Comment by outop
2 years ago
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?
I explained the difference in incentives: Restaurant margins are a PE failure [0], that alone would explain it. Your framing of the scenario as "discouraging people from going to a restaurant" is... less than charitable. A better description would be "extracting the value of customer goodwill from the business and moving it into their pockets". They're PE, they prioritize big, fast returns over long-term customer value and small, slow returns.
Add to that, the leveraged buyout mechanism that Red Lobster went through is famous for siphoning value off the target in the form of fees and other schemes, and then leaving the empty husk to die under crippling debt[1]. A clue here is that the 2nd paragraph of the article we're discussing is, "In mid-April, Bloomberg reported the debt-laden seafood chain...", and it sounded like they had trouble paying it in part because of the rent payments that started when the PE firm sold their real estate to pay for the buyout.
Can you explain why you think anything I've said so far is untrue? After all, we can't assume a PE LBO executor and a small business owner have the same incentives unless we have sufficiently convincing evidence to support that assumption.
0: https://www.indeed.com/hire/c/info/restaurant-profit-margins...
1: https://www.investopedia.com/articles/stocks/09/corporate-kl...
You've replied with the same trivial urban myths that are endlessly repeated about private equity.
You've compared the incentives of private equity and a small business owner. Do you think that Red Lobster was previously a small business?
Why can't you answer the question on the different incentives that apply to different owners of large businesses? If a private equity fund can make a profit by buying a successful business, discouraging all its customers and then "selling the corpse", why can't other owners do the same thing?
Why does the company having a large amount of debt change the decision a restaurant chain's management makes between selling cheap and good food, or cheap and bad food, or expensive and bad food, or expensive and good food?
Literally everything that you've said about this has been handwaving and rumours. Explain the decisions based on where the money comes from and where it has to go to, if you can (you clearly can't).
You citing Nabisco as the best example of what you believe is comical since it's from 40 years ago (and famously fraudulent).
I worry, friend, that in your haste to reply, you may have accidentally replied to yourself here.