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Red Lobster files for Chapter 11 bankruptcy protection
Red Lobster is closing at least 48 of its restaurants
Red Lobster, the national restaurant chain known for its affordable seafood and cheddar bay biscuits, said Sunday night that it has filed for Chapter 11 bankruptcy protection.
In a statement, Red Lobster he said plans to sell “substantially all” of its assets. The company, which reported about $294 million in outstanding debt, added that its approximately 650 restaurants will remain open and operating during the bankruptcy process.
“This restructuring is the best path forward for Red Lobster,” CEO Jonathan Tibus said in the statement. “This allows us to weather numerous financial and operational challenges and emerge stronger and refocused on our growth. The support we receive from our lenders and suppliers will help ensure we can complete the sale process quickly and efficiently while remaining focused on our employees and guests.”
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The bankruptcy filing comes a week after a company that helps companies liquidate restaurant equipment revealed that Red Lobster planned to close around 50 of its restaurants.
The chain is partly owned by Thai seafood producer Thai Union, which first invested in Red Lobster in 2016. In January, the company announced plans to sell its stake, with CEO Thiraphong Chansiri saying the pandemic, higher interest rates and rising material and labor costs have hurt Red Lobster’s financial performance.
Pandemic pain
Red Lobster’s roots date back to 1968, when the first restaurant open in Lakeland, Florida, as a family-run establishment under local restaurateur Bill Darden. The restaurant eventually expanded across the country, allowing Americans from all corners of the U.S. to enjoy crab, shrimp, lobster and other seafood.
In cut filings, Red Lobster said its financial position has declined in recent years due to declining customer numbers, rising food costs due to inflation and the need to prop up underperforming locations. The company has seen about a 30% decline in customer visits since 2019, documents show. For fiscal 2023, Red Lobster reported a net loss of $76 million.
As sales and customer visits fell, Red Lobster paid $190.5 million in rent in 2023 — about $64 million in underperforming stores. Renegotiating or terminating leases at these stores will be a big part of Red Lobster’s organization, said Judah Gross, senior director at Fitch Ratings.
The end of “endless shrimp”
Another financial challenge was that the restaurant chain was limited in where it could buy seafood because Thai Union “exercised an outsized influence on the company’s shrimp purchases,” Red Lobster said in its lawsuit.
Red Lobster also attributed its decline to the “endless shrimp” promotion, which debuted in 2004 as an annual all-you-can-eat offering. However, former CEO Paul Kenny decided to make the deal a permanent menu item, at a cost of $20 per order, “despite significant resistance from other members of the company’s management team,” court documents state. The promotion led to more losses to the Thai Union, court documents state.
“The company disclosed in its [bankruptcy] stating that they are currently investigating whether the actions taken [by] Kenny and Thai Union were appropriate and consistent with the duties and obligations applicable to Red Lobster,” Gross said in an email to CBS MoneyWatch.