Red Lobster has filed for Chapter 11 bankruptcy protection as it continues to reduce the scope of its business and search for a buyer, the company said in a statement.
The seafood chain also said existing lenders would acquire the company through a so-called “tracking horse bid” unless a higher bid emerged.
CNBC reported last month that Red Lobster was seeking a buyer amid pressure from massive debt and long-term leases. The company recently named a restructuring expert, Jonathan Tibus, managing partner at consulting firm Alvarez & Marsal, as chief executive.
In a court filing, Tibbs attributed the chain’s need to file for Chapter 11 protection to “difficult macroeconomic conditions, a bloated and underperforming restaurant footprint, and failed or ill-advised strategic initiatives. and intensified competition within the catering industry.”
Red Lobster currently operates 551 restaurants in the United States and 27 restaurants in Canada.this chain closed On May 13, the company identified 93 underperforming locations and asked the bankruptcy court to reject 108 of its leases to further shrink its footprint.
The company has 36,000 employees, most of whom work part-time.
Orlando, Florida-based Red Lobster has assets of $1 billion to $10 billion and projected liabilities of $1 billion to $10 billion, according to the bankruptcy filing.Its largest creditors are dealers Functional Food Groupclaiming the company owes it $24.4 million.
“This reorganization is the best path forward for Red Lobster,” he said to you in a statement late Sunday. “It allows us to address multiple financial and operational challenges, emerge stronger and refocus on our growth. The support we receive from our lenders and suppliers will help ensure we can complete the sales process quickly and efficiently, while continuing to focus on our employees and guests.
Red Lobster was founded in 1968 and is general mills Two years later. In 1995, General Mills spun off its restaurant division into Darden Restaurantwhich also houses sister chain Olive Garden.
Nearly two decades later, Dutton sold Red Lobster to private equity firm Golden Gate Capital. Thai Union Group, a seafood supplier and one of the chain’s long-time suppliers, bought a stake in Red Lobster in 2016. The investors purchased Golden Gate’s remaining shares in Red Lobster.
While Red Lobster survived the pandemic, its business has struggled since. The chain’s traffic has dropped about 30% since 2019, according to the bankruptcy filing.
The company’s longtime chief executive, Kim Lopdrup, also retired in 2021, starting a revolving door of CEOs that has left the chain with little stability to turn around the struggling business. Tibbs is Red Lobster’s third chief executive in as many years.
In fiscal 2023, the company reported a net loss of $76 million. Some of that loss was caused by its disastrous “Endless Shrimp” promotion. Last year, the company changed its offers from weekly to daily to boost sales that slowed in the second half. But the offer has spurred business, putting pressure on Red Lobster’s bottom line as diners seek out cheap deals.
According to a court filing, the actual purpose of the ill-conceived promotion may have been more to boost sales for Thai Union itself. Under interim CEO Paul Kenny, Red Lobster got rid of two shrimp suppliers, leaving Thai Union as its sole supplier of crustaceans. The decision resulted in higher costs for Red Lobster, the document said. The debtors are also investigating whether Thai Union and Kenny pushed excessively on in-store promotions, which often resulted in severe shrimp shortages.
Correction: Performance Food Group claims Red Lobster owes it $24.4 million. An earlier version misstated this number.
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