Red Lobster Seeks Bankruptcy Protection Days After Closing Dozens Of Restaurants

With innovations like popcorn shrimp and “endless” seafood offers, Red Lobster, the casual dining restaurant that popularized seafood, has filed for Chapter 11 bankruptcy protection.

The 56-year-old chain filed late on Sunday following the closure of numerous locations.

“Red Lobster’s best course of action in the future is this restructure. CEO Jonathan Tibus stated, “It enables us to overcome multiple operational and financial obstacles and come out stronger and refocused on our growth.” Expert in corporate reorganization, Tibus assumed the company’s senior position in March.

Red Lobster seeks bankruptcy | Pixa Bay Image

Red Lobster Seeks Bankruptcy Protection Days After Closing Dozens Of Restaurants

Red Lobster announced that its restaurants will stay open during the bankruptcy process, which aims to streamline operations, close locations, and explore a sale. As part of the filing, Red Lobster entered into a “stalking horse” arrangement, which means it intends to sell the company to a company created and managed by its lenders.

According to Aaron Allen, the founder of the restaurant consulting business Aaron Allen & Associates,s bankruptcy was the result of two decades of problems for the company. The company has faced rising competition from quicker-moving, less expensive restaurants like Panera and Chipotle.

Red Lobster occasionally drops its prices to compete, a frequently catastrophic strategy. When crab prices increased in 2003, the company lost millions of dollars on an all-you-can-eat “Endless Crab” campaign, according to Allen. Twenty years later, the chain repeated the same strategy with an “Ultimate Endless Shrimp” campaign.

“It’s an interesting case study in corporate food service that they would have this kind of corporate amnesia,” Allen remarked.

He claimed it saw greater success after Red Lobster rebranded itself as an upscale eatery in the middle of the 2000s. It remodeled stores and increased pricing. However, it continued to face challenges from shifting consumer preferences and growing labor and leasing expenses.

Allen stated, “This slow-moving train wreck has been in motion for the past 20 years.”

Based in Orlando, Florida, Bill Darden started the resturant to lower costs and increase the accessibility of seafood restaurants for families.

Red Lobster seeks bankruptcy | AP Image

Red Lobster Seeks Bankruptcy Protection Days After Closing Dozens Of Restaurants

In 1938, Darden launched The Green Frog in Waycross, Georgia, marking his entry into the restaurant industry. Even though it was against the law then, he dared not separate the restaurant’s guests based on race. Again, he let patrons seat wherever they pleased when he launched the first location in Orlando in 1968.

In 1970, Darden sold it to General Mills, where he remained an executive and continued to operate restaurants. Afterward, General Mills founded Darden Restaurants, which owns Olive Garden and several other brands. In 1995, Darden Restaurants separated from General Mills.

Red Lobster attracted hordes of devotees for meals like lobster linguini and its buttery Cheddar Bay biscuits

Nobody who was born in the world could not enjoy Red Lobster cheddar biscuits. In her memoir “Bossypants,” comedian and actress Tina Fey stated, “Anyone who claims otherwise is a liar and a socialist.”

However, the restaurant needed help to attract younger patrons and stay competitive with other eateries. In 2014, Darden Restaurants sold to a private equity firm. One of the biggest seafood suppliers in the world, Thai Union Group, made its initial investment in Red Lobster in 2016 and increased it again in 2020.

Then, during its “Ultimate Endless Shrimp” promotion last fall, they lost millions of dollars by charging $20 for an all-you-can-eat shrimp feast.

In an earnings call with investors, Thai Union Group’s chief financial officer, Ludovic Garnier, stated, “We knew the price was cheap, but the idea was to bring more traffic in the restaurants.

Garnier reported that restaurant traffic increased as a result of the transaction. However, more customers than Red Lobster had anticipated chose the $20 offer, and “we don’t earn a lot of money at $20,” he said. Thai Union Group reported a $19 million loss from Red Lobster for the first nine months of 2023.

Thai Union Group declared in January that it would sell its minority stake in Red Lobster. According to CEO Thiraphong Chansiri, the COVID-19 epidemic, business challenges, and growing operating expenses have severely impacted the restaurant chain and resulted in “prolonged negative financial contributions to Thai Union and its shareholders.”

Red Lobster seeks bankruptcy | AP – VOR News Image

Red Lobster Seeks Bankruptcy Protection Days After Closing Dozens Of Restaurants

According to a statement made last week by restaurant liquidator TAGeX Brands, the equipment from more than 50 recently closed Red Lobster locations will be up for sale. As a result of the restaurant closures, which are occurring in over 20 states, Red Lobster’s footprint is being diminished in places such as Denver, San Antonio, Indianapolis, and Sacramento, California.

Allen anticipates that due to the bankruptcy proceedings, 700-restaurant network will decrease by one-third to half. All that many prospective purchasers seek is the chain’s real estate.

He predicted the buyer would likely want to keep Red Lobster the same.

In the court statement, Red Lobster stated that its assets are believed to be between $1 billion and $10 billion, with over 100,000 creditors. The corporation’s liabilities are between $1 billion and $10 billion.

SOURCE – (AP)