All About Red Lobster: Chain Contemplating Bankruptcy Following Continuous Shrimp Promotion

There are rumours that Red Lobster is thinking about declaring bankruptcy.

Red Lobster’s past transactions have drawn notice during the restaurant’s financial issues; some speculate that these may have played a role in the establishment’s downfall. Instead of making the unlimited shrimp promotion a limited-time offer, the seafood restaurant chose to make it a permanent menu item, offering it for only $20. There is now conjecture that the company is seeking a buyer to stay out of bankruptcy because of this marketing.

The restaurant conducted a similar endless crab offer in 2003, but it lost $3.3 million in seven weeks. As a result, CNN reports that the Ultimate Endless Shrimp promotion was a novel approach launched in June 2023 to attract more consumers.

According to NBC, the business gradually started raising the promotion rates from $20 to $22, and finally to $25 to prevent a loss of revenue. Red Lobster did, however, proceed to disclose an operational loss of almost $11 million for the third quarter of 2023.

The outlet claims that they incurred operating losses of $12.5 million in the fourth quarter.

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

According to a press release from the company, Thai Union later in early 2024 stated that it was leaving Red Lobster, citing “negative financial contributions to Thai Union and its shareholders.”

Business experts have argued that several factors, including long-term, expensive leases and rising labour costs, are at play, even though many people believe the shrimp promotion is what specifically caused enough loss in revenue to warrant the potential filing for bankruptcy, according to Bloomberg.

“If anything, the Endless Shrimp deals are probably as much a symbol of just either desperation or poor management or both,” Jonathan Maze, the editor-in-chief of Restaurant Business Magazine, said in an interview.

In 1968, the restaurant chain was initially established in Florida. According to Red Lobster’s website timeline, the restaurant was acquired by General Mills in 1970, two years after the company split into Darden Restaurants, which was only focused on restaurants and also owned Olive Garden.

The seafood franchise was once more sold in 2014 for $2.1 billion to Golden Gate Capital, a San Francisco private equity firm, as a result of investor pressure.

American Realty Capital Properties purchased the land the restaurants were on, while Golden Gate leased the property because Golden Gate technically lacked the funds for the transaction.

Based on the reports, this is effectively the source of the issue. While Red Lobster has been able to repurchase some of the restaurants in full, the restaurants are still having to pay high leasing rates due to American Realty Capital Properties. (https://www.mdconnected.ca/)

“The thing that private equity does is just unload assets and monetise assets. And so they effectively paid for the purchase of Red Lobster by selling the real estate,” Maze told Business Insider. “It’ll probably be fine, generally, but there’s going to come a time in which your sales fall, your profitability is challenged, and your debt looks too bad, and then suddenly those leases are going to look ugly.”

According to a press announcement from the company at the time, Golden Gate sold 25% of the business to Thai Union in 2016 as a result of the real estate issue.