Red Lobster files for bankruptcy protection shortly after shutting down numerous locations

Red Lobster Files for Chapter 11 Bankruptcy Protection

Red Lobster, the iconic casual dining chain known for popularizing seafood with creations like popcorn shrimp and "endless" seafood deals, has filed for Chapter 11 bankruptcy protection.

The 56-year-old chain made the filing late Sunday, shortly after closing dozens of restaurants.

CEO Jonathan Tibus stated, "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." Tibus, a corporate restructuring expert, took on the role in March.

Despite the bankruptcy, Red Lobster plans to keep its 600 restaurants open during the proceedings. The process aims to streamline operations, close underperforming locations, and pursue a sale. As part of the filing, Red Lobster has entered into a "stalking horse" agreement, indicating an intent to sell the business to an entity formed and controlled by its lenders.

Court documents reveal Red Lobster operates 551 restaurants in the U.S., 27 in Canada, and 27 franchised locations in Mexico, Japan, Ecuador, and Thailand. The company employs 36,000 people across the U.S. and Canada.

Aaron Allen, founder of restaurant consulting firm Aaron Allen & Associates, attributed the bankruptcy to two decades of difficulties. Increased competition from fast-casual chains like Chipotle and Panera put pressure on Red Lobster, leading to occasional disastrous price cuts. In 2003, the company lost millions on an all-you-can-eat "Endless Crab" promotion when crab prices surged. A similar issue occurred in 2023 with the "Ultimate Endless Shrimp" promotion.

"The fact that they would have this kind of corporate amnesia is a fascinating case study in corporate food service," Allen remarked.

In the mid-2000s, Red Lobster saw some success by repositioning as an upscale restaurant, raising prices, and renovating stores. However, rising lease and labor costs, along with shifting consumer tastes, continued to pose challenges.

"This slow-moving train wreck has been in motion for 20 years now," Allen said.

Orlando-based Red Lobster reported in court filings that its annual guest counts dropped by 30% since 2019, and the chain lost $76 million in 2023.

Red Lobster was founded by Bill Darden, who aimed to make seafood accessible and affordable for families. Darden's first restaurant, The Green Frog, opened in 1938 in Waycross, Georgia, was notable for its desegregated seating, a bold move against state laws at the time. He opened the first Red Lobster near Orlando in 1968 with the same inclusive policy.

Darden sold Red Lobster to General Mills in 1970, continuing to run restaurants as a General Mills executive. General Mills later formed Darden Restaurants, which owns Olive Garden and other chains. Darden Restaurants was spun off in 1995.

Red Lobster became beloved for dishes like lobster linguini and Cheddar Bay biscuits. Comedian Tina Fey famously praised the biscuits in her memoir, "Bossypants."

However, the chain struggled to keep up with competitors and attract younger customers. Darden Restaurants sold Red Lobster to a private equity firm in 2014. Thai Union Group, a major seafood supplier, invested in Red Lobster in 2016 and increased its stake in 2020.

Last fall, Red Lobster lost millions on the "Ultimate Endless Shrimp" promotion, offering all-you-can-eat shrimp for $20. Ludovic Garnier, CFO of Thai Union Group, acknowledged the promotion increased traffic but noted, "We don’t earn a lot of money at $20." Thai Union Group reported a $19 million loss from Red Lobster in the first nine months of 2023.

In January, Thai Union Group announced plans to exit its minority investment in Red Lobster, citing the COVID-19 pandemic, industry challenges, and rising costs as factors leading to prolonged financial losses.

Restaurant liquidator TAGeX Brands recently announced an auction of equipment from over 50 closed Red Lobster locations, spanning more than 20 states, including Denver, San Antonio, Indianapolis, and Sacramento.

Allen predicts that Red Lobster's footprint could shrink by one-third to one-half during the bankruptcy process, with potential buyers mainly interested in the chain's real estate.

Red Lobster reported in its court filing that it has over 100,000 creditors, with estimated assets and liabilities both ranging between $1 billion and $10 billion.