On Thursday, a bankruptcy court judge effectively approved the sale of Red Lobster to Fortress Investment Group.
It came one day after Topgolf Callaway Brands decided to spin off the Topgolf part of the company within the next year.
These two events are, obviously, completely unrelated. But they do have this in common: Both Red Lobster and Topgolf were acquired by companies outside the restaurant industry. And in both cases the buyers came to regret that decision within four years.
As most folks know by now, Red Lobster was acquired in 2020 by Thai Union Group, a seafood supplier based in Bangkok. By earlier this year, the company was hemorrhaging cash, its CEO was swearing off lobster and by May it was in bankruptcy. The chain has closed a fifth of its U.S. locations over the past two years.
In 2020, the golf equipment maker Callaway acquired Topgolf, a fast-growing chain that combines a golf-like experience with a casual-dining restaurant. The next year the company changed its name to Topgolf Callaway after watching the chain’s sales go through the roof.
But now those sales are down and company executives are pulling the plug on the experiment, with plans to spin off Topgolf to shareholders by next year.
Success in one industry hardly guarantees success in another. This is especially true in restaurants, a business that is highly competitive in the U.S., and where customer tastes can change quickly. It’s difficult even in the best of times.
The post-pandemic environment has been especially volatile. Sales at many restaurants surged in 2021, sending valuations to record highs. But inflation and supply chain shortages created problems and drove up menu prices that have caused customers to cut back.
That volatility has created a number of unique challenges, leading to a rash of bankruptcy filings, a higher-than-average number of CEO changes and sales of restaurant chains at steep discounts.
Both Callaway and Thai Union found this out the hard way.
Callaway seems to have done right by Topgolf during its ownership period, expanding the chain and going so far as to put the Topgolf name foremost on its corporate moniker.
But Callaway did that when Topgolf was the beneficiary of pent-up consumer demand following the pandemic. Many investors pumped money into food-and-games concepts, believing they will sustain over the long term.
That pent-up demand has been unleashed. Notably, amid some economic uncertainty, companies appear to be cutting back on events they held at Topgolf, sending those sales plummeting. It’s certainly not the only one facing such pressures: The bowling-and-bocce concept Pinstripes is cutting expenses as its sales have fallen.
But with two distinct companies, Callaway is realizing its future probably would be best without the food-and-games chain and thus we get the spinoff.
Red Lobster is, clearly, a different question. Thai Union is a half a world away, for one thing. The seafood chain was not exactly set up for long-term success by its former owner that sold most of its real estate at favorable terms for the buyers.
But then last year Red Lobster orchestrated an aggressive, all-you-can-eat shrimp deal, coincidentally after the chain’s supply of shrimp was redirected exclusively to Thai Union.
If we give the now-former owner the benefit of the doubt, we see a company desperate enough to generate sales that it aggressively priced and marketed a money-losing discount. Red Lobster certainly wasn’t the first restaurant chain to do such a thing. It wasn’t even the first time Red Lobster did such a thing.
The lesson here is that the restaurant industry is difficult, even for seemingly experienced executives from other businesses. Tread carefully.