Red Lobster, a notable seafood restaurant chain in the US, has succumbed to bankruptcy due to burdensome leases, soaring labour expenses, and an ill-advised unlimited shrimp offer. The Florida-based company, headquartered in Orlando, submitted its Chapter 11 bankruptcy petition on Sunday, revealing assets and liabilities ranging from $1 billion (£738,560,000) to $10 billion. This move will allow the restaurant to continue its operations while it formulates a plan to settle its debts.
The chain’s management intends to transfer control to its lenders and has secured their agreement to supply $100 million as financial aid to assist the company through its bankruptcy process.
The company’s performance had been on the decline for a few years, evidenced by a reduction in customer visits of approximately 30% since the year 2019, as stated by the CEO, Jonathan Tibus, in legal documents. Although there were hints of an improvement post-pandemic, the chain suffered a significant drop in sales in the recent year. Its financial losses for the fiscal year of 2023 totalled $76 million.
Various factors have strained Red Lobster’s finances, such as increased labour costs and the discouragement of dining out due to inflation. The company was also burdened by a significant number of leases priced higher than the market average. The restaurant chain saw a dramatic cost increase in May 2023 when they made their $20 “Ultimate Endless Shrimp” a regular offer rather than a temporary promotion, resulting in an $11 million loss.
Established in a single restaurant location in Lakeland, Florida, in 1968, Red Lobster rapidly grew over the years, gaining popularity particularly for its Cheddar Bay Biscuits. As of now, it operates over 550 outlets across the US and Canada.
Thai Union Group Plc, a leading seafood supplier, has owned the chain since 2020. The company caters to 64 million customers annually and purchases a significant portion of all North American and worldwide lobster tails and rock lobsters. Failed negotiations with lenders for a deal that would entitle creditors to 80% ownership of the company have taken place. The lenders did grant additional loans amounting to $20 million to Red Lobster in February, but any further contributions were refused without the owner’s support, as per legal documents.
Red Lobster is conducting an inquiry into the shrimp transaction, scrutinising the product’s restaurant marketing strategies and questioning whether Thai Union wielded disproportionate power over shrimp acquisitions. The company has a workforce of 34,000 in the United States, supplemented by a further 2,000 in Canada. Recently, it had to close down 93 branches that were not profitable. – Bloomberg