Red Lobster out of bankruptcy under former PF Chang’s CEO – after endless shrimp deal led to demise of 100 restaurants

RED Lobster has successfully emerged from Chapter 11 bankruptcy, marking a significant turnaround for the seafood chain known for its affordable menu and popular cheddar biscuits.

The reorganization plan was approved by a US bankruptcy judge earlier this month, leading to the acquisition of the business by a lender group spearheaded by Fortress Investment Group.

The decision comes less than four months after Red Lobster filed for bankruptcy protection, driven by ongoing financial struggles and a need to adapt to a competitive market.

In 2023, the Orlando-based chain reported a loss of $76 million and closed over 50 locations, with additional restaurant closures occurring during the bankruptcy proceedings.

The new CEO, Damola Adamolekun, previously the chief executive of PF Chang’s, now leads Red Lobster.

Adamolekun, who was appointed to head RL Investor Holdings — the entity that acquired Red Lobster — has committed over $60 million in new funding to support the company’s long-term investment plans.

“Red Lobster is now a stronger, more resilient company,” Adamolekun stated.

“Today marks the beginning of a new chapter in our history.”

Red Lobster is now an independent, privately-held entity with 545 locations across 44 states and four Canadian provinces.

UNLUCKY SHRIMPS

Red Lobster, which officially filed for Chapter 11 protection on May 19, faced years of struggles due to rising food and labor costs, underperforming locations, and increasing operating expenses.

The company’s financial woes were exacerbated by its Ultimate Endless Shrimp promotion last year.

The deal, which allowed customers to enjoy unlimited shrimp for $20, initially boosted sales but also led to unexpected high demand.

Thai Union, Red Lobster’s parent company, had to raise the promotion’s price to $25 to manage the surge in orders.

Despite this, the promotion remained a significant factor in the chain's financial challenges.

In January, Thai Union Group, a Thailand-based seafood producer, announced its intention to divest from Red Lobster due to "prolonged negative financial contributions."

Thai Union's President and CEO, Thiraphong Chansir, acknowledged during a February earnings call that the sale might not yield significant returns.

How does bankruptcy work?

Bankruptcy is a specific legal process that helps companies eliminate debt they can't repay.

The process allows businesses to start fresh and gain access to new credit.

Supervised by federal courts, bankruptcies allow a company to sell off its assets more easily to pay off creditors, according to Investopedia.

Chapter 11, a common process for companies, is used to restructure a business with the goal of remaining open - even if it means selling off most of the company's properties.

Chapter 7, on the other hand, sells all of a company's assets, putting it out of business.

Chapter 15, alternatively, allows for collaboration between American and foreign courts to conduct bankruptcy proceedings with "parties of interest involving more than one country," per the United States Courts.

The bankruptcy filing allowed Red Lobster to reorganize and sell off many of its assets to address its financial and operational issues.

CEO Jonathan Tibus emphasized that the restructuring process was crucial for the chain's recovery, saying, "This restructuring is the best path forward for Red Lobster.

"It allows us to address several financial and operational challenges and emerge stronger and refocused on our growth."

The U.S. Sun has extensive Red Lobster coverage.

Hear more about CEO Damola Adamolekun's plan for the seafood chain.

Plus, understand the reason behind the chain's recent closures.