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The Red Lobster lesson for grocers

The table is set for supermarket food service sales

Joseph seafood.jpgJoseph Sabbagh is the president of Sax Maritime Associates, which has been offering consulting services to those invested or considering investing in the seafood industry since 1985. Clients have included significant retailers, restaurants, producers, distributors, private equity, and environmental concerns.

Over the last few months, Red Lobster has been in the news for all the wrong reasons. Another indicator showing the seafood dinner house/casual concept decline continues. Red Lobster had problems long before Thai Union decided they would be a better operator than Darden. There are also a number of well run regional players in the space that may be able to attract Red Lobsters customers. Perhaps the leaders in general dinner/casual concepts decide to expand their seafood offerings. At present, most do not have much seafood on their menus other than salmon, shrimp, and catfish. Here are two examples: Cheesecake Factory is a leader in the sector. Their expansive menus in some 215 locations typically only have the usual salmon, shrimp, and crab cakes. On a QSR side, all the meat has feet in the juggernaut Mexican themed Chipotle’s 3300 plus locations. 

In my last post, I talked about how grocers can take advantage of the lack of seafood items in the dinner/casual and QSR sectors. I felt my optimism for grocers taking market share from food service needed to be validated further and so reached out for the opinion of an expert in both the seafood and restaurant industry. I immediately knew that my former client and ongoing debater on a number of topics, Roger Berkowitz, the legendary former owner of Legal Sea Foods, would offer valuable insights. 

Joseph Sabbagh: I remember you telling me in 2010 that you thought seafood dinner house/casual concepts sales were under pressure and you expected that to continue. What did you see then and what do you see now?

Roger Berkowitz: Back in 2010, I was beginning to see the cost of labor starting to ramp up. That in and of itself wasn’t a huge issue, but because full service restaurants are so labor intensive, I was always fearful of the existential threat it posed to the industry. Additionally, global warming was beginning to become more pronounced, as species of warmer water fish, like Mahi Mahi, were beginning to migrate up into the traditionally colder waters of the Northeast….and species like North Atlantic Cod, were disappearing from local New England waters, as those species were also migrating northward. Fast forward to today — labor is obscenely high for full service restaurants to absorb, as evidenced by menu prices up roughly 40%. Plus, given the decline in the number of boat landings post pandemic, supply is a challenge for full service seafood restaurants, as are higher costs. The only viable choice facing full service seafood restaurants today is to reduce their number of SKUs, and add more farmed products such as salmon and shrimp.

JS: Some grocery stores have bars and restaurants as they try to generate more F&B consumption in their stores. What do you see as the best seafood items and presentations for grocery sit down operations?

RB: It would seem that grocery stores, that want to become more restaurant-like, should position themselves to be more like quick service eateries. They may want to be thinking about serving prepared food, like chowders and gumbos, along with foods like sushi, which can be prepared ahead of time. Given the fact that supermarkets already have a fairly large pool of employees, it would just be a question of training them to serve relatively uncomplicated dishes, which can be prepared either back of the house, or off site.

JS: How do you compare the operational costs of a grocery food service concept with restaurants?

RB: Grocery stores already have a sunk cost in terms of rent, and to some degree seafood inventory. Taking advantage of the already existing efficiencies could serve those entities well and allow them to better compete with the out of home dining market. 

I believe the leaders in seafood retail have a significant advantage on species, variety, and cost over just about all of the restaurants operating in their trading zone. As Roger pointed out, all grocers have lower costs on rent. I would add to that: labor, energy, packaging, and just about everything else, resulting in a lower finished product total cost for grocery over restaurants. If supermarkets analyze the current and future direction of dinner house/casual concepts and QSR seafood, I know they will be happy with what they see. They have the synergies with their seafood sourcing, prepared foods, buffets, and deli staff to significantly increase their profits from that sector. Thanks for reading

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