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| Red Lobster has closed more than 50 locations across the country and is auctioning off their contents. |
Red Lobster, the casual dining chain known for its seafood innovations like popcorn shrimp and "endless" seafood deals, has filed for Chapter 11 bankruptcy protection.
The 56-year-old chain made the filing late Sunday, following the closure of dozens of its restaurants.
“This restructuring is the best path forward for Red Lobster. It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth,” said CEO Jonathan Tibus, a corporate restructuring expert who took the helm in March.
Red Lobster announced that its 600 restaurants will continue to operate during the bankruptcy proceedings, which aim to simplify operations, close certain locations, and pursue a sale. As part of the filing, Red Lobster entered into a "stalking horse" agreement to sell its business to an entity formed by its lenders.
Court filings reveal that Red Lobster operates 551 restaurants in the U.S., 27 in Canada, and 27 franchised locations in Mexico, Japan, Ecuador, and Thailand. The company employs 36,000 people in the U.S. and Canada.
According to Aaron Allen, founder of restaurant consulting firm Aaron Allen & Associates, the bankruptcy marks the culmination of two decades of struggles at Red Lobster, which faced increasing competition from faster, cheaper chains like Chipotle and Panera.
In an attempt to compete, Red Lobster occasionally lowered its prices, sometimes disastrously. In 2003, the chain lost millions on an all-you-can-eat "Endless Crab" promotion due to rising crab prices. A similar situation occurred twenty years later with the "Ultimate Endless Shrimp" promotion.
“This kind of corporate amnesia is a fascinating case study in corporate food service,” Allen commented.
Red Lobster experienced some success in the mid-2000s by repositioning itself as an upscale restaurant, raising prices, and renovating stores. However, it continued to struggle with rising lease and labor costs and changing consumer preferences.
“This slow-moving train wreck has been in motion for 20 years now,” Allen remarked.
In court filings, the Orlando, Florida-based company reported that its annual guest counts were down 30% from 2019, and it lost $76 million in 2023.
Founded by Bill Darden in 1968, Red Lobster aimed to make seafood more accessible and affordable for families. Darden, who began his restaurant career in 1938 with The Green Frog in Waycross, Georgia, sold Red Lobster to General Mills in 1970. General Mills later formed Darden Restaurants, which owns Olive Garden and other chains. Darden Restaurants was spun off from General Mills in 1995.
Red Lobster became famous for dishes like lobster linguini and its buttery Cheddar Bay biscuits. Comedian Tina Fey once quipped in her memoir “Bossypants” that “no one of-woman-born does not like Red Lobster cheddar biscuits.”
Despite its popularity, Red Lobster struggled to attract younger customers and keep up with competitors. Darden Restaurants sold Red Lobster to a private equity firm in 2014. Thai Union Group, one of the world’s largest seafood suppliers, invested in Red Lobster in 2016 and increased its stake in 2020.
However, Red Lobster faced significant financial challenges, including a loss from its "Ultimate Endless Shrimp" promotion, which charged $20 for all-you-can-eat shrimp.
“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” said Ludovic Garnier, CFO of Thai Union Group, during an investor call. Despite increased traffic, the promotion was not profitable.
In January, Thai Union Group announced plans to exit its minority investment in Red Lobster, citing the impact of the COVID-19 pandemic, industry challenges, and rising operating costs.
Last week, restaurant liquidator TAGeX Brands announced an auction of equipment from over 50 recently closed Red Lobster locations across more than 20 states, reducing the chain's presence in cities like Denver, San Antonio, Indianapolis, and Sacramento.
Allen predicts Red Lobster's footprint will shrink by one-third to one-half as part of the bankruptcy process, with many potential buyers interested mainly in the chain's real estate.
Red Lobster’s court filing lists over 100,000 creditors and estimates its assets and liabilities each between $1 billion and $10 billion.
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