Red Lobster seeks bankruptcy protection days after closing dozens of restaurants
Red Lobster, the casual dining chain that won fans with inventions like popcorn shrimp and “endless” seafood deals, has filed for Chapter 11 bankruptcy protection.
The 56-year-old chain filed the application late Sunday, days after dozens of restaurants closed.
“This restructuring is the best path forward for Red Lobster. It allows us to address various financial and operational challenges and emerge stronger and refocus on our growth,” said Red Lobster CEO Jonathan Tibus, a corporate restructuring expert who took the top position at the chain in March.
Red Lobster said it will use the bankruptcy proceedings to simplify its operations, close restaurants and pursue a sale. As part of the filings, Red Lobster has entered into a so-called stalking horse agreement, meaning it plans to sell its business to an entity formed and controlled by its lenders.
The Orlando, Florida-based chain was founded by Bill Darden, who wanted to make seafood restaurants more accessible and affordable for families. Darden sold Red Lobster to General Mills in 1970. General Mills later founded Darden Restaurants, owner of Olive Garden and other chains, and spun off the company in 1995.
In recent years, Red Lobster has faced increasing competition from fast-casual chains like Chipotle and rising lease and labor costs. The all-you-can-eat shrimp and lobster offerings also became increasingly expensive.
Last fall, Red Lobster lost millions of dollars with its Ultimate Endless Shrimp promotion, which charged $20 for an unlimited shrimp deal.
“We knew the price was cheap, but the idea was to attract more visitors to the restaurants,” Ludovic Garnier, chief financial officer of Thai Union Group, former co-owner of Red Lobster, said in a call with investors.
Garnier said the deal worked and restaurant traffic increased. But more guests opted for the $20 deal than Red Lobster expected, Garnier said, adding, “We’re not making a lot of money at $20.” For the first nine months of 2023, Thai Union Group – one of the world’s largest seafood suppliers – reported a $19 million share of Red Lobster’s losses.
In January, Thai Union Group announced its intention to withdraw its minority investment in Red Lobster. CEO Thiraphong Chansiri said the COVID-19 pandemic, industry headwinds and rising operating costs had hit the dining chain hard and caused “prolonged negative financial contributions to Thai Union and its shareholders”.
Thai Union Group first invested in Red Lobster in 2016 and increased its stake in 2020.
Restaurant liquidator TAGeX Brands announced last week that it would auction off equipment from more than 50 Red Lobster locations that recently closed. The store closures span more than two dozen states, reducing Red Lobster’s presence in cities such as Denver, San Antonio, Indianapolis and Sacramento, California.
The seafood restaurant chain said in a lawsuit that it has more than 100,000 creditors and an estimated net worth of between $1 billion and $10 billion. The company’s estimated liabilities are between $1 billion and $10 billion.
Red Lobster has 700 locations worldwide.