It wasn’t simply the free shrimp that tanked Red Lobster.
The Orlando-based seafood chain filed for Chapter 11 bankruptcy final week citing $1 billion in debt, in response to court docket filings. The firm introduced the closure of dozens of shops nationally, with plans to promote firm property — together with auctioning inside furnishings and kitchenware.
The announcement comes after a disastrous 2023 limitless shrimp promotion during which, for round $20, patrons may order as a lot shrimp as they wished, prompting consuming challenges by customers of TikTok. But whereas it introduced clients to shops, it additionally put the chain $11 million within the crimson.
Heather Haddon covers the restaurant business for the Wall Street Journal and broke the information about Red Lobster’s pending bankruptcy. She explains that different informal eating places like Olive Garden — chain-mates of Red Lobster and owned by Darden Restaurants — and Applebees are experiencing the identical headwinds: clients searching for cheaper eats, plus rising labor and actual property prices.
Haddon says the saga of limitless shrimp was only one in a protracted collection of missteps going again a decade. In the early 2010s, the corporate was offered to non-public fairness agency Golden Gate Capital which offered Red Lobster-owned actual property, making them beholden to landlords and leases. In 2016, Thai Union Group, one of many world’s greatest producers of canned tuna, took a minority stake in Red Lobster. This 12 months, they determined to chop bait as the corporate continued to lose cash, citing the pandemic and rising money owed.
Haddon spoke with Today, Explained visitor host David Pierce about how Red Lobster turned a restaurant icon and what contributed to its decline. Listen to the total dialog and observe Today, Explained on Apple podcasts, Spotify, Pandora or wherever you discover podcasts.
This dialog has been edited for size and readability.
What occurred to Red Lobster this week?
Red Lobster declared Chapter 11 bankruptcy and they’re planning to restructure as an organization. Red Lobster is just not closing all of its eating places however they’ve closed a number of dozen, they usually have about 600 complete. They are looking for bankruptcy safety principally to cope with practically $300 billion in debt to their collectors.
By late final 12 months, they solely had $30 million left in money, which is simply not sufficient cash to run a giant, difficult enterprise like this. And they have been unable to pay quite a lot of their suppliers. Clearly, it is a state of affairs that has been piling up for a while, however that is the place it is ended up.
I’m assured that there’s extra happening right here than the limitless shrimp. And I wish to get to all of it, however I’ve seen some folks join the dots, kind of saying limitless shrimp price this firm a lot cash that it went into bankruptcy. What occurred there?
So Red Lobster actually has run these sorts of bottomless promotions up to now the place you possibly can get all of the shrimp that you really want from a sure a part of the menu. But they tended to run it as a limited-time supply, , sooner or later every week for a restricted time or simply for a sure interval. The firm final June stated, “Hey, we’re going to run this all the time so you can come in and pay $20 and you can get as much shrimp as you want.” So it drove quite a lot of visitors, however the earnings didn’t associate with these gross sales.
That’s the kind of factor that is sensible to me when it is limitless breadsticks. Unlimited shrimp — I can think about how that will grow to be a foul monetary deal fairly quick.
I’ve really talked to some restaurant executives since about that. Shrimp costs fluctuate fairly a bit. And after they go up, notably, that is simply going to price you some huge cash.
You talked about not all of the shops are going to shut. What occurs at this second for an organization like Red Lobster?
They’re within the bankruptcy safety course of. They have a CEO who’s a restructuring specialist who was introduced on to organize for this bankruptcy course of, when the corporate was already on very shaky floor. The purpose was to get some new phrases with their landlords and attempt to restructure into a brand new firm and go ahead.
Okay, so Red Lobster will proceed to be open, at the least for some folks. Do you assume the expertise of going to Red Lobster goes to be actually completely different after this bankruptcy continuing?
At some level, they’re going to in all probability attempt to get it in a spot the place it may promote. But if you happen to take a look at the submitting, it talks concerning the historical past of Red Lobster and its legacy. So I would not anticipate quite a lot of quick adjustments, however possibly transferring away from a few of these limited-time provides.
Where did Red Lobster come from within the first place? This firm has been round a reasonably very long time and is an American meals establishment.
They have been based within the late ’60s by Bill Darden, who is named the daddy of informal eating. It was one of many first informal eating chains round, a spot you possibly can deliver your loved ones or a date and have a pleasant meal out and never break the financial institution.
And there wasn’t a ton of that on the time, proper?
No, this was new. In the ’70s, General Mills invested within the firm and that basically helped it broaden its attain within the US. From there they developed all these form of enjoyable, kitschy issues like Lobster Fest and popcorn shrimp and coconut shrimp — issues they actually turned identified for. By the Nineteen Eighties and ’90s, they’re the largest seafood restaurant chain within the US. They actually hit on one thing that customers appreciated.
