Red Lobster, the 56-year-old casual dining chain renowned for popularizing seafood with offerings like popcorn shrimp and “endless” seafood deals, has filed for Chapter 11 bankruptcy protection. The filing was made late Sunday just days after the company closed dozens of its restaurants.
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“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,” said CEO Jonathan Tibus.
The company plans to keep its 600 remaining restaurants operational during the proceedings. The company intends to streamline operations, close more locations, and pursue a sale.
As part of the bankruptcy process, Red Lobster has entered a “stalking horse” agreement planning to sell its business to an entity controlled by its lenders.
According to court documents, it operates 551 U.S. restaurants, 27 in Canada, and 27 franchised locations in Mexico, Japan, Ecuador, and Thailand, employing 36,000 people in the U.S. and Canada.
Aaron Allen, founder of Aaron Allen & Associates, a restaurant consulting firm attributes Red Lobster’s bankruptcy to two decades of financial missteps and fierce competition from faster, cheaper dining options like Chipotle and Panera.
Allen highlighted disastrous pricing strategies such as the 2003 “Endless Crab” promotion, which resulted in huge losses when crab prices soared.
“This slow-moving train wreck has been in motion for 20 years now,” Allen remarked, noting that Red Lobster had moments of success in the mid-2000s when it repositioned itself as an upscale restaurant.
Red Lobster’s annual guest counts have dropped by 30% since 2019 and the chain reported a $76 million loss in 2023.
The brand was founded by Bill Darden was initially successful in making seafood accessible and affordable for families, a vision that started with Darden’s first restaurant, The Green Frog, in 1938.
Darden sold Red Lobster to General Mills in 1970, which later spun off Darden Restaurants including Olive Garden and other chains in 1995.
In 2014, Darden Restaurants sold Red Lobster to Golden Gate Capital, a private equity firm, for $2.1 billion.
Thai Union Group, one of the world’s largest seafood suppliers first invested in 2016 and increased its stake in 2020.
The company lost millions on the “Ultimate Endless Shrimp” promotion, which charged $20 for an all-you-can-eat deal.
The promotion brought in more customers than expected, but the low price point resulted in minimal profits. For the first nine months of 2023, Thai Union reported a $19 million loss.
Thai Union’s management decisions further hurt Red Lobster. The company eliminated two breaded shrimp suppliers, which led to higher costs and operational issues.
Former executives and restaurant analysts argue that a combination of Thai Union’s mismanagement, frequent leadership changes, and poor operational decisions contributed to the chain’s financial decline.
Red Lobster also faced competition from fast-casual and quick-service chains like Chipotle and Chick-fil-A, which offer lower prices, drive-thru options, and online delivery.
These chains have grown over the past two decades, squeezing the casual dining sector, which has seen its market share drop from 36% in 2013 to 31% in 2023, according to Technomic, a restaurant research firm.
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“Red Lobster was the foundation of casual dining. They had a position of power and prominence and revolutionized how American consumers eat seafood,” said Alex Susskind, a professor of food and beverage management at Cornell University.
When opened its first restaurant in 1968 in Lakeland, Florida, it was a pioneer in the casual dining industry.
The brand was started by Bill Darden and Charley Woodsby, planned to bring affordable seafood to inland areas.
Backed by General Mills, Red Lobster quickly expanded becoming the first casual dining chain to advertise on network television and developing the first national seafood distribution system.
By 1978, Red Lobster had 236 restaurants and $291 million in sales, which grew to 372 restaurants and $834 million by 1985.
The chain’s growth stalled under Darden Restaurants, which prioritized investments in other brands like Olive Garden and Longhorn Steakhouse.
In 2013, Darden faced pressure from activist investors to split the company. The following year, Darden sold Red Lobster to Golden Gate Capital and spun off its real estate assets in a sale-leaseback agreement.
This arrangement, while common in the industry placed additional financial pressures on Red Lobster which struggled with rising lease costs.
Under Thai Union’s ownership, the chain experienced turnover in its executive team, with new CEOs, chief marketing officers, chief financial officers, and chief information officers leaving within two years.
Bill Darden founded the first Red Lobster in Lakeland, Florida. Targeted a gap in the market by providing affordable seafood in landlocked areas.
General Mills acquired Red Lobster is its first venture into the restaurant industry. The acquisition allowed Red Lobster to expand nationwide.
By 1978, the chain had 236 locations and $291 million in sales. Continued growth saw nearly 400 locations and $834 million in sales by 1985.
Introduced Lobsterfest in 1984, an annual event celebrating lobster with new dishes. Launched Cheddar Bay Biscuits in 1992, initially named “freshly baked, hot cheese garlic bread.”
Cheddar Bay Biscuits became a beloved staple with nearly 1 million baked daily by 2017. Founder Bill Darden passed away in 1994, and in 1995, General Mills restructured its restaurant division to form Darden Restaurants, Inc.
Red Lobster experienced 16 consecutive quarters of sales growth by December 2001. Introduced the Endless Snow Crab promotion in 2003, offering all-you-can-eat snow crab for $22.99.
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The promotion led to a $3.3 million loss in profits and a $405.9 million drop in stock value. The promotion was considered a major marketing blunder resulting in the resignation of then-president Edna Morris.
Launched Endless Shrimp, a more affordable all-you-can-eat option. The promotion was a success, revitalizing customer interest. Red Lobster updated its restaurant designs, inspired by Bar Harbor, Maine, and added wood-fired grills.
The economic downturn hit casual dining hard leading to closures of several nationwide chains. Red Lobster struggled to recover post-recession, with Olive Garden outperforming it. Darden Restaurants began to focus on other brands like Longhorn Steakhouse and Capital Grille.
Darden sold Red Lobster to Golden Gate Capital for $2.1 billion. Golden Gate Capital planned to grow the brand but sold off its real estate leading to increased leasing costs over time.
Thai Union Group acquired a $575 million minority stake to cut costs and become the main seafood supplier. Changes led to discontent among employees due to cost-cutting measures and increased workload.
Red Lobster saw executive changes, with new hires for CEO, CFO, CMO, and CIO roles. All these new executives departed within two years.
The Endless Shrimp promotion became a daily deal to attract customers, initially priced at $20 and later raised to $25 due to inflation and rising seafood costs.
The promotion backfired resulting in operating losses of $11 million and $12.5 million in successive quarters. By early 2024 Endless Shrimp was limited to Mondays only.
In January, Thai Union announced plans to exit Red Lobster. Detailed analysis showed Red Lobster’s financial needs no longer aligned with Thai Union’s priorities.
In April 2024 reports emerged that Red Lobster was considering filing for bankruptcy to manage debts and expenses.
By mid-May, over 50 locations were shuttered, with California, Colorado, Florida, New York, and Texas among the affected states.
On May 19, 2024, Red Lobster filed for Chapter 11 bankruptcy, intending to keep 550 restaurants operational during the process.
The bankruptcy plans to reduce locations, drive operational improvements, and pursue asset sales.
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