down on average 0.4% in 2008.16 
2004: Invigorating the Brand and Business 
When Lopdrup took over as President in 2004, there were signs that Red Lobster had become 
mature and stagnant. Same store sales had grown slightly earlier in the decade but only because of 
aggressive sales promotions. Guest experience had plateaued: the percentage of guests rating their 
experience as “excellent” (the top-box rating on a 5 point scale) was stalled at 64%, while sister chain 
Olive Garden was at 68%. And competition in the seafood category had intensified. The rise of 
aquaculture had led to dramatic declines in the cost of some types of seafood (see Exhibit 5). Roger 
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511-052 Red Lobster 
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Bing, Darden’s VP of seafood purchasing, remarked that aquaculture had transformed salmon and 
shrimp from luxury items into mainstream middle class fare. Chili’s, Applebee’s, and Outback all had 
salmon and shrimp on their menus. Outback also had a popular lobster tail dish. Despite the cost 
declines, seafood was still much more expensive than other proteins – hence Red Lobster’s menu was 
more expensive than other value focused chains like Chili’s, Applebee’s, and Olive Garden. One 
option would be for Red Lobster to broaden its menu to include more non-seafood items. 
In 2004, shortly after Lopdrup took over as President, Red Lobster’s marketing team 
commissioned a consumer survey to make sure that any changes were grounded in real consumer 
insights. The research team surveyed 857 people who had visited a Red Lobster in the last year. They 
were shown a list of 11 restaurant attributes and asked, to “rate the relative importance of each 
attribute when choosing a seafood restaurant” on a 7 point scale. The attribute that came out on top 
was “freshness of the seafood”. Alarmingly, Red Lobster badly trailed most sit-down seafood 
competitors on this attribute according to the surveyed customers. Two other notable attributes 
where Red Lobster was lagging the seafood competition were “quality of the seafood” and 
“taste/preparation of the seafood”. (See Exhibit 6) 
Lopdrup saw some immediate opportunities for improvement, but he also felt that a major change 
in positioning was needed: 
Consumers saw the seafood market as divided into two categories. There were high end 
places that were offering top quality, fresh seafood prepared with culinary expertise. And 
there were the low end places serving mass-produced, frozen seafood, much of it fried. 
Unfortunately, many consumers saw Red Lobster as being in the latter category. This shocked 
us because we were buying top quality ingredients. We knew we had to change perceptions 
and reposition Red Lobster in the consumer’s mind from frozen to fresh. While we already had 
live lobster and some fresh fish on our menu, we learned that the appearance of our 
restaurants and a number of other cues (including the many pictures of fried food on our 
menus) caused consumers to question the quality of our food. 
Lopdrup launched a three phased plan. Phase one involved basic operational improvements that 
would begin immediately (i.e., June 2004). Phase two was where most of the re-positioning work 
would happen, and this involved major menu changes that would develop over several years, and 
not be complete until 2009. Phase three involved remodeling the restaurants – this was something 
that Lopdrup felt was critical to changing customer perceptions. The plan was to begin testing 
remodels in 2008 and accelerate in subsequent years. If successful, all locations would be remodeled 
in the following 6 years. 
Phase I – Operational excellence 
Lopdrup made immediate improvements by initiating what he called, a “simply great operating 
discipline”: 
This involved simplifying operations so less could go wrong. You end up reducing costs 
and you provide a high quality product for the mass market, similar to what Honda and 
Southwest Airlines do. This allows you to deliver superior value. We did things like 
simplifying the menus, simplifying recipes, and simplifying promotions. We stopped deep 
discounting, which the brand had been doing a lot of. We started timing promotions to counter 
balance the seasonality of the business … We created “no fly zones” during busy periods in the 
restaurants. We didn’t bother the operators with any new initiatives (like new menu itemsor 
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Red Lobster 511-052 
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promotions) during these busy periods so they could just focus on serving our guests. We 
started rigorously testing new initiatives to make sure they were “restaurant ready” thus 
avoiding all the churn that happens in a restaurant when initiatives roll out before they are 
perfected. We started insisting on disciplined execution. We figured out the “one best way” of 
doing everything and greatly standardized how we do things in restaurants. 
Then we also introduced a number of initiatives designed to help us excel at the basics for a 
seafood restaurant, which we shorthand as Fresh, Clean, Friendly, and Full. An example of 
Fresh was recalibrating all of our cooking equipment to make sure that it was cooking at the 
right temperatures. For Clean, we did deep cleans of all the restrooms and tracked down 
chronic odor issues. There were some restaurants that had broken drain pipes or carpets that 
needed to be replaced. Doug Green (Red Lobster’s executive vice president of Operations) and 
his team corrected every last one. On Friendly, we started focusing on hiring and training to 
emphasize friendliness, which we determined was the most important service attribute. On 
Full we did things like adding bussers during peak periods to help reset and turn tables faster, 
and a computerized meal pacing system that coordinates cook times for every item in an order 
so everything can be served as soon as it is finished cooking. 
Phase II – Re-positioning around “freshness” 
To lead the re-positioning effort, Lopdrup hired Salli Setta (previously with Olive Garden) as EVP 
of marketing. Setta in turn oversaw the hiring of a new culinary team: John Fadool, SVP of Culinary 
and Beverage, who had worked at Procter & Gamble and Novartis, and executive chefs Michael 
LaDuke and Darryl Mickler, both of whom had worked for Disney. Product development was led by 
Setta: 
The marketing people give the chefs parameters. It’s very much like product development 
at a packaged goods company, but we apply it to foods. So the chefs are working within 
parameters, but obviously they are responsible for the creative piece of it. We then have 
operations and purchasing people who say, if we want to make that in 700 Red Lobsters, how 
are we going to do that, and can we get enough fish? So the process is iterative, but it starts 
with marketing, then moves to culinary and operations and purchasing and back. 
The team sought to develop a new menu around freshness. Work with focus groups led the team 
to believe that “fresh” did not simply mean “never frozen.” Lopdrup explained: “In the minds of the 
consumers, freshness means the food still has the life force in it. They want it to be as close to its 
natural state as possible. We discovered that consumers have only a vague understanding of 
freshness so they draw conclusions based on subtle clues that, in some cases, have nothing to do with 
the food.” 
Lopdrup described the biggest step in the move toward freshness: “We changed our cooking 
platform. We started de-emphasizing all the fried items. We couldn’t just discontinue them abruptly 
without losing too many guests. But we de-emphasized them and introduced wood-fire grilling. We 
researched 15 ways of cooking seafood and we found that for most types of seafood this was the most 
