What happened to Red Lobster? Chain considering bankruptcy after endless shrimp promotion

Red Lobster is reportedly considering filing for bankruptcy.

Amid the restaurant’s financial concerns, attention has been placed on Red Lobster’s previous deals, which some suggest may have contributed to the demise. The seafood chain decided to launch an endless shrimp promotion for only $20 and made it a permanent menu item as opposed to one that was only available for a limited time. There is now speculation that this promotion is why the company is currently looking for a buyer to avoid bankruptcy.

The Ultimate Endless Shrimp promotion was an original tactic launched in June 2023 to bring in extra customers despite the restaurant creating a similar endless crab promotion in 2003, which resulted in them losing $3.3m in seven weeks, according to CNN.

To avoid a loss in revenue, the chain slowly began increasing the promotion prices from $20, to $22, and then $25, according to NBC. However, Red Lobster went on to report approximately $11m in operating loss for their third quarter 2023.

In their fourth quarter, they went on to lose $12.5m in operating losses, according to the outlet.

“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Ludovic Regis Henri Garnier, the CFO of the chain’s parent company, Thai Union, said in the Q3 earnings call. “So we wanted to boost our traffic, and it didn’t work.”

Later in early 2024, Thai Union announced it would exit Red Lobster, citing “negative financial contributions to Thai Union and its shareholders,” according to a company press release.

Despite many people claiming the shrimp promotion is what specifically prompted enough loss in revenue to warrant the possible bankruptcy filing, business experts have made the argument that multiple factors are at play, including long-term, costly leases and rising labour costs, according to Bloomberg.

“If anything, the Endless Shrimp deals are probably as much a symbol of just either desperation or poor management or both,” Jonathan Maze, the editor in chief of Restaurant Business Magazine, said in an interview with Business Insider.

The restaurant chain was first started in Florida in 1968. General Mills acquired the restaurant two years later in 1970, before the company split into a restaurant-only firm called Darden Restaurants, who also owned Olive Garden, according to Red Lobster’s timeline on their website.

Due to pressure from investors, the seafood chain was sold again in 2014 to Golden Gate Capital, a San Francisco private-equity firm for $2.1bn.

Because Golden Gate didn’t technically have enough money for the deal, they sold the land the restaurants were sitting on to American Realty Capital Properties and Golden Gate leased the land.

This is essentially where the problem is coming from, according to the reports. Red Lobster has been able to fully purchase some of the restaurants back, but because of American Realty Capital Properties, the restaurants are dealing with hefty rental fees.

“The thing that private equity does is just unload assets and monetise assets. And so they effectively paid for the purchase of Red Lobster by selling the real estate,” Maze told Business Insider. “It’ll probably be fine, generally, but there’s going to come a time in which your sales fall, your profitability is challenged, and your debt looks too bad, and then suddenly those leases are going to look awfully ugly.”

Following the real estate situation, Golden Gate sold 25 per cent of the company in 2016 to Thai Union, according to a company press release at the time.

The Independent has contacted Red Lobster for comment.