Red Lobster Chain Goes Bankrupt After Unlimited Shrimp Deal

Red Lobster Chain Goes Bankrupt After Unlimited Shrimp Deal

(Bloomberg) — Seafood restaurant chain Red Lobster has filed for bankruptcy, succumbing to expensive leases, high labor costs and disastrous unlimited shrimp promotion.

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The Orlando, Fla.-based company filed for Chapter 11 protection on Sunday, listing assets and liabilities of between $1 billion and $10 billion each in its bankruptcy filing. The filing allows the business to continue operating while it develops a plan to repay creditors.

Red Lobster plans to hand over control of the business to its lenders, led by Fortress Investment Group, who have agreed to provide $100 million in financing to support the chain through bankruptcy. The buyout offer is in the form of a repurchase offer, meaning it will set the floor price for Red Lobster’s assets and is subject to better offers if they materialize within weeks to come, according to court documents.

The restaurant chain has been deteriorating for several years, with attendance down about 30% since 2019, CEO Jonathan Tibus wrote in court documents. Although the company has shown signs of recovery since the pandemic, sales have declined sharply over the past 12 months, Tibus wrote. It lost $76 million in fiscal 2023.

Inflationary pressures kept customers from dining out and rising labor costs strained the company’s finances. A “significant portion” of Red Lobster’s leases were priced above market rates. In May 2023, the company changed its $20 “Ultimate Endless Shrimp” offer from a limited-time offer to an ongoing promotion, costing it $11 million as diners devoured plates of expensive shrimp.

Red Lobster traces its roots to a single restaurant in Lakeland, Florida in 1968. It grew rapidly in the 1970s and 1980s and developed a loyal following for its Cheddar Bay Biscuits. The company now operates more than 550 restaurants in the United States and Canada.

The restaurant chain, which has been owned by seafood supplier Thai Union Group Plc since 2020, serves 64 million customers annually and purchases 20% of all North American lobster tails, as well as 16% of all lobster tails. lobsters in the world.

Thai Union and Red Lobster were in talks with lenders for an out-of-court deal that would give creditors 80% of the business, but the talks broke down. Lenders made additional loans worth $20 million to Red Lobster in February, but they were unwilling to invest more money without the owner’s support, according to court documents.

Red Lobster said it was also investigating the shrimp deal, including how it was marketed in restaurants and whether Thai Union “exercised outsized influence” over shrimp purchases.

The chain employs 34,000 people in the United States and an additional 2,000 people in Canada. Last week, it closed 93 underperforming stores.

The case is Red Lobster Management LLC, 24-02486, U.S. Bankruptcy Court for the Middle District of Florida.

–With help from Jonathan Randles.

(Updates with lender details in third paragraph.)

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