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Popular American seafood chain Red Lobster has filed for Chapter 11 bankruptcy protection, citing a “difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives, and increased competition,” CNBC reports.
Last week, the chain abruptly closed approximately 100 locations around the United States.
Major American Restaurant Chain Shutters Approximately 100 Locations Nationwide
"Red Lobster's restaurants will remain open and operating as usual during the Chapter 11 process, continuing to be the world's largest and most-loved seafood restaurant company. The Company has been working with vendors to ensure that operations are unaffected and has received a $100 million debtor-in-possession ('DIP') financing commitment from its existing lenders," the company said in a press release.
"The Company intends to use the proceedings to drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets as a going concern. As part of these filings, Red Lobster has entered into a stalking horse purchase agreement pursuant to which Red Lobster will sell its business to an entity formed and controlled by its existing term lenders," it continued.
Red Lobster has filed for Chapter 11 protection.
It's one of the largest restaurant bankruptcies in recent years. https://t.co/EloGOy38Nd
— Axios (@axios) May 20, 2024
Per CNBC:
The chain’s real estate portfolio is also a “huge problem” created, in part, by Red Lobster’s former owners Golden Gate Capital, a source familiar with the company told CNBC. When Darden Restaurants sold Red Lobster to the private equity firm in 2014, it funded the $2.1 billion acquisition partially through a $1.5 billion sale-leaseback agreement, the companies said previously.
Under the terms of the arrangement, the majority, if not all, of Red Lobster’s locations were sold off, and the chain had to start paying rent on properties it once owned while Golden Gate reaped the profits, the source said. At the time, it was tough to predict that Red Lobster would see sales drop as much as they have. Given how much revenue has fallen, the chain can no longer afford those leases.
Red Lobster currently operates 551 locations in the U.S. and 27 restaurants in Canada. The chain closed 93 underperforming locations on May 13 and is asking the bankruptcy court to reject 108 of its leases to further slim down its footprint.
The company has 36,000 employees, most of whom work in part-time roles.
Red Lobster files for bankruptcy and blames it on the company's endless shrimp promotions. RIP Cheddar Bay Biscuits, the end of an era
pic.twitter.com/nidPyFaAID
— Barchart (@Barchart) May 20, 2024
"This restructuring is the best path forward for Red Lobster. It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth. The support we've received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests," CEO Jonathan Tibus said.
From the New York Post:
Red Lobster’s top executive claimed there was something fishy about the involvement of its largest shareholder in the ill-fated all-you-can-eat shrimp promotion as the nation’s largest seafood chain filed for bankruptcy.
The Orlando, Fla.-based chain filed for Chapter 11 protection late Sunday after unexpectedly shuttering nearly 100 locations last week.
Red Lobster, which had 650 locations before the closures, was partly pushed to the brink by its $20 unlimited shrimp promotion last summer, which caused largest shareholder Thai Union to write off $530 million in the fourth quarter.
CEO Jonathan Tibus disclosed that the company is investigating Thai Union’s role in the shrimp fiasco, alleging the Thailand-based seafood company — which owns a 49% stake in Red Lobster — “exercised an outsized influence on the [company’s] shrimp purchasing,” according to the filing.
Tibus pinned blame on a previous CEO, Paul Kenny, who made the decision in May 2023 to implement the $20 unlimited shrimp promotion as a permanent menu item “despite significant pushback from other members of the company’s management team,” the filing said.