consumer-preferred way of cooking it.” 
New grills were installed in each restaurant at a cost of about $10,000 each. And, the position of 
“grill master” was created. Each restaurant had about five dedicated grill masters who focused only 
on grilling, thus improving attention to detail and quality. It was the most prestigious job in the 
kitchen. 
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511-052 Red Lobster 
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Once new wood fire grilled dishes were developed, the “Today’s Fresh Fish Menu” was 
introduced, featuring five to eight fresh fish entrees which changed daily, based on the day’s regional 
catch. While fresh fish had always been on the Red Lobster menu, it now appeared on a separate 
menu card that was handed to each customer and was used as the server’s “lead” – servers greeted 
guests by describing the day’s fresh fish. (See Exhibits 7 and 8 for menu details.) The fresh fish menu 
also featured the name of the chef on duty, adding to perceptions of culinary expertise and quality. 
There were also some upgrades in raw ingredients. For example, live lobster was upgraded to 
super A1 grade hard-shell, which was the very top grade of live lobster. 
New television advertisements were developed in 2008 to showcase the new menu. These ads 
explicitly mentioned “wood fire grilling” and “fresh fish” and they consisted entirely of a series of 
images of the food, designed to induce craving (see Exhibit 9 for examples). The “Ignite the Craving” 
campaign had actually begun in 2004 and had been very effective at driving traffic so Red Lobster 
invested most of its marketing budget behind it. The new 2008 ads followed the same model but 
focused on the new grilling method and on “freshness.” 
Setta was careful not to overwhelm customers with freshness. While promotional discounting was 
reduced, two legacy promotions were revitalized: “Lobsterfest” and “Endless Shrimp.” With 
“Endless Shrimp,” the emphasis was now on “choice and variety” rather than “all you can eat.” 
According to Setta, “These promotions were still needed to drive traffic. We run the Endless Shrimp 
promotion for 12 weeks in the Fall and it is always one of our strongest promotions. Although we 
take a small margin hit at that price point, the volume gains more than compensate.” 
Early results were encouraging. Not only was there now more fresh fish on the menu (nine items, 
up from four), but fresh fish entrees were now the highest on the menu in terms of customer 
satisfaction. And customer perceptions that Red Lobster “has food that is fresh” had increased 
significantly according to recent (2008) surveys. 
Phase III – Re-modeling the restaurants 
After some focus group research, the restaurant re-modeling began, led by Briggs Sellers, VP of 
Development: 
We decided to create a comfortable seaside atmosphere. The space had to provide clues to 
all senses that the seafood is fresh and of top quality. We wanted guests to feel they are dining 
at a “special” restaurant – nicer than ordinary casual dining, but still approachable. And the 
atmosphere had to be appropriate for multiple occasions, including family dinners, date night, 
and business lunches. 
Lopdrup added: “It had to be nice enough that ordinary people could go there for an anniversary 
or with business associates, but comfortable enough that those same people could bring their kids or 
come in their jeans.” 
The remodeling was tested at four locations in Florida in 2008, and then in 30 other locations 
around the country in 2009 (See Exhibits 10 and 11 for pictures). By 2014, all restaurants would be re-
done. (See Exhibit 12 for the timeline). 
The remodels cost about $350,000 per restaurant. An additional $150,000 was spent at the same 
time doing general maintenance. The interior was remodeled first, always after hours, so that normal 
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Red Lobster 511-052 
7 
business hours were not adjusted. The hope was that the restaurant would not lose traffic due to 
construction. The final step was to remodel the exterior. The Red Lobster communications team took 
advantage of local remodeling efforts in cities like Chattanooga and Pittsburgh to create somegood 
PR (see Exhibit 13 for an example). 
Preliminary Results 
By 2010, things were looking much better for Red Lobster. Internal research found that guest 
satisfaction was up 14 percentage points since 2004 to 78% “excellent.” The American Customer 
Satisfaction Index had Red Lobster above the industry average, above Outback and only slightly 
behind its sister brand Oliver Garden.17 Media attention was generally positive and, while the 
average Red Lobster had significant extra capacity (Lopdrup estimated that with some operational 
adjustments, most locations could accommodate a 50% increase in guest counts), the chain was 
outperforming the competition as measured by Knapp-Track, a widely used industry guest tracking 
report. Staff morale was up and turnover was down. Even Wall Street seemed to be buying in, with 
several analysts suggesting that Darden was on the right track. 
A New Opportunity? 
Red Lobster’s marketing team had commissioned a study by the market research firm, 
Copernicus, to uncover some psychographic segments: customers or potential customers who shared 
similar preferences and behaviors. In July 2008 Copernicus conducted online interviews with 2,403 
adult respondents averaging 37 minutes in length (see Exhibit 14 for details). The interview included 
questions in 4 categories: 1) demographics, 2) restaurant category involvement, 3) food and beverage 
attitudes, and 4) restaurant brand selection criteria. 
Copernicus then used a statistical technique called cluster analysis to see what kinds of natural 
groupings emerged from the answers to these questions. 
Mark Gilley, Red Lobster’s VP of Consumer Insights, explained the Copernicus approach: 
A common criticism of psychographic segmentation is that while you may learn something 
about preference groupings, the information is often not actionable. For example, while you 
might know that a certain segment loves spicy food, you won’t have any idea about how to 
advertise to these people unless you also know which television shows they watch. You could 
of course simply ask what kinds of television shows they watch, but getting the necessary level 
of detail would require prohibitively long consumer interviews. 
Copernicus gets around this by partnering with Simmons, a company that conducts very 
elaborate interviews with a large number of randomly selected consumers. Copernicus 
conducts interviews and asks consumers a subset of the questions asked in the Simmons 
survey, usually leaving out questions like media usage. 
The Copernicus analysis revealed five segments for us. The last step was to come up with 
names for the segments that were appropriate to the characteristics of that segment. Naming 
the segments is an art, not a science, but it was a useful tool that allowed us to develop an 
image of the prototypical customer, and to communicate with each other about decisions to 
make with respect to the segments (see Tables A and B). 
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511-052 Red Lobster 
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Table A Summary of Segments Identified in 2008 Market Research Study 
________________________________________________________________________ 
Experientials 
• Eating out is an important source of pleasure. 
• Most frequent diners at casual and fine dining restaurants. 
• Enjoy new restaurants/foods/menu items, and wine with dinner. 
• Motivated by Culinary Expertise, sophisticated, upscale atmosphere. 
• Seafood is a favorite food. Love fresh fish and a wide variety of shellfish. 
• Will not tolerate bad service. 
• Well educated; HH Income $100K avg. 
 
