(Bloomberg) — Seafood chain Red Lobster has filed for bankruptcy, citing onerous leases, high labor costs and a disastrous all-you-can-eat 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 filing allows the company to continue operating while it works out a plan to repay creditors.
Red Lobster plans to transfer control of the company to its lenders, led by Fortress Investment Group, which has agreed to provide $100 million in financing to support the chain through bankruptcy. The takeover bid takes the form of a stalking horse bid, meaning it will set the floor price for Red Lobster’s assets and better bids will follow if anything materializes in the coming weeks, court documents show.
The restaurant chain had been in decline for years, with diners down about 30% since 2019, Chief Executive Officer Jonathan Tibus wrote in court filings. Although the company has shown signs of recovery since the pandemic, sales fell sharply over the past twelve months, Tibus writes. It lost $76 million in fiscal 2023.
Inflationary pressures have discouraged customers from dining out and higher labor costs are straining the company’s finances. A “material portion” of Red Lobster’s leases were priced above market. In May 2023, the company changed its $20 “Ultimate Endless Shrimp” from a limited-time offer to a permanent promotion, costing it $11 million as guests devoured expensive plates of shrimp.
Red Lobster traces its origins to one restaurant in Lakeland, Florida in 1968. It expanded rapidly in the 1970s and 1980s, developing a loyal following for its Cheddar Bay Biscuits. The company now operates more than 550 restaurants in the US and Canada.
The restaurant chain, owned since 2020 by seafood supplier Thai Union Group Plc, serves 64 million customers a year and buys 20% of all North American lobster tails, as well as 16% of all rock lobster worldwide.
Thai Union and Red Lobster were in talks with lenders about an out-of-court deal that would give creditors 80% of the company, but the talks failed. Lenders made additional $20 million in loans to Red Lobster in February but were unwilling to commit more money without owner support, according to court documents.
Red Lobster said it is also investigating the shrimp deal, including how it was marketed in restaurants and whether Thai Union “exercised undue influence” over shrimp purchases.
The chain employs 34,000 people in the US and another 2,000 in Canada. Last week it closed 93 underperforming stores.
The case is Red Lobster Management LLC, 24-02486, US Bankruptcy Court for the Middle District of Florida.
–With help from Jonathan Randles.
(Updates with lender details in third paragraph.)
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