The Red Lobster Insight for Grocers

Joseph Sabbagh serves as the president of Sax Maritime Associates, a consulting firm that has provided services to seafood industry investors since 1985. The firm’s clientele includes major retailers, restaurants, producers, distributors, private equity firms, and environmental organizations.

Recently, Red Lobster has attracted negative attention, underscoring the challenges facing the seafood dining and casual concept. Issues for Red Lobster arose long before Thai Union’s takeover from Darden. Several well-managed regional competitors may lure away Red Lobster’s customers, while leaders in the general dining and casual sectors may expand their seafood offerings. Currently, most menus in this arena predominantly feature only salmon, shrimp, and catfish. For instance, The Cheesecake Factory, a leading establishment, typically includes only salmon, shrimp, and crab cakes across its 215 locations. Similarly, Chipotle, with over 3,300 locations, mainly focuses on meat dishes.

A previous discussion highlighted how grocers can capitalize on the scarcity of seafood options in the dining/casual and quick-service restaurant (QSR) sectors. To further substantiate the potential for grocers to gain market share from food service, insights were sought from Roger Berkowitz, the former owner of Legal Sea Foods.

In 2010, Berkowitz observed rising labor costs that posed a significant threat to the labor-intensive full-service restaurant industry. Additionally, the effects of global warming were becoming increasingly apparent, with warmer water fish species like Mahi Mahi migrating to traditionally colder waters in the Northeast, while North Atlantic Cod began to disappear as they moved northward. Today, full-service restaurants face labor costs that have surged, contributing to a menu price increase of approximately 40%. The decline in boat landings following the pandemic has further complicated supply and driven up costs. As a result, full-service seafood restaurants are now required to reduce their stock-keeping units (SKUs) and incorporate more farmed products such as salmon and shrimp.

Grocery stores seeking to enhance food and beverage consumption often introduce bars and restaurants. Berkowitz suggests that the best seafood items and presentations for grocery sit-down operations involve adopting a quick-service eatery model. Prepared foods like chowders, gumbos, and sushi, which can be made in advance, are ideal offerings. With a large workforce, supermarkets have the ability to train staff to serve straightforward dishes that can be prepared either on-site or off-site.

In terms of operational costs, grocery food service concepts have distinct advantages over restaurants. Supermarkets carry sunk costs related to rent and seafood inventory, allowing them to leverage these efficiencies for better competition against out-of-home dining options. With significant advantages in species variety and cost, grocery stores can outperform restaurants in their trading areas. Lower costs associated with rent, labor, energy, packaging, and other factors enable grocery stores to offer a more competitive total cost for finished products. By analyzing current and future trends in seafood within dining/casual concepts and QSR, supermarkets can uncover substantial profit potential from their seafood sourcing, prepared foods, buffets, and deli staff.