Red Lobster chain goes bankrupt after unlimited shrimp deal

financialpost.com:

Seafood restaurant chain Red Lobster filed for bankruptcy, succumbing to onerous leases, high labour costs and a disastrous unlimited shrimp promotion.

The Orlando, Florida-based company filed for Chapter 11 protection on Sunday, listing assets and liabilities of US$1 billion to US$10 billion each in its bankruptcy petition. The filing allows the company to keep operating while it works out a plan to repay creditors.

Red Lobster plans to hand control of the company to its lenders, led by Fortress Investment Group, who have agreed to provide US$100 million in financing to support the chain through bankruptcy. The takeover offer is in the form of a stalking horse bid, meaning it will set the floor price for Red Lobster’s assets and is subject to better bids should any materialize in the coming weeks, according to court documents.

The restaurant chain had been deteriorating for several years, with diners down around 30 per cent since 2019, chief executive Jonathan Tibus wrote in court papers. While the business had shown signs of recovery since the pandemic, sales declined sharply in the last 12 months, Tibus wrote. It lost US$76 million in the 2023 fiscal year.

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

Red Lobster traces its roots to a single restaurant in Lakeland, Fla., in 1968. It expanded rapidly in the 1970s and 1980s, and developed a loyal following for its Cheddar Bay Biscuits.