It looks like Red Lobster has a new owner two months after filing for bankruptcy.
Meet Red Lobster’s New Owner
The seafood restaurant chain said in a court filing this week that it would accept an existing sale offer from Fortress Credit Corp after the former did not receive any other acquisition bids. The sale is expected to be approved by a judge at a hearing scheduled for next week.
Fortress Credit Corp is a lender experienced in restaurant management. It owns restaurant chains such as Krystal, Logan’s Roadhouse, and J. Alexander’s through a hospitality arm of the fund. Fortress Credit Corp is a subsidiary of Fortress Investment Group, a large private equity firm with $48 billion in assets under management.
Fortress Credit Corp is not a stranger to Red Lobster. In fact, the former is one of the latter’s largest lenders and has actually financed the restaurant chain’s operations, including a new $100 million loan that allowed it to stay afloat during its bankruptcy proceedings.
Why Red Lobster Filed for Bankruptcy
Red Lobster filed for bankruptcy due to a combination of factors, including mismanagement, competition, slower customer traffic, and increasing food and labor costs.
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.
In recent months, Red Lobster has closed around 100 restaurants with the intention of shutting down several dozen more locations in the near future. As of this writing, the restaurant chain still has 600 locations remaining.
To make the situation worse, Thai Union Group Plc, which took over the company in 2021, announced in January 2024 that it was cutting ties with Red Lobster, because of the restaurant chain’s growing negative financial contributions to Thai Union, which reportedly took a $530 million loss on its investment.
Thai Union, which is a global seafood supplier, became Red Lobster’s leading shareholder in 2020. When it took over the restaurant chain a year later, Red Lobster’s culture reportedly turned toxic and the eatery started cutting costs, removing longtime suppliers, and implementing strategies that backfired, such as making $20 endless shrimp a permanent menu item.
Red Lobster’s Ultimate Endless Shrimp Deal
Red Lobster’s Ultimate Endless Shrimp Deal was an all-you-can-eat promotion featuring various shrimp dishes for a set price. 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.
While popular with customers, it’s not necessarily the main reason for the restaurant chain’s bankruptcy considerations, but rather a contributing factor. Red Lobster reportedly lost $11 million on the Ultimate Endless Shrimp Deal.
Red Lobster even pointed out in its bankruptcy filing that it was investigating the decision made under Thai Union to implement the Ultimate Endless Shrimp Deal and whether it was improperly done to drive more business to Thai Union. The latter, however, has previously called the accusations “meritless”.
As Red Lobster prepares to embark on a new chapter under Fortress Credit Corp, the iconic seafood chain faces both challenges and opportunities in its restructuring efforts. With a history marked by significant missteps and financial difficulties, the transition to new ownership offers a chance for revitalization and strategic realignment. While the road ahead may be fraught with obstacles, including the need to renegotiate leases and adapt to a competitive dining landscape, the support of experienced management from Fortress could pave the way for a more sustainable future. As the restaurant industry continues to evolve, Red Lobster’s ability to innovate and reconnect with its customer base will be crucial in reclaiming its status as a beloved dining destination.