Iconic Restaurant Chain With 34,000+ Employees Files For Bankruptcy

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Red Lobster, the iconic seafood restaurant chain, has filed for Chapter 11 bankruptcy protection amid a perfect storm of financial challenges.

The Orlando-based company, which has been a staple of American dining for over five decades, cited onerous leases, rising labor costs, and a disastrous unlimited shrimp promotion as key factors in its decision to seek court protection.

According to court filings, Red Lobster’s assets and liabilities each fall within the range of $1 billion to $10 billion.

The company plans to continue operating its more than 550 restaurants across the United States and Canada while it develops a plan to restructure its debt and repay creditors.

As part of this process, Red Lobster’s lenders have agreed to provide $100 million in financing to support the chain through the bankruptcy proceedings.

Chief Executive Officer Jonathan Tibus revealed in court papers that the restaurant chain had been experiencing a steady decline in customer traffic, with diners down approximately 30% since 2019.

Despite showing signs of recovery in the wake of the pandemic, the company suffered a sharp decline in sales over the past 12 months, resulting in a staggering $76 million loss in the 2023 fiscal year.

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Tibus attributed the company’s financial woes to a combination of factors, including inflationary pressures that have deterred customers from dining out and higher labor costs that have strained Red Lobster’s finances.

Additionally, a significant portion of the company’s leases were priced above market rates, further exacerbating its financial difficulties.

Perhaps most notably, Red Lobster’s decision to convert its popular “$20 Ultimate Endless Shrimp” promotion from a limited-time offer to a permanent menu item in May 2023 proved to be a costly misstep.

The promotion, which allowed diners to indulge in unlimited plates of shrimp, cost the company an estimated $11 million as customers enthusiastically took advantage of the offer.

Red Lobster, which traces its roots back to a single restaurant in Lakeland, Florida in 1968, has been a significant player in the seafood industry for decades.

The company now operates more than 550 restaurants across the United States and Canada, serving approximately 64 million customers annually.

Red Lobster is also a major purchaser of seafood, accounting for 20% of all North American lobster tails and 16% of all rock lobsters worldwide.

The restaurant chain has been owned by seafood supplier Thai Union Group Plc since 2020.

Prior to the bankruptcy filing, Thai Union and Red Lobster had been engaged in discussions with lenders to reach an out-of-court agreement that would have granted creditors an 80% stake in the company. However, these talks ultimately fell through, and despite lenders providing an additional $20 million in loans to Red Lobster in February, they were unwilling to invest further without support from the owner.

As part of the bankruptcy proceedings, Red Lobster has announced that it will investigate the shrimp deal, including how it was marketed in restaurants and whether Thai Union “exercised an outsized influence” on shrimp purchases.

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The bankruptcy filing has also had an immediate impact on Red Lobster’s workforce, which includes 34,000 employees in the United States and an additional 2,000 in Canada.

Last week, the company closed 93 underperforming stores in an effort to streamline its operations and reduce costs.

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