Indulgents 
• Love all types of food, eat what they want and don’t worry about nutrition. 
• Motivated by large, generous portions. 
• Seafood is a favorite type of food, particularly shellfish. 
• Open to all types of entrees and promotions (especially all-you-can-eat specials). 
• Enjoy new restaurants/foods/menu items, but not wine-drinkers. 
• Most likely high school diploma or some college; HH Income $58K avg. 
 
Traditionalists 
• Oldest segment, eating out is more functional. 
• Less frequent casual restaurant diners, and lowest average check size. 
• Below average liking of both shellfish and fresh fish; they prefer “tried and true” favorites. 
• Particularly want conveniently located restaurants where they can dine quickly. 
• Price-sensitive. 
• Average education; HH Income $70K avg. 
 
Eclectics 
• Most adventurous palates. Like fresh fish, shellfish, as well as ethnic and regional cuisines. 
• Want unique dishes, and dishes you don’t make at home. 
• Frequent casual dining restaurants (less likely to go to chains) and some fine dining. 
• Atmosphere of the restaurant is important, prefer new or recently renovated restaurants. 
• Most “health-conscious”, with highest preference for fresh/light/healthy items. 
• Least price sensitive. 
• Well educated; HH income $91K avg. 
 
Frugals 
• Not particularly fond of going out to dinner. 
• Least frequent casual restaurant diners, and below average check size. 
• Price sensitive and look for inexpensive restaurants. 
• Below average liking of both shellfish and fresh fish. Prefer “traditional American favorites”. 
• Younger and tend to have children 
• Attended college; HH income $60K avg. 
Source: Company documents. 
 
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Red Lobster 511-052 
9 
Table B Purchase Behavior of Segments Indentified in 2008 Market Research Study 
 Experientials Indulgents Traditionalists Eclectics Frugals 
% of clientele (i.e., % of 
unique individuals, not % 
of meals served) 
23% 24% 18% 7% 28% 
Annual meals per 
customer 
6.3 5.6 4.4 5.0 3.8 
Average spend per meal $24.88 $18.78 $15.84 $22.29 $14.86 
Percent alcohol 12% 4% 2% 14% 1% 
Source: The first row is taken from company documents and the bottom three rows of this table were estimated by the case 
authors based on the Copernicus study, Red Lobster’s income statement, and industry norms. 
 
