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Red Lobster tries desperate bid to avoid bankruptcy

Updated April 29, 2024 - 11:55 am

It’s been a rocky past couple of years for the restaurant business.

First hit by Covid, which largely shut down most dine in establishments in an effort to implement social distancing, a lot of restaurant chains that depend on people walking through their doors for a sit down meal have been limping along. At best.

Related: Popular restaurant chain filing for bankruptcy, closing all locations

Others have not fared so well. Many mom and pop restaurants with one or two locations have shuttered entirely, unable to make ends meet when their tables remained empty for months.

Chains, on the other hand, have had a slightly different experience. Unless they were able to quickly pivot to carry out (and offer those fancy takeaway cocktail pouches everybody loved in 2020), adjustment came at a slow pace.

Since many of the larger chains operate dozens, sometimes even hundreds, of locations around the country, agile pivoting was difficult, and not something many of them were used to doing.

Red Lobster made a crucial error

This meant that many of the larger chains were slow to implement changes, but when they finally did, they did it at an almost unstoppable pace.

One such example is at Red Lobster, which operates about 700 restaurant locations nationwide. The seafood restaurant is no stranger to running deals to attract customers. Its fan-favorite cheddar biscuits has something of a cult following among foodies on social media, and it regularly hails some kind of deal for seafood or entrees for limited times.

Image source: Red Lobster

In 2023, however, Red Lobster got a little too overzealous and began offering an unlimited shrimp deal, and customers more than took advantage of it.

The Ultimate Endless Shrimp promotion allowed guests to order different types of unlimited shrimp dishes, like Garlic Shrimp Scampi or Shrimp Linguini Alfredo, for just $20. It then hiked the price to $22, then again to $25. But the damage had been done. New foot traffic hadn’t been meaningfully boosted, and it couldn’t stave its losses.

When all was said and done, Red Lobster estimated its endless shrimp promotion had resulted in an approximately $11 million in operating loss for Q3 2023.

“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Thai Union CFO Ludovic Regis Henri Garnier said in the Q3 earnings call. “So we wanted to boost our traffic, and it didn’t work.”

Later in 2023, parent company Thai Union announced it would exit Red Lobster, citing “negative financial contributions to Thai Union and its shareholders.”

Red Lobster struggles amid bankruptcy fears

Now, Red Lobster is reportedly considering filing for Chapter 11 bankruptcy as it continues to reel from its financial losses.

Filing for Chapter 11 may help Red Lobster terminate some of its more expensive or longer leases around the country, as well as restructure some debt.

Though recent reports indicate Red Lobster isn’t set on bankruptcy just yet, as it is also seeking a new buyer to help take it over and mitigate some of its financial struggles. However, establishing a buyer won’t necessarily guarantee the chain avoids bankruptcy.

It’s not clear who might buy Red Lobster. One buyer may have been initially interested in the seafood chain but has since fallen through, according to multiple reports. Red Lobster is currently working with the commercial law firm King & Spalding for advisory and restructuring counsel.

Red Lobster has not commented on the matter.

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