Red Lobster is considering filing for bankruptcy: Here’s why

Is the seafood restaurant chain’s all-you-can-eat deal the main culprit?

Red Lobster logo

Red Lobster is reportedly eyeing a bankruptcy option.

Why is Red Lobster considering filing for bankruptcy?

Sources with knowledge on the matter told Bloomberg that the seafood restaurant chain is considering filing for Chapter 11 bankruptcy amid growing debt partly caused by increasing food and labor costs as well as slower customer traffic.

In 2022, Red Lobster lost $33 million, which resulted in the closing of its 16 restaurants. The chain also reported an $11 million loss in the third quarter of 2023 and an additional $12.5 million loss in the fourth quarter of the same year.

To make the situation worse, Thai Union Group Plc, which took over the company in 2021, announced in January 2024 that it is cutting ties with Red Lobster and looking for a buyer, because of the restaurant chain’s growing negative financial contributions to Thai Union and its shareholders.

A group of people dining at Red Lobster
A group of people dining at Red Lobster

Is Red Lobster’s Ultimate Endless Shrimp Deal to blame?

Red Lobster’s Ultimate Endless Shrimp Deal was an all-you-can-eat promotion featuring various shrimp dishes for a set price. While popular with customers, it’s not necessarily the main reason for the restaurant chain’s bankruptcy considerations, but rather a contributing factor.

The Deal

Customers pay a flat fee (initially $20, increased to $25 due to the abovementioned losses). They can choose from a variety of shrimp dishes, often including both breaded and unbreaded options. They can order up to three choices at a time and reorder as much as they want throughout the meal. It includes one side dish and their famous Cheddar Bay Biscuits.

Impact on the restaurant chain

The deal proved much more popular than anticipated, leading to a higher proportion of customers opting for it compared to other menu items. Since shrimp is a more expensive ingredient, the all-you-can-eat format resulted in lower profit margins, forcing the restaurant chain to hike the deal’s price.

While the exact end date wasn’t widely publicized, several news sources reported in late 2023 that the deal was no longer a permanent menu item due to its impact on profitability.

Red Lobster's Ultimate Endless Shrimp Deal
Red Lobster’s Ultimate Endless Shrimp Deal

Will Red Lobster’s bankruptcy filing push through?

According to Bloomberg’s sources, Red Lobster has yet to make a final decision when it comes to whether or not to file for bankruptcy. They, however, noted that it would help the business continue to operate while they figure out their next plan.

The news outlet actually pointed out that the restaurant chain is in talks with law firm King & Spalding to divest itself from long-term contracts and renegotiate leases.

And just last March, Red Lobster installed Jonathan Tibus, a managing director with restructuring firm Alvarez & Marsal, as its new CEO – the company’s third CEO in the past two years. This move is viewed as a step toward preparing the restaurant chain for sale by owner Thai Union Group.

Tibus isn’t a stranger to running struggling restaurant chains. He has worked with Kona Grill, which filed for bankruptcy in 2019, and the fast food chain Krystal, which filed for Chapter 11 protection in 2020.

Source: Bloomberg, Restaurant Business Online, ABC News. People
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