Comment by ImPostingOnHN
2 years ago
> There isn't just a random dude who sits in a room somewhere and says "let's make the food worse" based on his own whim.
Not directly, but only 1 step removed. The dude is saying "let's charge the same or more for cheaper, lower-quality food, to make a higher margin so our PE firm makes more money".
> that's because someone involved in that decision decided it was worth paying more for or not worth paying what they were currently paying, taking into account what factors will make people change their mind about eating there.
Evidently not really taking the factors into account. Would the limited partners eat there? More than once?
I don't see the relevance of this. No one eats at Red Lobster thinking "this is the exact dinner experience that billionaires would design for themselves".
Walmart is a family owned business. Do you think that the Walton family buy groceries and home furnishings there? McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there?
> McDonald's is a public company. Do you think that its CEO and the fund managers who hold the biggest stakes in it regularly eat there?
Yes: https://financialpost.com/executive/mcdonalds-new-ceo-eats-a...
What makes you think that PE equity owners have any different incentives to any other chain restaurant owners to cut costs and improve margins??
Why would you think that private equity owners would ever make things worse to improve margins without giving careful consideration to whether or not the changes will make people less likely to spend money at their restaurants??
Because PE equity owners DO have different incentives. It's reasonable to think things that are true.
PE is incentivised to squeeze the business and extract the value built up over time, to get large, quick returns, even if it destroys the business (they can sell the corpse after). A restaurant which delivers regular, single-digit restaurant margins indefinitely would be considered a PE investment failure.
So, the answer your 2nd question is also "because it's true". I'm happy to be convinced otherwise on either count, if you think differently.
You've just repeated and rephrased the claim that I challenged without providing any evidence or argument at all. Your actual answer to both questions is "because I believe this".
Can you explain how the math works that PE owners make money from discouraging people from going to a restaurant, and other owners don't have the same incentives?
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