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ORLANDO, Fla. — With annual revenues that recently topped $2 billion, Red Lobster is easily the largest seafood restaurant chain in the U.S. and has made a name for itself through specialty promotions, including Crabfest and Lobsterfest, along with popular signature items like cheddar biscuits.
But the chain, which was founded in Orlando, Florida, in 1968 and currently boasts over 550 outlets nationwide, has fallen victim to internal and external issues, never really recovered from pandemic impacts and just filed for Chapter 11 bankruptcy protections.
Red Lobster CEO Jonathan Tibus, the company's third chief executive in as many years and a bankruptcy turnaround specialist who recently joined the chain, said the filing buys time to secure a buyer for the struggling operation.
"This restructuring is the best path forward for Red Lobster," Tibus said in a statement. "It allows us to address several financial and operational challenges and emerge stronger and refocused on our growth. The support we've received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests."
In a declaration filed with a Florida federal bankruptcy court, Tibus said the chain's customer count has declined by approximately 30% since 2019 and has only marginally improved from pandemic levels seen during 2020 and 2021 and lost $76 million in fiscal 2023.
Factors contributing to those declines in customer volumes, according to Tibus, include inflationary pressures, unfavorable lease contracts/poor locations and some strategic missteps in attempts to lure diners back to Red Lobster restaurants.
One programmatic failure Tibus noted was the decision to make Red Lobster's popular, all-you-can-eat Ultimate Endless Shrimp promotion a permanent menu item instead of a time-limited option.
"In May 2023 ... Paul Kenny, (Red Lobster's) former CEO, made the decision to add (Ultimate Endless Shrimp) as a permanent $20 item to the menu despite significant pushback from other members of the company's management team," Tibus said in the court filing. "This decision created both operational and financial issues for (Red Lobster) costing ... $11 million and saddling the company with burdensome supply obligations."
Even with 64 million customers a year and $2 billion in annual sales, Red Lobster has accrued $1 billion in debt and has only $30 million in cash on hand, according to its filings. Red Lobster employs some 36,000, mostly part-time, workers and has over two dozen outlets in Canada in addition to its U.S. restaurants.
Red Lobster founder and Florida restaurateur Bill Darden sold the chain to private equity firm Golden Gate Capital in 2014 for $2.1 billion. But since 2020, seafood distributor Thai Union Group, based in Thailand, has been the largest Red Lobster shareholder, with 49% of the company, according to a report from CNN.
Former Red Lobster employees say Thai Union's cost-cutting efforts and strategy mistakes hurt the chain.
"Thai Union forced huge cost reductions, including many that were penny wise and pound foolish because they hurt sales," a former Red Lobster executive, who spoke on the condition of anonymity because of a nondisclosure agreement with the company, told CNN earlier this month. Thai Union did not respond to requests for comment on that article.
Red Lobster reports it will continue to operate through its bankruptcy proceedings but began shutdown operations at over 90 of its restaurants earlier this month, and more closures may be in store. The company has received a so-called stalking horse bid from existing debtors to buy the company unless a higher offer is made.
