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Red Lobster Chain Goes Bankrupt After Unlimited Shrimp Deal
(Bloomberg) — Seafood restaurant chain Red Lobster has filed for bankruptcy, succumbing to onerous leases, high labor costs and a disastrous, unlimited shrimp promotion.
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The Orlando, Florida-based company filed for Chapter 11 protection on Sunday, listing assets and liabilities of $1 billion to $10 billion each in its bankruptcy filing. The order allows the company to continue operating while it works out a plan to pay creditors.
Red Lobster plans to hand over control of the company to its creditors, who have agreed to provide $100 million in financing to support the chain through bankruptcy.
The restaurant chain has been deteriorating for several years, with a roughly 30% drop in customers since 2019, CEO Jonathan Tibus wrote in court documents. While the business has shown signs of recovery since the pandemic, sales have fallen sharply over the past 12 months, Tibus wrote. It lost $76 million in fiscal 2023.
Inflationary pressures kept customers from dining out, and higher labor costs strained the company’s finances. A “significant portion” of Red Lobster’s leases were valued above market rates. In May 2023, the company changed its $20 “Ultimate Endless Shrimp” from a limited-time offer to an ongoing promotion, costing $11 million as customers devoured expensive shrimp dishes.
Red Lobster traces its roots to a single restaurant in Lakeland, Florida, in 1968. It expanded rapidly in the 1970s and 1980s and developed a loyal following for its Cheddar Bay biscuits. The company now operates more than 550 restaurants in the U.S. and Canada .
The restaurant chain, which has been owned by seafood supplier Thai Union Group Plc since 2020, serves 64 million customers a year and purchases 20% of all North American lobster tails as well as 16% of all lobsters in the United States. world.
Thai Union and Red Lobster were in negotiations with creditors for an out-of-court settlement that would hand creditors 80% of the company, but the discussions failed. Lenders extended additional loans worth $20 million to Red Lobster in February, but were unwilling to invest more money without the owner’s support, according to court documents.
Red Lobster said it is also investigating the shrimp business, including how it was marketed in restaurants and whether Thai Union “exerted a disproportionate influence” on shrimp purchases.
The story continues
The chain employs 34 thousand people in the USA and another 2 thousand in Canada. Last week, it closed 93 underperforming stores.
The case is Red Lobster Management LLC, 24-02486, U.S. Bankruptcy Court for the Middle District of Florida.
(Updates with additional details)
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