Red Lobster, the popular seafood chain, has recently filed for Chapter 11 bankruptcy protection in an effort to restructure its operations and find a buyer. The company is facing significant debt and long-term leases that have weighed it down, leading to the closure of 93 underperforming locations on May 13. With assets between $1 billion and $10 billion, and estimated liabilities in the same range, Red Lobster is seeking to slim down its footprint even further by rejecting 108 of its leases through the bankruptcy court. This move comes in response to what the company’s CEO Jonathan Tibus describes as a “difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives, and increased competition within the restaurant industry.”
Originally founded in 1968 and later purchased by General Mills, Red Lobster has gone through several ownership changes over the years. It was spun off by General Mills into Darden Restaurants in 1995, along with sister chain Olive Garden. In 2014, Darden sold Red Lobster to private equity firm Golden Gate Capital, which later sold a stake to seafood supplier Thai Union Group in 2016. By 2020, Thai Union, along with members of Red Lobster management and investors under the alias Seafood Alliance, bought out Golden Gate’s remaining stake in the chain. Despite surviving the pandemic, Red Lobster has seen a sharp decline in business, with a 30% decrease in traffic since 2019.
The chain’s struggles have been exacerbated by a revolving door of CEOs in recent years, with Tibus being the third chief executive in as many years. The company reported a net loss of $76 million in fiscal 2023, with part of the blame being attributed to a poorly executed “endless shrimp” promotion. The promotion, which was changed from a once-a-week to a daily offer, led to a surge in business but at the cost of pressure on Red Lobster’s bottom line. Additionally, the decision to have Thai Union as the sole supplier of shrimp resulted in higher costs for the chain, further impacting its financial health.
As part of the bankruptcy proceedings, the debtors are investigating whether Thai Union and the previous interim CEO pushed for in-store promotions that led to significant shortages of shrimp. These actions may have been driven by a desire to boost Thai Union’s own sales, rather than benefiting Red Lobster as a whole. Despite the challenging circumstances, Tibus remains optimistic about the future of Red Lobster, stating that the restructuring process is necessary for the company to emerge stronger and more focused on its growth. With the support of its lenders and vendors, Red Lobster aims to complete the sale process quickly and efficiently while maintaining a commitment to its employees and guests.