Case Study Analysis: Locating the Next Red Lobster Restaurant
Amanda K Passaretti
February 7, 2015
Prof. Jonathan Bates
BUS520: Operations Management

From its first Red Lobster restaurant in 1968, Darden Restaurants has grown the chain to 690 locations, with over $2.6 billion in U.S. sales annually. The casual dining market may be crowded, with competitors such as Chili’s, Ruby Tuesday, Applebee’s, TGI Fridays, and Outback, but Darden’s continuing success means the chain thinks there is still plenty of room to grow. Robert Reiner, director of market development, is charged with identifying the sites that will maximize new store sales without cannibalizing sales at existing Red Lobster locations.
Characteristics for identifying a good site have not changed in forty years; they still include real estate prices, customer age, competition, ethnicity, income, family size, population density, nearby hotels, and buying behavior, to name just a few. What has changed is the powerful software that allows Reiner to analyze a new site in five minutes, as opposed to the eight hours it took just a few years ago.
Darden has partnered with MapInfo Corporation, whose geographic information system (GIS) contains a powerful module for analyzing a trade area. With the U.S. geocoded down to the individual block, MapInfo allows Reiner to create a psychographic profile of existing and potential Red Lobster trade areas. “We can now target areas with greatest sales potential,” says Reiner.
The U.S. is segmented into 72 “clusters” of customer profiles by MapInfo. If, for example, Cluster #7, Equestrian Heights, represents 1.7% of a household base within a Red Lobster trade area, but accounts for 2.4% of sales, Reiner computes that this segment is effectively spending 1.39 times more than average (index = 2.4> 1.7) and adjusts his analysis of a new site to reflect this added weight.
Cluster #7, Equestrian Heights, is described as follows: They may not have a stallion in the barn, but they likely pass a corral on the way home. These families with teens live in older, larger homes adjacent to, or between, suburbs but not usually tract housing. Most are married with teenagers, but 40% are empty nesters. They use their graduate and professional school education; 56% are dual earners. Over 90% are white, and non-Hispanic. Their mean family income is $99,000, and they live within commuting distance of central cities. They have white-collar jobs during the week but require a riding lawn mower to keep the place up on weekends.
When Reiner maps the U.S., a state, or a region for a new site, he is looking for one that is at least three miles from the nearest Red Lobster and won’t negatively impact its sales by more than 8%; MapInfo pinpoints the best spot. The software also recognizes the proximity of non-Darden competition and assigns a probability of success (as measured by reaching sales potential).
The specific spot selected depends on Darden’s seven real estate brokers, whose list of considerations include proximity to a vibrant retail area, proximity to a freeway, road visibility, nearby hotels, and a corner location at a primary intersection.
“Picking a new Red Lobster location is one of the most critical functions we can do at Darden,” says Reiner. “And the software we use serves as an independent voice in assessing the quality of an existing or proposed location.”

Location planning is very crucial business strategy in any type of business. The reason locations are so important is because they often coincide with significant costs that are typically unable to be recouped and more importantly location drives revenue (Heizer & Render, 2014). In addition

References

Heizer, J., & Render, B. (2014). Operations Management (11th Ed.) Upper Saddle River, NJ: Pearson Education, Inc.