Flawed decisions, including a permanent endless shrimp deal, real estate sales and private equity debt, has forced Red Lobster to file for Chapter 11 bankruptcy, with its leaders planning to seek a buyer for the financially troubled Orlando-based seafood chain.
The bankruptcy, filed in U.S. District Court in Orlando, will allow the company to continue operating after restructuring amid nearly $300 million in outstanding debt.
While Red Lobster’s headquarters will probably remain in Central Florida, San Diego-based restaurant analyst John Gordon said whether it stays in downtown Orlando and how its corporate workforce will be affected remains to be seen.
“They will look at that lease,” Gordon said Monday of the three-story space at CNL Center on South Orange Avenue. “I’m not saying there will be additional headquarters staff layoffs, though there certainly could be. But there are hundreds of suburban Orlando office parks where they could just as easy have a corporate headquarters.”
In a news release late Sunday, the company said the plan is to “simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets.”
“This restructuring is the best path forward for Red Lobster,” said CEO Jonathan Tibus in the release. “It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth.”
Tibus also said the company would be sold.
“The support we’ve received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests,” the CEO said.
The filing listed company assets of $1 billion to $10 billion and liabilities of $1 billion to $10 billion.
Red Lobster began as a single restaurant started by Bill Darden in Lakeland, Florida, in 1968 before joining General Mills, which later spun off Orlando-based Darden Restaurants in 1995. Darden then sold Red Lobster to Golden Gate Capital for $2.1 billion in 2014.
The company shuttered as many as 80 locations last week. It has about 650 restaurants. An online auction of the entire contents of some restaurants was held.
The company’s decision last year to make its $20 endless shrimp special a permanent menu item has taken a lot of the blame for the filing, Gordon said deep-seated issues went back years.
“Yeah, they lost money with it, but it’s just one of a whole series of management problems that occurred under the Thai Union watch,” Gordon said.
Thai Union, a Thailand-based seafood company, took control of Red Lobster in 2020 with a $575 million stake but earlier this year disclosed it was shedding its shares.
Before that, the Golden Gate Capital hedge fund sold off the real estate beneath the restaurants, Gordon said.
“Practically all of the Red Lobsters had to start paying rent,” Gordon said. “And that became a negative hit to the profit-and-loss statement.”
Former CEO Kelli Valade leaving the company after less than a year in 2022 also contributed to Red Lobster’s volatility, he said.
“We all know in the industry, what that means is (that) she got there, observed the situation, and she said, ‘Wow, the circumstances here are such that I’m never going to be able to make it work. So I’m out of here.’ And they never got a full-fledged CEO in afterwards.”
The most important thing for the company, he said, is to get the word out that most of its locations are still open for business.
“A lot of people are going to see this … and say, ‘Oh my God, Red Lobster is closed everywhere.’ And that’s not the case. … The company’s intent is to make Red Lobster a slimmed-down version of itself.”
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