Did Red Lobster Go Out of Business? Analyzing Their Bankruptcy Filing and Restaurant Closures

A Red Lobster restaurant in Times Square in New York is seen on Saturday, December 8, 2012. It is said that Beyoncé’s mention of the casual dining restaurant chain Red Lobster in her new single Formation caused a 33 percent rise in sales at the chain on Super Bowl Sunday. The song was released Saturday. (�� Richard B. Levine) (Photo by Richard Levine/Corbis via Getty s)Corbis via Getty s.

People are paying a lot of attention to the fact that Red Lobster closed dozens of restaurants. You can bet that they are trying to learn something from this. The nation’s biggest seafood chain is now in the middle of the biggest restaurant equipment auction to date. A website lists auctions at almost 50 restaurants that are closing, but Red Lobster’s website lists dozens more. It looks like Red Lobster is going to have to close a lot of stores and face bankruptcy. But what was the “Red Lobster” trap? What caused the biggest seafood chain in the country to get so broke that it had to close dozens of stores? It couldn’t just be high rent and falling sales, right?

As is sometimes the case, the reasons for this failure include a big success and a big miscalculation. Restaurants facing declining traffic amid and after the pandemic tried all sorts of solutions. Some raised prices, boosted delivery, cut portions, or rolled out discounts. It was a popular Monday deal at Red Lobster to offer all-you-can-eat shrimp, but they made it available every day. It was a hit. And that hurt. And here we are.

With its Ultimate Endless Shrimp special, Red Lobster was able to boost traffic by 4%. However, the chain found that more people than expected ordered this dish. They were not only getting new customers but cannibalizing sales as existing customers gobbled up the discount. A company that was already losing money was now swimming in a sea of red ink, with margins thinned out and millions lost.

Henri Garnier, CFO of Thai Union and VictoryShares US 500 Enhanced Volatility Wtd ETF, told investors on a call last year, “We knew the price was low, but the goal was to get more people into the restaurants.” “So we wanted to boost our traffic, and it didnt work. ”.

Sometimes, its easy to be a Monday morning quarterback. Thats certainly the case here as the deal expanded across the week. Red Lobster made some mistakes that we could have seen coming. Looking back at them reminds us that we can always learn from our mistakes.

Red Lobsters experience with its daily all-you-can-eat shrimp promotion serves as a warning about . [+] the risks of discounts damaging profit margins despite initially driving customer interest. Copyright 2014 AP. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Companies that sell food and drinks often give customers a lot of different kinds of deals, like buy one, get one free, discounted prices, or coupons (are coupons still around?) Because these discounts can sometimes be as much as 20% to 30% of the selling price, they can wipe out margins. That’s why we tell our customers to keep an eye on their dilution from gross selling prices. The top line matters to your business. The bottom line “is” your business.

Red Lobster gave customers all-you-can-eat shrimp not once, but twice, and then they made it a daily deal. Both times, they lost. Carefully controlling and strategizing when and how to use promotions is critical for F & B companies. “We want to keep it on the menu,” Garnier said earlier of the promotion that effectively generated interest. “And, of course, we need to be much more careful about how people can join and how much we charge for this promotion.” ”.

Red Lobster raised the price of its all-you-can-eat shrimp buffet from $20 to $25 after having problems with it. The price still depended on the item, which came with a side and the company’s famous warm Cheddar Bay Biscuits. Companies, investors, and even customers need to learn this lesson: making more money can make you feel good, but making more money is what’s good for you in the long run. While theres a lot to learn from Red Lobster, more and more restaurants are focusing on margins. This is a cautionary tale. Red Lobster’s margins weren’t killed by shrimp, but that discount, along with other things, made them worse.

The Red Ink At Red Lobster

Red Lobster, confronted with various challenges, including market competition and cost pressures, . [+] considered a strategy shift and potential exit by Thai Union. Even though there are problems, the global seafood market is growing, which shows how important strategic management is in this field. getty.

Like a lot of restaurants, Red Lobster has to deal with other things that cut into its profits, so the discount didn’t do all the damage. As prices go up, companies raise prices because they want to make more money. This is sometimes called “greedflation.” Between them, Thai Union and Red Lobster said in 2023 that they wanted to “find areas for operational and financial improvement.” But by January 2024, they weren’t so much trying to turn Red Lobster around as they were leaving. Lots of new executives had been hired. The company said in January, “After careful consideration, we have determined that Red Lobster’s ongoing financial needs no longer align with our capital allocation priorities. As a result, we are pursuing an exit of our minority investment.”

In January, Thiraphong Chansiri, CEO of Thai Union Group, talked about the problems that were costing Red Lobster money. He also said that Thai Union was planning to try to get out of its minority investment in Red Lobster. He cited macro-economic forces that undoubtedly didnt help. Chansiri said that the COVID-19 pandemic, higher interest rates, and rising costs of materials and labor had caused “long-term negative financial contributions to Thai Union and its shareholders.” “.

But Red Lobster also had to deal with other problems, like a growing desire for plant-based foods. This meant that seafood wasn’t just competing with beef and steak. More competition came from plant-based beef alternatives and a plant sector that was growing all the time. This caused people to fall into what you could call the “Red Lobster” trap of buying sales at a higher price than they could afford. This doesnt mean that seafood, in general, is suffering a huge upheaval. Amid a greater focus on health, the seafood industry is not necessarily hurting but growing. Lobsters, themselves bottom feeders, are a luxurious, much-loved item on the menu. Even though this restaurant got in trouble, the seafood industry as a whole is doing very well. It’s good for business and good for customers.