When Gilley and Setta showed Lopdrup the results, he was stunned: 
Of course we knew we had lots of frugals, indulgents, and traditionalists. And we knew we 
had very few eclectics in our guest base. But I was shocked that nearly a quarter of our 
customers would be described as experientials. These are pretty affluent customers who go out 
for more than just a tasty and convenient meal. Their motivation is as much about connecting 
with the people they are with as it is about the food. The experientials actually have very high 
culinary standards, and they also have very high expectations for service and atmosphere. But 
for them, the priority is to strengthen relationships with people they care about – whether it be 
family or friends. 
To get a better handle on who the experientials were, the marketing team conducted ethnographic 
interviews with some customers who fit the profile. The team pulled out details and quotes that they 
felt characterized the segment and brought it to life. Customers “Erin” and “Jeff” were good 
examples: 
Erin was a retired teacher, married with three grown kids. She and her husband lived in Dallas, 
Texas: 
• She was an active member of her community and volunteers so much that her kids 
wanted her to give up volunteering for lent. 
• “I like to try new things. Sometimes I don’t like them, but I learn. I find out, and I won’t 
get it next time.” 
• Relationships were important to her. She was still in touch with high school friends. She 
said, “I have never met a stranger.” 
 
Jeff was a sales rep, married with a son in middle-school and a daughter in high school. They 
lived in Columbus, Ohio: 
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511-052 Red Lobster 
10 
• He liked to travel. “To explore Alaska, I’m going to look and try to find somebody local 
(vs. a guided tour), who can take me to the places that most people don’t see. That’s my 
mindset.” 
• “Gosh, I’m just not attracted to stuff. I don’t love stuff. I’ve just never really had any 
personal property that I loved. Everything you have eventually gets lost. I mean cars, 
clothes.” 
• About his children: “Education - that is important. That will be a big part of their future, 
you know, for them to have earning potential and to be able to live a good life.” 
 
Lopdrup elaborated on the opportunity that this segment presented: 
 
I was pleasantly surprised by the segmentation study. We didn’t know for sure how many 
of the experientials were new customers, but it was a group we didn’t believe we were 
attracting in the past. We took this as an indication that our changes were working and that we 
might be approaching a tipping point where we could attract a lot more of them. Experientials 
were the best customers for a casual dining chain and were particularly profitable because they 
are more likely to order desserts and appetizers and wine – and they are less price sensitive. If 
we could expand that segment further, the upside potential would be significant. 
The marketing team pondered the implications of the new finding for their ongoing strategy, 
summarizing the possibilities as follows: 
Segmentation 
Should experientials represent the new Red Lobster target customer? 
Positioning 
Was ‘approachable, fresh seafood’ still the right positioning? If not, what should the new 
positioning be? How much positioning change was possible while keeping the name Red Lobster? 
Promotion 
The marketing team had placed their ad agency contract under review and needed a plan for their 
$120MM 2011 budget. Did the current ads fit the positioning they wanted? And should they continue 
with the traditional price promotions that drove so much traffic, or should these be scaled back? 
Pricing 
Was raising prices an option? 
Product 
Should they be adding a better (and higher priced) wine selection to cater to experientials? Should 
they be broadening the menu further beyond seafood to steal share from other premium casual 
chains, and even mainstream bar & grill chains like Applebee’s and Chili’s? Maybe the new wood-
fired grills could be used for burgers and additional cuts of steaks. 
Might some locations place a greater emphasis on wine? Or could the same location vary its 
ambience by time of day, perhaps lowering lights at 8 pm and offering more early bird specials? 
 
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Red Lobster 511-052 
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Place 
How urgently should the remaining restaurants be remodeled? If the response to the new menu 
offerings was so good, perhaps the renovations could be scaled back (maybe they hadn’t even been 
necessary). On the other hand if the remodels might “seal the deal” with the experientials, why not 
move things along more quickly? 
What to do? 
At least one blogger thought Red Lobster was heading in the wrong direction: 
I don’t know about you, but when I go to Red Lobster … I am not seeking a sophisticated 
dining experience involving fusion cuisines or funky takes on old classics – and that’s exactly 
where Red Lobster is headed. Say it with me: “Why, God, Why?” Memo to Red Lobster: Just 
stick to the chunks of (somewhat) fresh fish either battered and fried or dressed in a vat of 
butter or cream. Perhaps a bit old-fashioned, but invariably classic, comforting and with a 
titillating taste of cheaply bought luxury – exactly what everyone’s looking for when dining 
out these days.18 
One self-described “indulgent” customer from the Midwest felt much the same way: 
A “sophisticated, upscale atmosphere!” That is so unappealing to a person like me who goes 
with their family to have a low-key, enjoyable meal with the feel-good foods that we love. Frankly 
we are suspicious of places that have lemon on everything. 
Lopdrup also recognized that one could stretch a brand too far, noting: “Few companies have 
changed their customer base quickly and lived to tell about it. The Japanese car companies and Target 
did so but they did it gradually. K-Mart, on the other hand, tried to go upscale abruptly and they 
went chapter 11 in the process.” 
 
 
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511-052 Red Lobster 
12 
Exhibit 1 Red Lobster Average Restaurant Income Statement for 2009 
 
 $$ % of Revenue 
Revenue 
 Food and beverage 3,600,000 
Cost 
 Food and beverage 1,152,000 32.0 
 Direct labor 576,000 16.0 
 Indirect labor 504,000 14.0 
 Variable restaurant expense 363,600 10.1 
 Fixed restaurant expense 180,000 5.0 
 Marketing 172,800 4.8 
 G&A 144,000 4.0 
 EBIT (operating profit) 507,600 14.1 
Source: Estimated by casewriters based on Red Lobster income statement and on estimates by Glass, J., and Dorfman, D. 
Restaurants “Casual Dining Survey: Evidence That Recovery Will Not Treat All Equally” North America: Morgan 
Stanley, June 7, 2010. 
Notes: Food and Beverage: Margins on food items were about 67% while margins on alcohol were about 81% 
Direct Labor: Hourly restaurant level costs (excludes labor taxes and other benefits). 
Indirect Labor: Restaurant management labor, stock-based compensation and bonus, payroll taxes for all restaurant 
employees (including FICA taxes on reported tips), and related benefits costs 
 Variable Restaurant Expense: Smallwares, paper products, cleaning supplies, menus, credit card fees, etc. 
Fixed Restaurant Expense: Occupancy costs including depreciation (rents adjusted for implied interest), workers’ 
compensation, utilities, etc. 
Marketing: Television air time, advertising development, radio, etc. Based on chain-wide budget of $121 MM 
 
