Casual dining chain Red Lobster, which became famous for popcorn shrimp and "endless" seafood deals, has officially filed for bankruptcy.
Citing a CNBC report, 100 Percent Fed Up said the seafood restaurant cited "a difficult macroeconomic environment, a bloated and under-performing restaurant footprint, failed or ill-advised strategic initiatives and increased competition" in its Chapter 11 bankruptcy filing. Days before, the 56-year-old chain shuttered almost 100 locations across the country, amid massive losses triggered by its unlimited shrimp promotion.
"Red Lobster's restaurants will remain open and operating as usual during the Chapter 11 process, continuing to be the world's largest and most-loved seafood restaurant company," the chain said in a press release. The statement added that Red Lobster "has been working with vendors to ensure that operations are unaffected and has received a $100 million debtor-in-possession financing commitment from its existing lenders."
"The Company intends to use the proceedings to drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets as a going concern. As part of these filings, Red Lobster has entered into a stalking horse purchase agreement pursuant to which Red Lobster will sell its business to an entity formed and controlled by its existing term lenders." (Related: California discount chain 99 Cents Only announces permanent closure, begins liquidation.)
Red Lobster currently operates 551 locations in the U.S. and 27 in Canada. Prior to the bankruptcy filing, the chain closed 93 under-performing locations. It has also asked the bankruptcy court to reject 108 of its leases to further slim down its footprint.
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Unlimited seafood isn't the only thing that brought down Red Lobster
"This restructuring is the best path forward for Red Lobster. It allows us to address several financial aid operational challenges and emerge stronger and re-focused on growth," said the chain's CEO Jonathan Tibus. "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."
But according to Tibus, there was something fishy about the involvement of Red Lobster's largest shareholder in the chain's ill-fated all-you-can-eat shrimp promotion. He disclosed that the company is investigating Thai Union's role in the fiasco. The Thailand-based firm owns a 49 percent stake in Red Lobster.
The bankruptcy filing stated that Thai Union "exercised an outsized influence on the [company's] shrimp purchasing." But for Tibus, former CEO Paul Kenny is to blame as he was responsible for making the $20 unlimited shrimp promotion a permanent menu item "despite significant pushback from other members of the company's management team."
But it's not just the unlimited shrimp that brought down the casual dining chain. A source familiar with the company told CNBC that Red Lobster's real estate portfolio is also a "huge problem" partly created by its former owner, private equity firm Golden Gate Capital (GGC). When Darden Restaurants sold Red Lobster to GGC in 2014, it funded the $2.1 billion acquisition partially through a $1.5 billion sale-leaseback agreement, the companies said previously.
Under the terms of the arrangement, the majority – if not all – of Red Lobster’s locations were sold off, and the chain had to start paying rent on properties it once owned while Golden Gate reaped the profits, the source said. At the time, it was tough to predict that Red Lobster would see sales drop as much as they have. Given how much revenue has fallen, the chain can no longer afford those leases.
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