Looking again, when was peak Red Lobster?
I’d in all probability say the ’90s have been a heyday for them.
And when do issues begin to — I’m very sorry — flounder.
Darden Restaurants had an activist investor, Starboard, who was principally agitating for change they usually wished the corporate to be extra worthwhile. Bill Darden, who I imagine was nonetheless heading the corporate, was like, “All right, I’m going to deal with you by spinning off Red Lobster.” They offered Red Lobster in 2014 to the non-public fairness agency Golden Gate Capital to cope with this activist.
Golden Gate Capital in a short time had the corporate unload all its actual property, which gave them an infusion of money. But it meant that Red Lobster was going to be perpetually leasing again their actual property. In 2016, Thai Union Group comes alongside, one of many world’s greatest producers of canned tuna, and takes a minority stake in Red Lobster. Then in 2020, after the pandemic hit, they purchased it out wholesale.
How frequent a narrative is that within the restaurant world? These non-public fairness companies have a repute for taking on corporations and stripping them for components. Is that one thing that occurs rather a lot within the restaurant world?
Golden Gate has owned fairly numerous eating places. Private fairness proudly owning eating places is fairly frequent, partially as a result of they generate quite a lot of money.
Were there another kind of contributing elements to this? I do know one of many issues that confirmed up in Red Lobster’s bankruptcy submitting was that it simply has an unbelievable quantity of debt in comparison with the amount of cash that it has coming in. Where did all of that come from?
In 2021, labor prices simply shot by means of the roof as a result of eating places did not have sufficient labor. They have been actually combating to get employees and in consequence needed to actually improve how a lot they have been paying them. Then you’ve got inflation in 2022 sending menu costs up and folks beginning to get sad about paying these costs.
By June 2023, issues are beginning to look just a little higher however customers at this level are simply not going out to eating places as a lot. Consumers are simply tightening their belts after which comes Red Lobster providing this shrimp deal in June 2023.
Some of that appears like issues that hit each restaurant, and to some extent each business, throughout the pandemic. But it additionally looks like possibly kind of an ideal storm for Red Lobster particularly.
That’s completely proper. Lots of sit-down chains and unbiased sit-down eating places have been struggling. They’re extra labor intensive than quick meals and when that labor will get costlier, that is actually powerful. Commodity prices have gone up for these eating places, and the buyer is simply not loving it recently.
What’s particular to Red Lobster is the all-you-can-eat promotion. And being run and owned by their provider was very uncommon: The restructuring CEO has really raised questions on whether or not Thai Union structured a deal that benefited them extra than Red Lobster. According to this submitting, they reduce out a number of the different shrimp suppliers, giving them a most popular standing.
So does it really feel like we’re on the finish of an period proper now? We had a long time of there being Red Lobsters and issues prefer it in each strip mall in all places. You virtually could not flip round with out discovering one in every of these quick informal eating places. Are we on the finish of that a part of our lives in historical past now?
I do not assume we’re on the finish of the period, however it’s undoubtedly altering. You see chains like Applebee’s, even Chili’s closing areas. I do assume we’re seeing just a little little bit of shaking out in informal eating the place models are closing and, speaking to the restaurant analysts, they assume it may really rightsize the enterprise a bit higher, that we simply have too many of those eating places and we’d like fewer of them to serve the quantity of customers there are for his or her meals.
Red Lobster particularly, I really feel like was very intelligent about being barely elevated in what it was for a very very long time — it did not really feel fairly as informal as a number of the different informal eating places — and I’m wondering if that is what Red Lobster misplaced through the years was it felt fancy?
Absolutely. And a few of that could be a cultural shift. You know, when this chain began, lots of people did not have a seafood restaurant, particularly if you happen to’re in the midst of the nation. I’m from New Jersey the place you go to the Jersey Shore and have seafood; lots of people did not have that. Lots of the customers I talked to had vivid recollections of going out and having their birthday events when there have been 10 at Red Lobster. It was seen as a deal with, an event, and one thing to have fun.
So if these eating places aren’t doing properly, have we seen anybody that has been on an enormous upswing because of a number of the adjustments you are speaking about?
Some of those quick informal chains are doing fairly good. But I’d say generally, this isn’t a good time for eating places — even Starbucks and McDonald’s aren’t doing good. I believe we will need to see what occurs later this 12 months, if customers begin to really feel just a little looser with their cash. I believe that there are going to be worth promotions and worth wars coming this summer time.
So for Red Lobster, is there any hope for this storied model at this level, or are we in form of a gradual, inexorable decline?
The present CEO actually believes there’s hope that this restructuring course of will work. And the agency he works for, they’ve executed this earlier than. So I would not lose all hope for Red Lobster.