 
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Red Lobster 511-052 
13 
Exhibit 2 The Red Lobster Seafood Supply Chain 
The world’s estimated seafood catch had risen nearly five-fold over the last 50 years, from 20 million 
metric tons (mmt) in 1950 to about 95 mmt in 2000. Aquaculture (fish farming) which was rare in 1950 
by 2009 provided an additional 35 mmt. (Weights are live seafood). World consumption (edible 
weight) was estimated at 36.5 mmt or about 12 lb./capita per year. U.S. consumption was slightly 
higher at 16 lb./capita. 
 
In 2009 Darden, Inc. spent almost $600 million on 238 million pounds live weight of seafood (or about 
122 million pounds edible weight), making it the largest buyer of seafood in the United States. 
Darden sourced fish from fisheries, both wild and farmed, from around the globe. It had a 
procurement policy of “staying close to the water,” making deals directly with fishermen and seafood 
processors. Darden buyers visited all suppliers regularly to communicate and monitor quality and 
environmental practices. All seafood and processing facilities were inspected by Darden at the source 
for quality and food safety so that no substandard seafood entered its supply chain. The company 
believed it cut seven days from the sea-to-store time by buying directly compared to the more normal 
practice of buying from wholesalers. Sixteen distributors with 26 locations handled the actual 
shipment of fresh seafood to individual restaurants, so that fresh fish was delivered daily, six days 
per week. Live lobster was shipped to restaurants via overnight express delivery from three 
suppliers in Maineand Massachusetts. Other items were delivered by truck from twelve distribution 
centers. 
 
Darden believed it had a substantial advantage over competition because of its scale and experience 
in the seafood business. In addition to obsessive attention over quality (taste, texture, visual 
appearance and freshness), the company had an industry-leading role in setting standards. For 
example, it required suppliers to use methods that reduced by-catch, and it insisted on “lobster 
conservancy” procedures including a ban on lobsters that were outside a certain weight range (both 
small and large). Red Lobster worked with experts at the New England Aquarium to identify seafood 
items that were not fished sustainably (e.g., orange roughy and Chilean Sea Bass) and then removed 
them from its menus, and to develop plans for improving the sustainability of the oceans’ biomass. 
 
Darden had worked with the aquaculture industry for many years and was the first restaurant chain 
to insist that suppliers be certified by the Aquaculture Certification Council. It was Darden’s belief 
that aquaculture would play an increasingly essential role in protecting the sustainability of the 
oceans. In addition to providing an alternate supply of seafood, aquaculture was a more cost-effective 
production method. For example by 2010 farm raised salmon represented nearly two-thirds of the 
total world supply at an inflation adjusted price that was 75% less than it had been 30 years ago. 
Farm-raised shrimp had followed a similar pattern. But in addition to consistent cost, aquaculture 
offered other supply chain advantages: the fish could be grown to order both in terms of quantity but 
also so that the fish actually matched the intended portion sizes. 
Source: Casewriters and company documents. 
 
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511-052 Red Lobster 
14 
Exhibit 3 Red Lobster Growth in Number of Units and Locations of Current Restaurants 
 
 
 
 
Source: Company documents. 
0
100
200
300
400
500
600
700
800
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
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Red Lobster 511-052 
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Exhibit 4 Casual Dining Industry (2009) 
 
 
 
Number 
of US 
locations 
Average 
Check 
Average 
single 
location 
volume 
(2007, $ in 
Thousands 
Alcohol 
Sales 
Media 
spend 
(2007, $ in 
Millions) 
 
Big 7 Red Lobster 690 $19.50 3,600 7% 121 
 Chili’s 1292 $12.45 3,100 14% 107 
 Applebee’s 1864 $11.00 2,354 13% 166 
 Olive Garden 685 $15.00 4,636 8% 126 
 Ruby Tuesday 845 $11.50 1,867 10% 40 
 Outback 978 $20.00 3,317 12% 79 
 TGI Friday’s 923 $14.00 unavailable 16% 10 
 
Selected 
premium 
casual 
Cheesecake 
Factory 
146 $19.50 9,344 13% <1 
 PF Chang’s 190 $20.50 4,940 15% 1 
 
Selected 
other 
seafood 
chains 
Bonefish 149 $26.00 6,664 26% 1 
 Joe’s Crab 
Shack 
95 $19.50 unavailable 18% 13 
 McCormick & 
Schmick 
 
87 $39.00 4,374 28% 2 
Source: Estimated by casewriters based on income statements and Regan, N.M. and Weiler, R. “PiperJaffray Cook Book: 
Fourth Annual Restaurant Benchmark Analysis” Minneapolis, MN: PiperJaffray, October 2009. 
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511-052 Red Lobster 
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Exhibit 5 Declining Cost of Seafood 
 
