Red Lobster is the largest seafood chain in the United States. It buys 20 percent of North American lobster tails and 16 percent of the rock lobsters sold worldwide while serving 64 million people annually.
On May 19, 2024, the chain declared bankruptcy, and announced that it plans to close and sell off its locations rather than restructuring.
Like all restaurants, Red Lobster had a hard time during the pandemic. Customer traffic fell by 30 percent. Although sales rose by 25 percent from 2021-2023, they reported net losses of $76 Million in 2023 and cash on hand fell from $100 Million in May to $30 Million six months later.
When the news of their bankruptcy broke, some people pointed to the spectacular failure of their decision to make Ultimate Endless Shrimp a permanent menu offering. The offering cost them $11 Million in one quarter, but it still only represents 3 percent of their total debt.
The fact of the matter is, Ultimate Endless Shrimp did not bankrupt Red Lobster; endless real estate costs did.
Rise of an Innovative Restaurant Concept
Red Lobster was founded by Bill Darden and Charley Woodsby in 1968. Just 2 years later, and with just 5 locations, the chain was acquired by General Mills and began to expand quickly.
Red Lobster became famous for making shrimp affordable and accessible for middle America. But in order to keep costs down, they had to achieve scale and maximize their purchasing power. In 1995, General Mills spun off Red Lobster and created Darden Restaurants, a publicly traded company that owns Olive Garden and LongHorn Steakhouse.
By 2013, the cost of seafood had started to rise. With so much of Red Lobster’s menu being seafood, they were hurt more than chains who also offered beef and chicken. A massive consolidation was taking place among seafood suppliers, and it was enough to counteract their buying power.
Darden sold Red Lobster to Golden Gate Capital in 2014 for $2.1 Billion. One of their first moves was a “sale leaseback,” where they sold off the chain’s property and leased it back to individual locations. After a $1.5 Billion leaseback, Golden Gate had recouped most of the purchase price, but they also set Red Lobster on a challenging path towards profitability.
The Captains Go Down with the Ship
While Red Lobster operated under CEO Kim Lopdrup from 2014 – 2021, they are now on their 5th CEO in 5 years. Since March 2024, Jonathan Tibus has been the CEO, and he has been described as a corporate-restructuring expert. Red Lobster is going to need it, because their trouble is just beginning.
They are facing a class action lawsuit in CA for violating the WARN Act. When they started shutting locations, Red Lobster let 300 employees go without sufficient notice. Those employees now seek $16.7 Million in unpaid wages.
The Times Square location in New York, which is considered to be a high performing store, is facing a cash crunch of their own. The landlord wants to increase the rent from $1 Million per year to $2.2 Million – and the lease expires on June 30th. Employees have been told the location is not closing, but that is quite a gap to close in a short time.
But all hope is not lost.
Rapper Flavor Flav is trying to save Red Lobster, which he describes as “one of America’s greatest dining dynasties.” He ordered the entire menu, and plans to help the chain if he can. He has partnered with them to launch Crabfest 2024… but will it be enough to save the chain’s ‘biscuit?’ Only time will tell.
