Whether you live in Manhattan or a Midwest suburb, it always seemed like there would be a Red Lobster nearby – a place where anyone, from middle-class families to Jay-Z and Beyoncé, could indulge in shrimp at a more affordable price.
No more! Dozens of restaurants from the popular chain closed last week and this week, the company filed for bankruptcy.
What really led to the downfall of Red Lobster? Can the restaurant recover?
Many analysts pointed to the “all you can eat” shrimp offer (for about $20 you could eat as many shrimp as you wanted) as a fatal blow that caused the chain to lose $11 million last year.
But the chain’s difficulties likely have more to do with unstable leadership over the past decade.
Founded by Bill Darden in 1968, Red Lobster was purchased by General Mills in 1970, spun off from Darden Restaurants in 1995, and sold to private equity firm Golden Gate Capital in 2014, after falling out of favor.
As often happens in the realm of private equity, Red Lobster sold its properties – that is, physical restaurants – and then leased them back, burdening the chain with expensive rent payments.
The seafood producer Thai Union took control in 2020. Since 2021, Red Lobster has been led by five CEOs.
Red Lobster also faced the same issues as many restaurants: declining sales and inflationary pressures. It claims to have between $1 billion and $10 billion in liabilities in its bankruptcy filing.
The problems seemed endless – not just the shrimp.
In Need of a Better Captain
Few restaurants return to solid ground after bankruptcy, but there are some success stories.
Friendly’s, another victim of private equity, was bought after bankruptcy by a restaurant franchise company that revamped its decor and introduced modern menu items, albeit with a smaller number of locations.
Sbarro filed for bankruptcy in 2011 and 2014, but has recovered in recent years, emphasizing quality ingredients and introducing third-party deliveries.
In summary: Red Lobster will need a trusted captain to steer its ship out of bankruptcy. And it may have to let go of more locations and adjust its format, no matter what happens.
One thing is certain. The entire lobster industry is eagerly awaiting this comeback. According to the chain’s bankruptcy filing, it purchases 20% of all American lobster tails.
Source: The Hustle