Red Lobster files for bankruptcy

Red Lobster files for bankruptcy

Red Lobster, which brought affordable shrimp and lobster to middle-class America and grew into the world’s largest seafood restaurant chain, has filed for bankruptcy.

The company said it has more than $1 billion in debt and less than $30 million in cash on hand. It plans to sell its business to its lender, and in turn, it will receive financing to stay afloat. It expects to continue closing restaurants in the meantime.

Red Lobster, famous for its cheddar bay biscuits, crab leg and shrimp dishes, spread across the country in the 1980s and 1990s. In 2016, Beyonc√© mentioned Red Lobster in her song “Formation,” describing taking a romantic partner to Red Lobster, causing sales to skyrocket.

With 578 restaurants in 44 states and Canada, Red Lobster serves 64 million customers a year, and it brings in $2 billion in annual sales, the company said in its bankruptcy filing. One in five lobsters purchased in North America is purchased by Red Lobster.

But recent mismanagement, competition, inflation and other factors brought Red Lobster down, say analysts and former Red Lobster employees.

Years of underinvestment in Red Lobster’s marketing, food quality, service and restaurant upgrades hurt the chain’s ability to compete with growing fast-casual and quick-service chains.

Pioneer chain
Red Lobster was started in 1968 by Bill Darden, an architect of the casual dining revolution in America, and General Mills soon bought the restaurant. Red Lobster later became part of Darden Restaurants, owner of Olive Garden and other chains.

In 2014, Darden sold Red Lobster to Golden Gate Capital, a private equity firm, for $2.1 billion. Since 2020, seafood distributor Thai Union Group, based in Thailand, has been Red Lobster’s largest shareholder. Thai Union owns 49% of the company.

But Red Lobster has struggled under Thai Union.

The number of customers coming to Red Lobster declined 30% since 2019 and has improved only slightly since the outbreak. Earlier this year, Thai Union said it would divest from Red Lobster and take a $530 million loss on its investment.

Former Red Lobster employees say Thai Union’s cost-cutting efforts and strategic mistakes hurt the chain.

“The Thai union is forcing a lot of cost cutting, including a lot of smart and stupid because it’s affecting sales,” a former Red Lobster executive who spoke on condition of anonymity because of a non-disclosure agreement with the company told CNN earlier this month. Thai Union did not respond to a request for comment on the article.

Red Lobster executives began competing under Thai Union management, resulting in a significant amount of C-suite churn. Red Lobster has had five CEOs since 2021. In 2021 and 2022, Red Lobster brought in a new CEO, chief marketing officer, chief financial officer and chief information officer. All gone within two years.

Last summer, under Thai Union, Red Lobster turned the $20 bottomless shrimp into a permanent item on the menu for the first time, instead of its traditional limited-time offer. The change cost the company $11 million and reduced Thai Union’s profits. In its bankruptcy filing, Red Lobster said it was investigating the circumstances of the promotion, which the company’s management opposed.

“We have to be more careful,” Thai Union CFO Ludovic Garnier said on an earnings call in November 2023.

But the company in its bankruptcy filing blamed Thai Union for the loss. Realizing that under the guise of a “quality check,” Red Lobster eliminated two of its breaded shrimp suppliers, leaving Thai Union with an exclusive deal. This leads to higher costs for the restaurant chain, and does not adhere to the company’s normal decision-making process of selecting suppliers based on projected demand.

The rapid growth and popularity of fast-casual chains like Chipotle and quick-service chains like Chick-fil-A over the past two decades has also squeezed Red Lobster.

Casual dining has declined from 36% of total restaurant industry sales in 2013 to 31% in 2023, according to Technomic, a restaurant research firm.

In its bankruptcy filing, Red Lobster acknowledged it had a “bloated and underperforming restaurant footprint” and cited a tough economic environment and increased competition for its recent financial failures.

Bankruptcy plan
Red Lobster has been telegraphing its bankruptcy for months.

In January, the company hired Jonathan Tibus, a restructuring veteran, to evaluate its business. It named Tibus as CEO in March. Last week, the company began closing 93 restaurants in preparation for bankruptcy.

As it ran out of cash, the company stopped paying its vendors last year.

The company plans to stay afloat with a $100 million financing agreement, it said in its bankruptcy petition.

About Kepala Bergetar

Kepala Bergetar Kbergetar Live dfm2u Melayu Tonton dan Download Video Drama, Rindu Awak Separuh Nyawa, Pencuri Movie, Layan Drama Online.

Leave a Reply

Your email address will not be published. Required fields are marked *