After nearly a decade of stagnating or declining fortunes, the $1.9 billion restaurant chain saw double-digit gains in same-store sales this past quarter. The 11.6% increase marks the biggest such gain in at least eight years.
CREDIT TO REVAMPED ADS
Analysts credit much of the recent success to the chain's revamped ad campaign as well as a strategic make-over that has sharpened the look and internal operations of its restaurants.
The ads come from Euro RSCG Tatham, Chicago, which was awarded the $80 million Red Lobster account a little more than a year ago. For the previous dozen years, it had been housed at Grey Advertising, New York.
"It's a much classier campaign," says Stacy Jamar, a restaurant analyst for Salomon Smith Barney. "It's a more appealing image than before."
The question now is whether these changes will help Red Lobster weather the storm if a faltering economy hurts the casual-dining industry.
Darden Restaurants -- the holding company formed to operate Red Lobster and Olive Garden after General Mills spun off those restaurant chains -- began retooling Red Lobster about two years ago, following the spin-off. The 30-year-old chain upgraded its menu offerings and improved training of staffers.
Now, for example, servers are free to wear shorts and colorful shirts with fish motifs instead of the traditional black pants, white shirts and tie. The company even eliminated its ban on beards for male workers. Yes, beards.
The changes, officials say, have improved morale in this high-turnover industry.
Meantime, the company continues to tweak its menu. Next month, it launches a new seafood pasta line backed by TV commercials. That's on top of a recent push to increase awareness of the restaurants' alcoholic beverage offerings. Red Lobster hopes to tap a potential new profit engine, since its alcohol sales currently are about half the industry average.
"We did not really push or even acknowledge in our restaurants that it's OK to have a drink," said Wyman Roberts, exec VP-marketing, who has been with the chain for 15 years.
MORRIS JOINS TEAM
New management has helped fuel the changes at Red Lobster. A new president, industry veteran Richard Rivera, has been at the helm since last December. And just last week, the company announced it had reeled in one of the most prominent women in the restaurant business, Edna Morris, to take the vacant post of exec VP-operations. She had been president of Quincy's Family Steakhouse, where she's credited with reversing sales declines.
The most daunting question now facing Red Lobster: whether the chain can sustain rising sales and weather the ups and downs of the $32 billion casual-dining segment of the restaurant industry.
ECONOMY IS CHALLENGE
"The major challenge would be the economy. Casual dining is doing very, very well now because consumers are willing to spend the dollars it takes," said Ron Paul, president of industry consultancy Technomic.
But when times get tough, he noted, consumers trade down to fast-food.
Red Lobster officials say they're convinced there's significant additional business to be had for the chain's 646 U.S. restaurants.
Mr. Paul noted the chain, with its focus on seafood, is in the enviable position of having no serious national competitors. Steak chains such as Outback Steakhouse and Lone Star Steakhouse & Saloon, by contrast, are in a crowded field and must struggle to trumpet points of differentiation.
HEAVYING UP ON RADIO ADS
To maintain momentum, Red Lobster last month launched a new $12 million radio campaign to focus on promotional messages as a complement to brand-building efforts on network TV.
The move, which doubles annual radio spending without eating into TV buys, follows successful local tests (AA, Feb. 16) that involved sponsorships of local disc jockeys.
The TV campaign launched a year ago will continue. It features lush photography of ordinary people having fun at the beach and represents a major departure for Red Lobster. It replaces harbor-theme campaigns that hit hard on the seafood promotion of the moment with the singsong tagline, "Red Lobster for the seafood lover in you."
"Red Lobster's advertising had become a little too easy to ignore," Mr. Roberts said.
Now the musical accompaniment is from big names such as Rod Stewart and LeAnn Rimes. The tag declares, "Life on land is dry." One spot touting crab legs featured three older women cavorting across the sand.
The spot now running, using Ms. Rimes' baleful rendition of "Blue," employs an end-of-summer theme to tout a $14.99 Maine lobster dinner.
"It's the story of the end of the season and a woman reflecting on the great summer and the experiences she's had at the seashore. Red Lobster is trying to do a good job of just tapping into that," Mr. Roberts said.