Popular national restaurant chain explores Chapter 11 bankruptcy

The Covid pandemic helped restaurant chains with the infrastructure needed to pivot to delivery, pickup, and drive-through. McDonald’s, Domino’s, and Chipotle thrived, for example, because they had been investing in technology for years.

Those chains also have food that people are used to eating at home. Traditional sit-down restaurants tried to make the pivot to delivery, but customers did not necessarily want to pay sit-down prices to eat at home and some food travels better than others.

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For some chains, the Covid lockdown period came with a huge slowdown in business. The recovery, in many cases, was also slow, and recent months have shown some Americans being less willing to dine out.

You can blame inflation or just general economic concerns but some chains have not recovered to the level necessary to service the added debt they took on during the shutdown period. Add in that labor prices have pushed higher and some food items cost more and it creates a very difficult operating situation.

Burger King lost hundreds of restaurants across multiple franchisees and Boston Market has dwindled to a handful of stores. Now, another huge national brand has hired a consulting firm to consider a possible Chapter 11 bankruptcy filing.

Some restaurant chains have continued to struggle. Image source: Shutterstock

Red Lobster has struggled

Red Lobster has a proud history and, in many ways, it brought lobster and seafood to markets where it otherwise was only offered in fine-dining experiences.

“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. What was once a single, family-owned restaurant in Lakeland, Florida, now has over 700 locations around the world,” the company shared on its website.

The chain has been owned by Thai Union Group, which wrote down its stake in the company earlier this year.

“During the past years, the combination of Covid-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted to Red Lobster business resulting in prolonged negative financial contributions to the company and its shareholders,” Thai Union said in a Jan. 16 media release. “…After detailed analysis, the board of directors has determined that Red Lobster’s ongoing financial requirements no longer align with our capital allocation priorities and therefore the company is pursuing an exit of the minority investment.”

Red Lobster considers its options

The seafood chain hurt its financial position by offering its popular all-you-can-eat shrimp meal for $20. That worked to increase traffic, but it was a money loser for the chain. That deal remains on the menu, but it now costs $25.

It’s a situation that has the chain looking for a lifeline.

“Red Lobster has been getting advice from law firm King & Spalding, said the people, who asked not to be identified discussing a private matter. The dining chain is considering a possible Chapter 11 filing to shed some long-term contracts and renegotiate a swath of leases, the people said,” Bloomberg reported.

Fortress Investment Group, the company’s top lender, has been involved in the Chapter 11 discussions, according to the news service.

Red Lobster recently changed CEOs. Horace Dawson stepped down and retired. Jonathan Tibus, managing director of management consultant Alvarez & Marsal. Tibus is considered a turnaround expert who helped Kona Grill and Krystal through their Chapter 11 bankruptcy filings.