Red Lobster files for Chapter 11 bankruptcy protection

Red Lobster has filed for Chapter 11 bankruptcy protection after closing dozens of restaurants, including one in Indianapolis.

The seafood chain has agreed to sell itself to its lenders―following a process known as a “stalking horse” purchase agreement―giving it a $100 million financing commitment to keep it afloat. CEO Jonathan Tibus said the restructuring is “the best path forward” to address its financial challenges.

“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,” Tibus said in a statement released late Sunday.

Going forward, the company plans to focus on retaining employees and streamlining its menu, according to a filing Sunday in U.S. Bankruptcy Court in Florida.

In the filing, Tibus detailed the factors that led to the decline of the chain, which suffered a net loss of $76 million in fiscal 2023. Poor performance, expensive leases, high inflation and rising labor costs hit the restaurants, he said. Additionally, he said, it was dinged by “operational missteps” including its disastrous decision in 2023 to make its “endless shrimp” deal a permanent part of the menu.

Red Lobster was founded in Florida in 1968 by Bill Darden, who first operated it under the umbrella of General Mills and then as part of Darden Restaurant Group with its sister company, Olive Garden. It carved out a niche selling buttery seafood at affordable prices, including in towns where such options were a novelty.

But it has struggled to compete in a restaurant landscape where newer fast-casual options like Chipotle have proliferated and has seen multiple ownership changes. It was acquired by private equity firm Golden Gate Capital for $2.1 billion in 2014, and in 2020 it was sold to Thai Union Group, a Thailand-based seafood distributor that was one of the chain’s suppliers.

Thai Union said it lost $19 million on the business in the first nine months of 2023 because of “a combination of covid-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs.” Thai Union announced plans to exit the business in January.

Red Lobsters all over the country have been closing down, with dozens shutting their doors last week. A restaurant auctioneer placed more than 50 locations up for sale last week, according to the Associated Press.

The list of closures includes the Red Lobster at 1752 Shadeland Ave. in Indianapolis. The location is still on the chain’s web page, but is listed as closed.

Still open in Indianapolis are the Red Lobsters at 690 E. Thompson Road and at 6410 E. 82nd St. in Castleton. Red Lobster also has area restaurants in Avon and Anderson.

The only other Red Lobster on the closure list for Indiana is at 3009 Brittany Court in Elkhart.

The chain operates 551 locations in 44 states and 27 in Canada, according to the bankruptcy filing.

Some analysts say the chain’s “endless shrimp” promotion was its death blow. In the filing, Tibus said debtors were investigating the circumstances around the promotion, and suggested that Thai Union’s position as owner and supplier had caused problems. He said that former CEO Paul Kenny decided to make the $20 special a permanent fixture in 2023 “despite significant pushback from other members of the Company’s management team.”

Debtors also are looking into Kenny’s decision to heavily promote it, which he described as “atypical” for the chain — the promotion, he said, drove such a high demand that some locations ran out of shrimp. They are also investigating whether the former CEO “circumvented” the company’s normal supply chain and demand planning processes by sourcing the shrimp from Thai Union.

Tibus also claimed that under the guise of a “quality review,” Kenny effectively eliminated two of the company’s breaded shrimp suppliers, leaving Thai Union with an exclusive deal that led to higher costs.

Expensive leases also dragged on the company. When it was purchased in 2021, Red Lobster, which had previously owned its own real estate, spun off its real estate assets in a transaction known as a sale-leaseback agreement. After that, the company was saddled with rents that Tibus said in the bankruptcy filing were at “above market rates,” which proved particularly problematic for underperforming locations.

In its filing, the seafood chain reported assets valued between $1 billion and $10 billion, and debts in the same range. It has more than 100,000 creditors.