World Shrimp Aquaculture & Real Price Trend 
 
 
 
World Salmon Aquaculture & Real Price Trend 
 
 
Source: Company documents. 
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
0%
10%
20%
30%
40%
50%
60%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
E
$/
lb
.
Pe
rc
en
t A
qu
ac
ul
tu
re
Year
Aquaculture's Percent of Production Blended Price (1982 dollars)
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
0%
10%
20%
30%
40%
50%
60%
70%
80%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
08
E
$/
lb
.
Pe
rc
en
t A
qu
ac
ul
tu
re
 
YearAquaculture's Percent of Production Atlantic Salmon Price (1982 dollars)
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Red Lobster 511-052 
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Exhibit 6 Red Lobster’s 2004 Attitude and Usage Survey of 857 people who had visited Red Lobster 
in the last year. 
 
A. Respondents were asked to rate the importance of each factor when selecting a seafood restaurant 
on a 7 point scale. Figure shows the percentage who rated the attribute as 7 (extremely important). 
 
 
 
 
B. Respondents were asked to rate how well Red Lobster and “Other Seafood Restaurants” 
performed on each attribute using a 7 point scale. Figure shows the percentage who rated the 
attribute as 7 (“Completely”). 
 
 
Source: Company documents. 
19%
28%
32%
37%
41%
48%
51%
64%
65%
68%
68%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Availability of non-seafood items
Atmosphere
Price
Seafood expertise/knowledge
Variety of seafood
Friendly service
Service
Taste/preparation of seafood
Quality of seafood
Cleanliness
Freshness of the seafood
18%
39%
27%
44%
42%
45%
40%
48%
50%
43%
52%
20%
25%
25%
30%
36%
36%
31%
37%
36%
38%
36%
0% 10% 20% 30% 40% 50% 60%
Availability of non-seafood items
Atmosphere
Price
Seafood expertise/knowledge
Variety of seafood
Friendly service
Service
Taste/preparation of seafood
Quality of the seafood
Cleanliness
Freshness of the seafood
Red Lobster Other Seafood Restaurants
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511-052 Red Lobster 
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Exhibit 7 Red Lobster “Today’s Fresh Fish” Menu (2010) 
 
 
 
Source: Company documents. 
 
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Red Lobster 511-052 
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Exhibit 8 Representative Red Lobster Menu Items and Prices (2010) 
 
Seaside Starters Shrimp
 Jumbo Coconut Shrimp $8.50 Walt’s Favorite Shrimp $13.99
 New England Seafood Sampler $10.99 Crunch Popcorn Shrimp $9.99
 Lobster Nachos $9.99 Shrimp Linguini Alfredo $13.75
 Mango-JalapeñoShrimpSkewers $8.75 Parrot Isle Jumbo Coconut Shrimp $14.50
 Crispy Calamari & Vegetables $8.75 Traditional Favorites
 Pan-Seared Crab Cakes $9.75 Seafood-Stuffed Flounder $12.99
 Mozzarella Cheesesticks $7.50 Flounder $12.99
Soups and Salads Cajun Chicken Linguini Alfredo $13.50
 New England Clam Chowder $3.99 Broiled Seafood Platter $14.25
 Manhattan Clam Chowder $4.50 Steak and Chicken
 Creamy Potato Bacon Soup $4.50 Wood-Grilled Steak&Shrimp $17.50
 Hand-Tossed Caesar Salad * Center-Cut NY Strip Steak $21.00
Signature Combinations Signature Drinks
 Seaside Shrimp Trio $17.75 Sunset Passion Colada $6.29
 Admiral’s Feast $16.99 Bahama Mama $6.49
Lobster and Crab Wine (examples by the glass) 
Chef’s Signature Lobster & 
Sh
$22.50 Pinot Grigio Ecco Domani $6.75
Crab Linguini Alfredo $14.75 Sauvignon Blanc BV Coastal Estates $6.50
North Pacific King Crab Legs $4.50 Merlot Sutter Home $5.50
Snow Crab Legs $17.99 Pinot Noir Rex Goliath $6.95
Live Maine Lobster market
Rock Lobster Tail $32.50
 
Source: Company documents. 
*Meals are served with a complimentary salad (choice of garden salad, Caesar salad or coleslaw) and 
unlimited Cheddar Bay biscuits. 
 
 
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511-052 Red Lobster 
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Exhibit 9 Stillshots from 2008 TV ads 
 
 
 
 
 
Source: Company documents. 
 
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Exhibit 10 Interior Remodel Before and After 
 
 
 
 
 
Source: Company documents. 
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511-052 Red Lobster 
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Exhibit 11 Exterior Remodel Before and After 
 
 
 
 
 
Source: Company documents. 
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Red Lobster 511-052 
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Exhibit 12 Bar Harbor Image Transformation Timeline 
 
 
 
 
Remodel 
New 
Relocation 
Source: Company documents. 
 
 
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511-052 Red Lobster 
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Exhibit 13 Media Mention Following the Re-Modeling 
 
Chattanooga Times Free Press 
Friday, Dec. 25, 2009 
Red Lobsters cook up fresher look 
The atmosphere of a seaside village is what executives at Red Lobster hope area customers will feel as 
they update the local restaurants. 
 
