Seafood restaurant chain Red Lobster has filed for bankruptcy, citing burdensome leases, high labor costs, and a failed unlimited shrimp promotion. The Orlando, Florida-based company sought Chapter 11 protection on Sunday, reporting assets and liabilities each ranging from $1 billion to $10 billion in its bankruptcy petition. This filing allows the company to continue operations while developing a plan to repay creditors.
Red Lobster intends to transfer control of the company to its lenders, who have agreed to provide $100 million in financing to support the chain through the bankruptcy process.
The restaurant chain’s performance has been declining for several years, with customer visits down approximately 30% since 2019, as noted by Chief Executive Officer Jonathan Tibus in court documents. Although the business showed signs of recovery post-pandemic, sales have significantly dropped over the past year, according to Tibus. The company reported a loss of $76 million in the 2023 fiscal year.
Rising inflation has deterred customers from dining out, and increased labor costs have further strained the company’s finances. A significant portion of Red Lobster’s leases were above market rates. In May 2023, the company turned its $20 “Ultimate Endless Shrimp” from a limited-time offer into a permanent promotion, leading to an $11 million loss as customers took advantage of the expensive shrimp dishes.
Red Lobster began as a single restaurant in Lakeland, Florida, in 1968. It quickly expanded in the 1970s and 1980s, gaining a loyal following for its Cheddar Bay Biscuits. Today, the company operates over 550 restaurants across the US and Canada.
Since 2020, Red Lobster has been owned by seafood supplier Thai Union Group Plc. The chain serves 64 million customers annually and buys 20% of all North American lobster tails, as well as 16% of all rock lobsters worldwide.
Recently, Thai Union and Red Lobster engaged in discussions with lenders to reach an out-of-court agreement that would give creditors 80% of the company. However, these talks failed. In February, lenders provided Red Lobster with an additional $20 million loan but were reluctant to contribute more without the owner’s backing, according to court documents.
Red Lobster is also examining the shrimp promotion, scrutinizing its marketing strategies and Thai Union’s potential influence on shrimp purchases.
The chain employs 34,000 people in the US and another 2,000 in Canada. Last week, it closed 93 underperforming locations.
The bankruptcy case is filed under Red Lobster Management LLC, 24-02486, in the US Bankruptcy Court for the Middle District of Florida.
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