Red Lobster, known for their shrimp and lobster platters, has filed for bankrupcy protection.
The company, which has locations worldwide, said it has a debt of over $1 billion. They will be selling the restaurant business to its lenders, which will provide them with enough funds to stay afloat. In the meantime, several of its restaurants will be closing its doors.
Red Lobster, the largest seafood restaurant in America, opened its first location in Lakeland, Florida, in 1968. They have nearly 600 restaurants across the U.S. and Canada, with $2 billion in annual sales.
In recent months, however, inflation, competition, mismanagement, and other factors have brought the business down, according to former employees and analysts.
The company’s trend of underinvesting in food quality, marketing, and upgrades has also hurt its ability to compete with other quick-service and fast-casual restaurants.
History of Red Lobster
Red Lobster was started by Bill Darden and Charley Woodsby in 1968. By the 1980s, it was acquired by General Mills, who went on to expand the chain across the U.S. Not long afterward, they entered Canada.
In 2014, the business was sold for $2.1 billion to Golden Gate Capital, a private equity firm.
Since 2020, The Thai Union Group, a Thailand-based seafood distributor has been the company’s largest shareholder, owning 49 percent of the business.
Under Thai Union, however, the business struggled. Since 2019, the number of customers jave dropped 30 percent. The pandemic also put a dent in the numbers, though it has improved slightly in recent months.
Earlier this year, the seafood distributor said they will be divesting from Red Lobster, which translates to a loss of nearly $530 million.
According to former Red Lobster employees, it was Thai Union’s strategy mistakes and cost-cutting efforts that hurt the chain. One former executive, who agreed to speak under the condition of anonymity, said the shareholder had forced significant cost reductions, which hurt sales.
Since Thai Union became the largest shareholder, many of the company’s executives have also left. Since 2021, Red Lobster has had five different CEOs. Between 2021 and 2022, they also had a new CEO, chief financial officer, chief information officer, and chief marketing officer, all of which left within a couple of years.
Last summer, the restaurant chain turned its popular $20 limited-time endless shrimp offer into a permanent menu item, a decision that cost Red Lobster more than $11 million. While the change got more people in the door, many customers would stay at their tables for hours and eat nothing but the endless shrimp.
In its bankruptcy filling, the company said they will be investigating the circumstances of the endless shrimp promotion, which they consider to be one of the main causes for the huge loss.
Red Lobster also cut ties with two of its shrimp suppliers, which left them with an exclusive deal with Thai Union. That also resulted in higher costs, which ate into the profits.
The popularity of other fast-casual restaurants such as Chick-fil-A and Chipotle has also hurt the business.
Filing For Bankruptcy
They eventually ran out of cash, which meant they were unable to pay its vendors. According to its bankruptcy petition, they will be receiving a $100 million financing agreement, which will allow them to stay afloat in the U.S. in the meantime.
