Rising labor costs could drive iconic national restaurant chain into bankruptcy

Iconic seafood chain Red Lobster is considering filing Chapter 11 bankruptcy after mounting losses from the pandemic and labor costs, among other culprits.

The home of Cheddar Bay Biscuits is looking to restructure its debts and avoid shuttering any more of its 649 nationwide locations, according to Bloomberg. Citing unnamed sources, the outlet reported that the company is seeking advice from law firm King & Spalding.

“Red Lobster’s cash flows have been weighed down by onerous leases and labor costs, among other issues. Restructuring discussions are ongoing and a final decision hasn’t been made, they said. Filing for bankruptcy would allow the company to keep operating while it works on a debt-cutting plan,” Bloomberg noted.

Reports of the millions the restaurants lost in the $20 Ultimate Endless Shrimp deal have added to the financial woes.

Thai Union Group, Red Lobster’s largest investor has reportedly not sold its shares yet but, according to its CEO, that may be coming.

“The combination of COVID-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted Red Lobster, resulting in prolonged negative financial contributions to Thai Union and its shareholders,” CEO Thiraphong Chansiri said in a statement earlier this year.

“After detailed analysis, we have determined that Red Lobster’s ongoing financial requirements no longer align with our capital allocation priorities and therefore are pursuing an exit of our minority investment,” he added.

The Thailand-based company took control of Red Lobster in 2020.

“Red Lobster is done and over with,” he said in the February meeting. “[We’re] just waiting for the sale to happen but we do not expect any significant value to be gained.”

The seafood chain paid the ultimate price in its ultimate shrimp deal, posting an operating loss of more than $11 million in its third quarter last year when the limited-time offer became a regular part of its menu.

“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Thai Union CFO Ludovic Regis Henri Garnier said in November, referring to the $20 deal that was raised to $25 to combat the losses. “So we wanted to boost our traffic, and it didn’t work.”

According to the Red Lobster website, the first restaurant opened in Lakeland, Florida in 1968.

“Before there was Red Lobster, there was Bill Darden, a man passionate about making delicious, high-quality seafood available and affordable to everyone, including people who lived far from the coast and regardless of race, gender, religion or economic means,” the website states. “What was once a single, family-owned restaurant in Lakeland, Florida, now has over 700 locations around the world.”

The bankruptcy possibility set off a wave of reactions on social media.

Frieda Powers

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