Hoops, Lindsay, Rosati Maj. Tyabji, Mgt. 375 Red Lobster Case Study 1 May 2013 Red Lobster was started in 1968 with one location in Orlando, FL. Now it has grown to one of the largest restaurant chains in the nation with 690 locations in all major cities. When Red Lobster was a young chain in the 1980s, it had a reputation for high quality seafood away from the water. In recent years, the company has struggled with its image. In a 2004 survey, participants questioned the “quality of the seafood” and the “taste/preparation of the seafood” (exhibit 6).
Red Lobster needed to change how they are perceived by the public. Red Lobster should continue to overhaul their image, by completely remodeling the inside and outside of their almost 700 locations and improving the menu in order to attract the new Experiential market (Table A). Red lobster should move away from being an “over-indulgent”, lower quality restaurant and move to attract the “Experiential” market with a sophisticated, upscale atmosphere. Red Lobster should add better and higher priced wine selection to cater to the Experientials.
With alcohol being 12% of their meals, and 14% of Eclectics meals, (Table B) this change would increase money spent in this area because some may want to buy even more expensive wines that currently aren’t available. Concerning broadening the menu, we believe that Red Lobster should stick to a menu that focuses on freshness and quality of seafood rather than quantity of broad menu items. Freshness and quality is most important to customers when selecting a seafood restaurant (Exhibit 6). This will better attract the Experientials and also the Eclectics because both of these parties enjoy new, sophisticated unique dining experiences (Table A).
Concerning wine different restaurants should definitely place a greater emphasis on wine because certain areas may have a much larger wine drinking crowd. This could be accomplished by both varying ambience and also varying the amount and type of wine based on location. With most of the remodeling already taking place, Red Lobster has already taken strides towards appealing towards the Experiential customers who are motivated by culinary Expertise, sophisticated, upscale atmosphere (Table A). It is clear that Red Lobster should target these individuals because per customer
Experientials spend around $52 more than the current Indulgent targets per year (Exhibit 15). In addition, by targeting these individuals and making small tweaks to the restaurants as they are renovated, Eclectics (the second highest grossing average spent per year per customer) may also be drawn to the new changes because of the similarities between these two parties. This is a perfect example of market segmentation without having to radically change the scope of the company from the target Experiential group.
With 690 locations nationwide, Red Lobster can be found in most major cities. Even though many of the locations are close to water, there are still hundreds of locations in landlocked states (Exhibit 3). In 2009, Red Lobster tested their new renovation ideas at four locations in Florida in 2008, and another 30 around the country in 2009. Many people viewed Red Lobster as a low quality seafood restaurant, but now they want to change into an upper-scale restaurant in order to attract the Experiential market (Exhibit 10, 11).
Red Lobster should try to speed up the process of remodeling because, in the 34 locations where the remodeling was tested, guest satisfaction was up 14%, staff morale was up, and turnover was down. The remodeling will bring in more people from the Experiential segment, which is what they should focus on because it would be their most profitable target market. Red Lobster should definitely raise the price food and wine to accommodate the Experiential crowd. If these customers are paying more they will feel as though they are getting the sophisticated, upscale atmosphere that they desire (Table A).
The pricing comes down to who Red Lobster wants to target and with the recent renovations already underway, the company has already blazed a trail towards attracting this new type of customer. Based on the purchase behavior of identified groups the Experientials will have greater $6. 10 greater average spending power per meal over the Indulgent crowd ($24. 88 compared with $18. 78) (Table B). This makes them more profitable as a customer and gives them the greatest experience with regards to enjoying fish and the wide variety of seafood (Table A).
Lastly, with the large decline in seafood over time, Red Lobster has the opportunity to make a greater profit because they are paying less for the seafood, while the customer is paying slightly more for the experience that comes along with it (Exhibit 5). Red Lobster’s competition, in the “Big 7” category, has more locations within the United States with the exception of Olive Garden (which has five less). However, per location, Red Lobster brings in $300,000 more volume than its closest competitor (Exhibit 16). That shows that Red Lobster is succeeding over its competition per location.
Although Red Lobster brings in the most volume per location, it lacks bringing in the highest volume from the “Big 7”. This is solely due to Red Lobster’s low US location number. Furthermore, Red lobster’s alcohol sales are a meager 7% (Exhibit 4). That is the lowest in the entire list of compared competition. Red Lobster needs to raise its alcohol consumption percentage by at least 3%. This will add almost $100 million to their revenue. Lastly, Red Lobster spends the most on media out of all the other compared restaurants.
This is troublesome because a company should be striving to minimize spending on advertising while maximizing revenue. 4. 87% of their revenue is dedicated to media spending (Exhibit 16). While this is not a lot, their competition spends between 0. 5%-3. 9% on advertising. Companies like Chili’s and Outback have revenues of $4 billion and $3. 2 billion, respectively. They spend $107 million (2. 67%) and $79 million (2. 44%) on advertising respectively (Exhibit 16). In comparison, Red Lobster’s revenue is $2. 4 billion (4. 87%) with media spending of $121 million.
Chilis’ and Outback are minimizing advertising expenses while maximizing revenue. Red lobster needs to accomplish that if they want to be a successful company. Promotion less discounts, keep endless shrimp and lobster fest. Red Lobster needs to target Experientials and Eclectics with their advertising. With their current form of advertising, they are doing well with promoting the restaurant in the way they want to be positioned. Red lobster is already starting to target Experientials and Eclectics by renovating their restaurants and putting an emphasis on fresh, quality seafood.
The data from Exhibit 6 displays that most customers do not perceive Red Lobster as having fresh or quality seafood in comparison to other restaurants in 2004. Exhibit 7 and Exhibit 9 show that Red Lobster is on track in terms of positioning itself correctly through promotional methods such as advertising. The “Today’s Fresh Fish” portion of the menu gives Eclectics the fresh and high quality seafood they desire. Furthermore, Exhibit 10 demonstrates their efforts to continually give Experientials the quality experience and food that they seek when dining out with their families or co-workers.
Promotions such as “Endless Shrimp” and “Lobster Fest” should be kept because although Red Lobster is trying to position them as having quality fresh seafood, they still need to cater to the indulgents and frugals. This is the perfect avenue to continually market towards them while not losing Experientials and Eclectics. Lastly, Red Lobster’s casting out of discounts was a smart move because too many discounts make the product be perceived as low quality and cheap. In conclusion, Red Lobster is on the correct path for success with the implementations it has made.
They first conducted good market research through surveys to get an idea of what the customer expects out of a typical seafood restaurant and how consumers perceive Red Lobster. From there they overall made good decisions based on the fundamentals of the 3C’s and 4P’s. A change in consumer perception through promotions, product, and price will payoff well and we believe that changing the target market to Experientials and Eclectics will increase Red Lobsters total revenue. Documentation: None