"We are making very significant changes," said Chip Wade, senior vice president of Red Lobster's 
Liberty division. "We've been working on this project for about three, four years, researching 
everything from listening to the guests in restaurants as well as doing focus groups in different 
markets." 
 
And one of those last changes was remodeling the restaurants, he said. The Hamilton Place location, 
where Red Lobster executives and staff recently held an open house, together with the location in 
Hixson and Dalton, Ga., are three of 51 restaurants being remodeled this year. Within three years 
they hope to complete the 700-fleet of restaurants, said Erica Jaeger, media and communications 
manager for Red Lobster. 
 
The new look includes softer lights, higher booths, neutral blue fabric colors, artwork of light houses, 
and even nautical signal flags at the entrance that spell "fresh," the company motto, Ms. Jaeger said. 
 
Jill Watson, state Sen. Bo Watson's wife, said Red Lobster has been a family tradition for over 30 
years. She attended the open house with her mother, Kay Lippse, and her husband. "It's quite a 
change," she said. "The ambiance is a lot more soothing." "It's a lot more inviting," added Mrs. Lippse. 
"It was kind of dated; the renovation has definitely made it an upscale eating establishment instead of 
just a good place to get fish." 
 
Mr. Wade said he couldn't disclose the dollar amount of the investment, but "as a brand, we want to 
continuously reinvest in the business and we want to make investments that resonate with the guests. 
We wanted to make a significant of an investment that the guest would feel, see and touch." The 
Chattanooga market was chosen because of the number of locations, he said. "We wanted to make 
sure we could get some penetration, we didn't want to do single-restaurant markets, we wanted to do 
markets that have multiple locations, we wanted to take advantage of the communities where we 
serve and take advantages of efficiencies," he added. Other markets being remodeled this year 
include Pittsburgh, Minneapolis and Cincinnati. 
 
"At a time when so many places are pulling out of American communities, this investment will last 
for decades to come," said Ms. Jaeger. "This is a statement that says we are here to stay and we value 
the Chattanooga area." 
Source: Perla Trevizo “Red Lobsters cook up fresher look” Chattanooga Times Free Press, December 25, 2009, via 
http://www.timesfreepress.com/news/2009/dec/25/red-lobsters-cook-up-fresher-look/, accessed August 2010. 
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Red Lobster 511-052 
25 
Exhibit 14 Segmentation Study Method: Inputs to Cluster Analysis 
 
Demographics: 
• Age 
• Years of education 
• # of people in the household 
• Income relative to ethnic group average 
Regional Demographics 
• % Graduate / Professional degree 
• % White collar occupation 
• % HH – age 45-55yrs + HH income $100 
k- $124k 
Category Involvement
• Sum of all shellfish favorites 
• Favorite restaurant food: seafood/beef or 
ribs/bbq 
• Go to local, independent restaurant with 
eclectic/ varied menu 
• % of bill that is for alcohol for dinner at 
casual dining restaurant 
• Avg. # of kids at casual dining restaurant 
for dinner occasions 
• % occasions go to casual restaurant 
• % occasions go to formal restaurant 
• Order at dinner occasions: dessert 
Food and Beverage Attitudes 
• Enjoy/ know wine 
• Enjoy new foods/ restaurants 
• Health conscious (even when eating out) 
• Stick with foods I like 
• Enjoy eating out 
• Not a restaurant chain person 
• People often ask my advice about food 
 
Brand Selection Criteria 
• Has good price (inexpensive, value) 
• Is upscale/ sophisticated 
• Is clean/ new space 
• Has new/ unique dishes 
• Has deals and promotions 
• Offers generous portions 
• Is convenient/ fast 
• Has consistent/great tasting food 
• Has flexible menu options 
• Has good selection of wines 
• Uses the freshest ingredients 
• Is a place to go for just drinks/appetizers 
• Servers are friendly/ welcoming 
• Takes environmental responsibilities 
seriously 
Source: Company documents. 
 
Notes: Red Lobster partnered with Copernicus Marketing Consulting and Research 
 Interviews were conducted with a total of 2403 interviews among respondents screened to be: 
• 18 to 74 years old 
• Residents of zip codes that are in trade areas for Red Lobster restaurants 
• Dinner customers at a casual dining restaurant in the past 4 weeks 
• Aware of Red Lobster restaurants 
• Not employed or have any immediate family members employed by a restaurant or fast food chain, 
marketing research or public relations firm, or advertising agency 
• No participation in market research about dining out at a restaurant or fast food chain in the past 3 months 
 Interviews averaged 37 minutes in length, and were conducted on-line, in July 2008 
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511-052 Red Lobster 
26 
Endnotes 
 
