Red Lobster Founded in 1968 by Bill Darden

A. Introduction –

Red Lobster was founded in 1968 by Bill Darden who saw a segment of the seafood market that was untapped. During this time, mainstream America, particularly those living in non-coastal regions did not have the opportunity to eat much seafood. It was hard to find, difficult to cook at home, and often too pricey for many American families to afford. In response to the these trends, Darden designed a restaurant built on the premise of bringing affordable, quality seafood to mainstream America. When Kim Lopdrup, took over as President in 2004, and conducted a consumer survey which found the most important characteristic of a seafood restaurant were: freshness, quality, and taste of the seafood. Red Lobster was lagging behind the competition in all three areas. Lopdrup new significant change in positioning was just what Red Lobster needed. Currently, Red Lobster is 6 years into Lopdrup’s 10 year rejuvenation plan. In this analysis, I as the External Consultant will discuss and analyze the changes that have been made, the impact of those changes, market research findings, and make suggestions for additional changes that could be made to benefit the company.

B. Situational Analysis

• Current Competitive Situation:

In 2009, the typical American family spent 40% of their food budget eating out. While that is a significant percentage, 48% of consumers’ budgets were spent on fast food chains. Casual dining restaurants, like Red Lobster brought in 31% of a family’s food budget. The Big 7 casual dining restaurants (in order from most locations to least) are: Applebee’s, Chili’s, TGI Fridays, Rudy Tuesdays, Outback Steakhouse, Olive Garden, and Red Lobster. The Big 7 casual dining restaurants account for 33% of 22,000 casual dining chain restaurants in America.

When considering only the casual dining seafood locations, Red Lobster is in a much less competitive segment of the casual dining market. Joe’s Crab Shack is the only national casual dining chain with a price point similar to Red Lobster. The next closest is the limited location chain of Bonefish, but the price point is significantly higher at $26 average per check. This leaves Red Lobster with the 43% of the market share, which is the highest among casual dining seafood chains. However, the rise of aquaculture has led to dramatic declines in the cost of salmon and shrimp. These items were once considered luxury food but with the increase in availability, the costs had plummeted. This has allowed for mainstream casual dinning chains to add seafood to their menus causing seafood restaurants to be less of a segment.

Despite the new competition in the seafood casual dining segment Red Lobster is making steady improvements in three main phases; operational excellence, repositioning to fresh seafood, and remodeling all restaurants to better appeal to their target market. From 2004 to 2010, the overall satisfaction of guests have increased by roughly 14 percentage points and after renovations restaurants were able to increase their patron capacity by 50%.

• A Brief SWOT Analysis

Strengths -

- Red Lobster has a loyal customer base whose satisfaction with their dining experience has increased by half over the last 6 years. Seventy-eight percent give the restaurant an “excellent” rating.

- As measured by the Knapp-Track report, Red Lobster is out performing its competition.

- There is a solid price to food quality relationship and the menu of the restaurant reflects the wants and needs of their customers.

- The ACSI rated customer satisfaction higher than the industry average.

Weaknesses –

- Customers gave low ratings for taste, freshness, quality, and preparation of seafood.

- “Excellent” consumer ratings lagged behind the rating of competitors by approximately 10%.

- Costumers have the perception that Red Lobster is an upscale restaurant but serves moderately fresh seafood.

- Average price per check is at the top range of casual dining restaurants.

- Red Lobster had lost focus of a target market.

Opportunities –

- New emerging market potential with the “experientials” which could create more interest in the restaurant and improve customer satisfaction.

- Could act on the opportunity to reposition its brand again.

Threats –

- Stiff competition in casual dining industry for Red Lobster.

- Significant change in economy affecting the amount of money families spend on eating out.

- Repositioning could potentially turn away loyal customers.

• Current Segmentation Scheme & Target Market being Served –

The current target market of Red Lobster are the more consistent customers of casual dining restaurants. These customers are generally categorized as having a love of generous portions of affordable seafood. The restaurant chain targets this segment of consumers through their television marketing system focused on “Lobsterfest” and “Endless Shrimp” promotional periods.

In July of 2008, management of the Red Lobster commissioned Copernicus to conduct a market research study to help gather insights into the purchasing behavior of customers. The findings of the study were surprising and unveiled five distinctly different segments of customers (experentials, indulgents, traditionalists, eclectics and frugals), several of which could be better targeted by Red Lobster.

Experimentals made up around 23% of the clientele served by the company. This was quite surprising because the marketing campaign and positioning strategy of Red Lobster was not and had never been targeted at this segment. For experimentals, eating out is an important source of pleasure used as an opportunity to connect with family, friends, colleagues, and clients. They have very high expectations of superior service, upscale atmosphere, and culinary expertise demonstrated by both wait staff and kitchen staff. The Experiential customer segment had an average yearly income of $100K so they were