Why Is Red Lobster Bankrupt? No, It’s Not Just About Endless Shrimp

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Beloved seafood chain Red Lobster has filed for Chapter 11 bankruptcy protection after news last week that it was closing almost 50 restaurant locations in the United States.

Although much has been made about the restaurant’s decision to make its $20 endless shrimp deal a permanent menu item—underestimating demand and leading to an $11 million loss, according to its largest shareholder, Bangkok-based Thai Union Group—that loss-making promotion is only one part of the chain’s financial difficulties, which date back years.

Here’s what you need to know:

THE RISE AND FALL OF A FAST-CASUAL GIANT

Founded in 1968 in Lakeland, Florida, by Bill Darden and Charley Woodsby, Red Lobster brought affordable seafood to inland America, revolutionizing casual dining. General Mills acquired the brand two years later, helping it expand rapidly. But Red Lobster has since struggled to keep up with changing market dynamics, consumer preferences, and, more recently, inflationary pressures. 

Fast-casual chains like Chipotle Mexican Grill and quick-service giants like Chick-fil-A have eroded Red Lobster’s market share. “Red Lobster had incredible popularity among baby boomers,” but had trouble bringing in younger diners, noted Alex Susskind, a food-and-beverage scholar at Cornell University, in an interview with CNN.

OWNERSHIP CHANGES, INFLATION, LEASE BURDENS, AND MORE

Obviously, this wasn’t just about shrimp: Former executives and industry analysts also highlight that successive ownership changes and corporate strategies have not favored the chain’s long-term health. A former Red Lobster executive, speaking anonymously to CNN, criticized Thai Union’s cost-reduction strategies, describing them as “penny wise and pound foolish” because they ultimately harmed sales.

In January, when Thai Union Group announced it was seeking to unload its ownership share in Red Lobster, it cited a combination of “the Covid-19 pandemic, sustained industry headwinds, higher interest rates, and rising material and labor costs.”

Rental leases for its restaurants have proven to be a particular burden. In bankruptcy filings on Monday, the company said that it was seeking to reject unexpired leases “and abandon any personal property remaining at leased premises on an emergency basis . . . to avoid incurring post-petition administrative rent.”

With a future very much uncertain, Red Lobster appointed Jonathan Tibus as its new chief executive, a restructuring expert known for guiding companies through financial turmoil. Meanwhile, Neal Sherman, CEO of TAGeX Brands, is promoting a “Winner Takes All” liquidation sale for the chain’s fixtures, furniture, and equipment from shuttered locations. 

And, of course, Red Lobster isn’t alone among troubled restaurant chains. Tijuana Flats announced last month that it was under new management after a bankruptcy filing. The owner of Boston Market attempted a second bankruptcy only to be blocked by a judge. And TGI Friday’s began the year announcing dozens of closures.

For its part, Red Lobster said it will keep operating during the Chapter 11 process and 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.”

Nevertheless, social media is filled with saddened responses from distraught Red Lobster loyalists, some of whom fear this is a sign that the days of affordable family dining are coming to a close. 

Fast Company reached out to Red Lobster and Thai Union Group for comment.

Fast Company | BY TRACY BROWN HAMILTON