1 Bill Carlino, "Founder of Red Lobster dies at 75," Nation's Restaurant News. April 11, 1994, via 
http://findarticles.com/p/articles/mi_m3190/is_n15_v28/ai_15135423/, accessed August 2010. 
2 Ibid. 
3 Paul Westra, Colin Guheen, and Michael McCarthy, “Darden Restaurants: Upgrade to Outperform,” 
Cowen and Company, April 7, 2010, p. 6, via Thomson ONE Banker, accessed June 2010. 
4 Paul Westra, Colin Guheen, and Michael McCarthy, “Darden Restaurants: Upgrade to Outperform,” 
Cowen and Company, April 7, 2010, p. 7, via Thomson ONE Banker, accessed June 2010. 
5 Paul Westra, Colin Guheen, and Michael McCarthy, “Darden Restaurants: Upgrade to Outperform,” 
Cowen and Company, April 7, 2010, p. 7, via Thomson ONE Banker, accessed June 2010. 
6 Mintel, Casual Dining - US - November 2009, Figure 6. 
7 John Glass, Jon Tower, and David Dorfman, “Restaurants: 2009 MS Unit Count Survey,” Morgan Stanley. 
Figure 6. 
8 Mintel, Casual Dining - US - November 2009, Scopes and Themes.9 Estimated from $115 billion casual dining (cf. John Glass et al, 2009) divided by $300 million Americans 
divided by $15 per meal = 25 meals per year. 
10 John Glass et al., 2009. 
11 Ibid. 
12 Ibid. Glass notes that chains are just 13% in exhibit 3. 
13 Ibid. Assuming 1,400 chains is 17.5% of 8000. 
14 Mintel, Casual Dining - US - November 2009. 
15 John Glass et al., 2009, page 3. 
16 Mintel, Casual Dining - US - November 2009. 
17 American Customer Satisfaction Index, “Full Service Restaurants,” Scores By Industry, via 
http://www.theacsi.org/index.php?option=com_content&task=view&id=147&Itemid=155&i=Full 
+Service+Restaurants, accessed August 2010. 
18 Kathleen Willcox, “Why Red Lobster’s New Menu Is a Colossal Failure,” SodaHead, January 16 2010, via 
http://www.sodahead.com/living/why-red-lobsters-new-menu-is-a-colossal-failure/blog-238399/, accessed 
August 2010. 
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 /ColorImageAutoFilterStrategy /JPEG
 /ColorACSImageDict <<
 /QFactor 0.15
 /HSamples [1 1 1 1] /VSamples [1 1 1 1]
 >>
 /ColorImageDict <<
 /QFactor 0.76
 /HSamples [2 1 1 2] /VSamples [2 1 1 2]
 >>
 /JPEG2000ColorACSImageDict <<
 /TileWidth 256
 /TileHeight 256
 /Quality 15
 >>
 /JPEG2000ColorImageDict <<
 /TileWidth 256
 /TileHeight 256
 /Quality 15
 >>
 /AntiAliasGrayImages false
 /CropGrayImages true
 /GrayImageMinResolution 150
 /GrayImageMinResolutionPolicy /OK
 /DownsampleGrayImages false
 /GrayImageDownsampleType /Average
 /GrayImageResolution 600
 /GrayImageDepth -1
 /GrayImageMinDownsampleDepth 2
 /GrayImageDownsampleThreshold 1.00000
 /EncodeGrayImages false
 /GrayImageFilter /DCTEncode
 /AutoFilterGrayImages false
 /GrayImageAutoFilterStrategy /JPEG
 /GrayACSImageDict <<
 /QFactor 0.15
 /HSamples [1 1 1 1] /VSamples [1 1 1 1]
 >>
 /GrayImageDict <<
 /QFactor 0.76
 /HSamples [2 1 1 2] /VSamples [2 1 1 2]
 >>
 /JPEG2000GrayACSImageDict <<
 /TileWidth 256
 /TileHeight 256
 /Quality 15
 >>
 /JPEG2000GrayImageDict <<
 /TileWidth 256
 /TileHeight 256
 /Quality 15
 >>
 /AntiAliasMonoImages false
 /CropMonoImages true
 /MonoImageMinResolution 1200
 /MonoImageMinResolutionPolicy /OK
 /DownsampleMonoImages false
 /MonoImageDownsampleType /Average
 /MonoImageResolution 600
 /MonoImageDepth -1
 /MonoImageDownsampleThreshold 1.50000
 /EncodeMonoImages false
 /MonoImageFilter /CCITTFaxEncode
 /MonoImageDict <<
 /K -1
 >>
 /AllowPSXObjects false
 /CheckCompliance [
 /None
 ]
 /PDFX1aCheck false
 /PDFX3Check false
 /PDFXCompliantPDFOnly false
 /PDFXNoTrimBoxError true
 /PDFXTrimBoxToMediaBoxOffset [
 0.00000
 0.00000
 0.00000
 0.00000
 ]
 /PDFXSetBleedBoxToMediaBox true
 /PDFXBleedBoxToTrimBoxOffset [
 0.00000
 0.00000
 0.00000
 0.00000
 ]
 /PDFXOutputIntentProfile (None)
 /PDFXOutputConditionIdentifier ()
 /PDFXOutputCondition ()
 /PDFXRegistryName ()
 /PDFXTrapped /False
 /Description <<
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 /ITA (Utilizzare queste impostazioni per creare documenti Adobe PDF adatti per visualizzare e stampare documenti aziendali in modo affidabile. I documenti PDF creati possono essere aperti con Acrobat e Adobe Reader 5.0 e versioni successive.)
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 /NLD (Gebruik deze instellingen om Adobe PDF-documenten te maken waarmee zakelijke documenten betrouwbaar kunnen worden weergegeven en afgedrukt. De gemaakte PDF-documenten kunnen worden geopend met Acrobat en Adobe Reader 5.0 en hoger.)
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 /ENU ()
 >>
>> setdistillerparams
<<
 /HWResolution [600 600]
 /PageSize [612.000 792.000]
>> setpagedevice