( WJET/WFXP ) — Two months after Red Lobster had filed for Chapter 11 bankruptcy, they now have a new owner. Contrary to the largely spread idea that the decline of the company was a direct result of the “Ultimate Endless Shrimp promotion” deal, in reality, that deal was only a small part of a much greater issue in the company.
That’s according to court documents filed on Monday in the Middle District of Florida Orlando Bankruptcy Court. In this filing, they announced the cancellation of the bid for the company’s sale and announced that the “Stalking Horse Bidder,” RL Purchaser LLC which is a newly formed entity organized and controlled by Fortress Credit Corporation, has been named as the next owner of Red Lobster.
The $375 million purchase has yet to be approved by a court, that hearing is set to take place July 29, 2024, at 1:30 p.m.
Red Lobster filed for Chapter 11 bankruptcy on May 20th, a week after the company closed 93 locations around the nation.
Inflationary pressure has caused menu prices to rise, which have risen significantly faster than grocery and other consumer prices. This has led to customers being less inclined to eat out. Another source of pressure that was noted was the recent increase of minimum wages in 50% of states, and wages have outpaced the restaurant industry’s ability to increase prices.
Underperforming locations and unfavorable leases added to the liability concerns of the company. Red Lobster currently leases 687 locations, spending $190.5 million in 2023 on these lease obligations. Over $64 million of those obligations were that of underperforming locations.
A key point when people think of Red Lobster’s failure, but a point that is not a large factor in the downturn of the company, is the Ultimate Endless Shrimp promotion that was held. While it was meant to be only a limited time promotion, in May 2023 former CEO Paul Kenny decided to add the promotion as a permanent $20 menu item despite significant pushback. This decision ultimately cost company $11 million and created a burden on the supply obligations creating shortages of shrimp at locations for days and even weeks.
While the company initially recovered from the revenue slump during the COVID-19 pandemic, in just a few years Red Lobster erased any ground recovered after the pandemic, evident after posting a $75 million net loss in 2023.
Since 1995, Darden Restaurants, a General Mills Company, owned the brand before it sold Red Lobster to Golden Gate Capital in May 2014. In 2020, Thai Union, former members of Red Lobster management and certain investors under the name Seafood Alliance acquired Red Lobster from Golden Gate.
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