Founded nearly 50 years ago, Thai Union is a global seafood giant with about $4. 4 billion in annual sales and 44,000 employees. It sells brands all over the world, such as Chicken of the Sea, John West, Petit Navire, Parmentier, Mareblu, King Oscar, Hawesta, Rügen Fisch, and many more. According to Zion Market Research, the global lobster market in 2022 was valued at about $5. 7 billion and was likely to reach $10. 3 billion by the end of 2030, with a compound annual growth rate of about 5. 1%. “Demand on a global scale is growing,” said an analyst at Zion. “An increasing desire to engage in premium dining experiences is also growing.” ”.

Even as Red Lobster grapples with closures and auctions, the case underscores the broader industry . [+] challenges such as rising costs and the need for adaptability to consumer trends. AP2005.

While seafood, in some ways, is going strong, diversifying, in general, is a good strategy. Don’t just put all your eggs in one basket or your fish in one bucket. Even better, make sure that in addition to eggs or fish, youve got other products. Thai Union said it would focus on its core business, which is food, frozen goods, and pet care, as part of its Corporate Strategy 2030 plan. Restaurants did not make that list. The idea of a seafood supplier running a seafood restaurant sounds great. But you also have to understand the restaurant business. You could say that running a seafood restaurant is a great fit for a seafood company, but it’s also a different business with very different fixed costs, like rent.

After a promotion that made everything grow except profits and margins, Red Lobster has announced that dozens of locations will be closing. TagEx, the company in charge of the auctions for at least 50 locations, called it “the largest restaurant equipment auction ever.” For a business that likes to make big plans, this wasn’t the “big” news you’d want to hear. TagEx said it is running these as “winner-take-all auctions,” including all the contents of the Lobster locations. Thursday, May 16, there will be auctions, and the countdown to some big sales has begun. Like the shrimp deal, these sales are likely to be very cheap. People are usually told how to find a store near them, but people who wanted to bid were told how to “find a Red Lobster auction near you.” ” Despite this downsizing, Red Lobster remains a giant, even after the closings.

Factors such as high costs may also be in play here, impacting the restaurant industry in general. When you have more than one location, it’s nice to own your own property, but most people still rent, which can cause problems and huge costs. While ownership requires a larger capital investment, it makes costs more controllable. Rental costs became a big problem for Red Lobster and contributed to their losses. Owners often struggled to lift Red Lobster out of the red. Private Equity companies provide not only capital but legitimate know-how and operational excellence. Even though they know a lot about a certain industry and study the markets, they aren’t always in it for the long haul. If they do something other than what they’re good at, though, things can go differently, even if they do work with restaurants. Before Thai Union came along, Golden Gate Gate Capital, which owned and ran Red Lobster, couldn’t get it back on track. Their portfolio includes Bob Evans Restaurant and California Pizza Kitchen, along with many companies in other sectors.

Owners coming from outside the restaurant business can also have big blind spots. Thai Union is a seafood company that is known for brands like Chicken of the Sea, but it doesn’t serve food in restaurants. This sad tale of naivety, too much cost cutting, and executive turnover should teach us to choose partners who know how to play the game. Red Lobsters management, while not on a merry-go-round, has been changed repeatedly as the company sought a solution. Its latest leaders may be able to right the ship and boost profits.

The evolving market landscape demands strategic foresight, especially for traditional brands facing . [+] competition from new consumer preferences and delivery models that impact profitability. AFP via Getty s.

There were many things that put pressure on the margins, but the main reason was that Red Lobster, which was an early leader, did not change with the times. They neglected to follow customer preferences and tried to buy customers with free or deeply discounted food. Our favorite stories are about people who break new ground, become successful, and have the drive and vision to reach their goals. Red Lobster grew from one family-owned restaurant in Lakeland, Fla. , to a giant based in Orlando, Fla. Red Lobster trademarked its “Endless Shrimp events” in 2006 and saw them as a “huge success. Growth is a big goal for every business, and big bets that win can start with big discounts. But big discounts can sometimes be too big and successful and fail to address underlying issues. It may be just as important to watch your margins as it is to watch your garden as takeout orders rise and delivery costs rise. Red Lobster works with DoorDash on delivery, which also can grow revenue, even if margins may thin. Endless shrimp, it turns out, was not enough to finish the endless financial pressure.

Red Lobster files for bankruptcy amid financial woes

Will Red Lobster restructure its debt?

Red Lobster is now reportedly considering filing for bankruptcy protection to restructure its debt and shed some of its 650 US locations. The chain has tapped a restructuring expert as its chief executive, a possible indicator of an impending bankruptcy. Red Lobster and Thai Union did not respond to CNN’s requests for comment on this article.

Will Red Lobster go bankrupt?

Seafood restaurant chain Red Lobster has filed for Chapter 11 bankruptcy in Florida, the company said in a statement Sunday night. According to the company, it 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.”

Is Red Lobster going out of business?

The post has over 32,000 likes and over 6,000 comments as of Wednesday morning. Gabe Hauari is a national trending news reporter at USA TODAY. You can follow him on X @GabeHauari or email him at [email protected]. As Red Lobster locations around the country are closing amid a bankruptcy filing, the chain said ‘We’re not going out of business’.

Is Red Lobster closed?

Red Lobster locations in Buffalo, Orlando, Jacksonville and other cities were listed as “temporarily closed” on Red Lobster’s website, according to local news reports. Red Lobster did not respond to CNN’s requests for comment. The company has around 650 locations. Red Lobster is reportedly considering filing for bankruptcy protection.