Recently, the nation’s largest seafood chain, Red Lobster, filed for Chapter 11 bankruptcy after a series of unfortunate business circumstances. Reportedly, one factor that contributed to the demise of the famous restaurant was the “all you can eat” shrimp deal, which consumers took advantage of.
Red Lobster experienced a major shakeup when the private equity firm Golden Gate Capital acquired the restaurant chain in 2014. Subsequently, the business underwent a significant restructuring that added debt to its balance sheet alongside the sale of real estate assets.
Eventually, Golden Gate sold its stake in the company to Thai Union, the seafood company that is also Red Lobster’s biggest supplier. As the majority stakeholder, at 49%, Thai Union created an interesting incentive structure.
Red Lobster’s 2023 Ultimate Endless Shrimp deal, which provided customers with unlimited shrimp for just $20, undoubtedly benefited Thai Union. Moreover, reports indicate that executives at the company even cut off other major suppliers, primarily relying on their majority shareholder for their shrimp supply.
Despite pushback from the broader management team, CEO Paul Kenny made the unlimited shrimp promotion a permanent item on the menu. As a result, Red Lobster locations began running out of shrimp as customers capitalized on the deal. Coupled with the apparent high purchasing costs of the shrimp, the company’s bottom line was struggling, losing millions.
“It was miserable working there for the last year and a half I was there,” said Les Foreman, the former West Coast division vice president who worked at Red Lobster for 20 years and was fired in 2022. “They didn’t have any idea about running a restaurant company in the United States.”
Red Lobster recently released a public statement addressing their voluntary Chapter 11 filing for bankruptcy, indicating that the chain seeks to improve its financial position to maximize stakeholder value. Jonathan Tibus, the Company’s CEO, said “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. 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.”
The press release continued, “Red Lobster Management LLC, along with its direct and indirect operating subsidiaries (“Red Lobster” or “the Company”), owner and operator of the Red Lobster® restaurant chain, today announced that the Company has voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida. The Company intends to use the proceedings to drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets as a going concern. As part of these filings, Red Lobster has entered into a stalking horse purchase agreement pursuant to which Red Lobster will sell its business to an entity formed and controlled by its existing term lenders.”
However, locations will remain operational despite the filing for bankruptcy. “Red Lobster’s restaurants will remain open and operating as usual during the Chapter 11 process, continuing to be the world’s largest and most-loved seafood restaurant company. The Company has been working with vendors to ensure that operations are unaffected and has received a $100 million debtor-in-possession (“DIP”) financing commitment from its existing lenders,” the statement added.
Featured image credit: Mike Mozart from Funny YouTube, USA, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons, https://commons.wikimedia.org/wiki/File:Red_Lobster_(14148708700).jpg
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