Red Lobster – Altering Perception through Improved Positioning

Given the changes in Red Lobster’s strategy over the past few years and the surprising ability to attract new, “experiential” customers, it our recommendation that they modify their strategy to focus on pursuing this type of clientele. We will go into further detail momentarily; however, the reason for focusing on the experiential customer group is that Red Lobster has the opportunity to increase revenue and net operating income at each restaurant by 20% or more. Granted, these are enormous gains and it will take a few years to realize their full potential, but for the reasons laid out below, we believe these gains are a realistic possibility.
Red Lobster’s positioning has
These shifts in customer perception appeared to be working quite well, as was shown by the Copernicus analysis conducted in July 2008. As the case mentions, Lopdrup was very surprised to find that 23% of the customer base was now made up of experientials. This was great news since these customers were not as price sensitive as other groups, consume more alcohol (higher margin), and had the highest average spend per meal. Therefore, if Red Lobster is able to increase the number of experiential diners, revenue and profit growth should follow.
For example, let’s suppose that we attract 2,000 new experiential customers, but the changes in marketing, atmosphere, and product mix means that we also lose 1,000 indulgent customers and 1,000 frugal customers. As you can see in Exhibit 1, this shift will mean additional experiential revenue of $313,488. Combined with the losses from indulgent/frugal diners, each restaurant will see an average net gain of $151,852 in revenue. Given the higher average spend per meal of the experientials, we can assume that food/beverage costs will also increase. However, we are going to assume that these costs increase at a rate less than that of indulgent/frugal individuals. The reason for this is that experientials consume a far greater amount of alcohol than other diners. Alcohol is typically a much higher margin product for restaurants because of the lower costs