Only a few days after closing dozens of its locations, Red Lobster filed for bankruptcy protection.
(AP) – Red Lobster, a casual dining restaurant business, has filed for Chapter 11 bankruptcy protection. The company is renowned for introducing seafood to the general public with inventions like popcorn shrimp and “endless” seafood offers. The 56-year-old chain filed for bankruptcy late on Sunday, a few days after it closed numerous locations.
CEO Jonathan Tibus declared, “This restructuring is the best path forward for Red Lobster.” “It enables us to overcome a variety of operational and financial obstacles and come out stronger, refocusing on our growth.” In March, Tibus, a specialist in business reorganization, assumed leadership of the chain.
Red Lobster announced that it will keep running its 600 restaurants during the bankruptcy process with the intention of streamlining operations, closing certain locations, and increasing sales. Red Lobster entered into a “stalking horse” arrangement as part of the filing, indicating that it intends to sell its company to a company created and managed by its lenders.
Red Lobster operates 551 restaurants in the United States, 27 in Canada, and 27 franchised locations in Mexico, Japan, Ecuador, and Thailand, according to court documents. The company stated that 36,000 individuals work for it in the United States and Canada.
Red Lobster’s bankruptcy, according to Aaron Allen, the founder of the restaurant consulting business Aaron Allen & Associates, was the result of two decades of difficulties due to growing competition from quick-service and reasonably priced restaurants like Panera and Chipotle. Red Lobster occasionally dropped its prices to compete, a decision that frequently backfired. The corporation lost millions of dollars on its “Endless Crab” campaign in 2003, a time when crab prices skyrocketed. The chain repeated the move with the “Ultimate Endless Shrimp” promotion twenty years later.
That they would have this kind of corporate forgetfulness, said Allen, “makes for an interesting case study in corporate food service.”
He pointed out that Red Lobster experienced greater success in the middle of the 2000s after changing its image to one of an upscale eatery and remodeling its locations. Even so, it continued to face challenges from shifting consumer preferences and growing labor and leasing expenses.
According to Allen, this slow-moving train crash has been moving for the previous 20 years.
Red Lobster, an Orlando, Florida-based restaurant, stated in court documents that since 2019, its yearly guest count has decreased by 30%. In 2023, the chain experienced a $76 million deficit.
Bill Darden started Red Lobster with the goal of lowering the cost and increasing the accessibility of seafood restaurants for families. In 1938, Darden launched The Green Frog in Waycross, Georgia, marking the start of his restaurant business. Although it was illegal at the time under state law, he bravely refused to separate his clients based on race. Once more, he let patrons seat wherever they pleased when he launched the first Red Lobster location in the vicinity of Orlando in 1968.
In 1970, Darden sold Red Lobster to General Mills, where he remained an executive, managing the restaurants. Afterwards, General Mills founded Darden Restaurants, the company that runs the Olive Garden and other chains.
With recipes like Lobster Linguine and its buttery Cheddar Bay Biscuits, Red Lobster has a large following.
The comedian and actress Tina Fey claimed in her memoir “Bossypants” that “there isn’t a woman alive who doesn’t love Red Lobster’s Cheddar Biscuits.” “A socialist and a liar is anyone who says otherwise.”
But the restaurant found it difficult to draw in younger patrons and compete with other eateries. One of the biggest seafood suppliers in the world, Thai Union Group, made its initial investment in Red Lobster in 2016 and raised it again in 2020.
Red Lobster most recently suffered millions of dollars in losses from its “Ultimate Endless Shrimp” promotion, in which an all-you-can-eat shrimp meal cost $20.
We knew the price was low, but the goal was to get more customers into the restaurants, Thai Union Group CFO Ludovic Garnier said to analysts during an earnings call.Garnier claimed the agreement was successful and that traffic rose. But he added, We don’t make much money at $20, and more guests than expected chose the $20 deal.
Thai Union Group declared in January that it would be selling its minority stake in Red Lobster. According to CEO Thiraphong Chansiri, the COVID-19 epidemic, business obstacles, and growing operating expenses had a significant negative effect on the restaurant chain, resulting in sustained losses for Thai Union and its investors.
The equipment from more than 50 recently closed Red Lobster locations will be up for auction, according to a statement made last week by restaurant manager TAGeX Brands. Red Lobster’s presence is diminished in cities including Denver, San Antonio, Indianapolis, and Sacramento, California, as a result of these closures, which occur in more than 20 states.
Allen anticipates a one-third to half reduction in the number of Red Lobster locations as part of the bankruptcy process. Allen stated that the chain’s real estate is the main attraction for many prospective purchasers.
“Whoever buys it is probably not going to want to fix Red Lobster,” he said.
Red Lobster listed over 100,000 creditors and estimated assets between $1 billion and $10 billion in a court filing. Liabilities for the corporation are also believed to be between $1 billion and $10 billion.
