Red Lobster, the embattled casual dining seafood restaurant, filed for chapter 11 bankruptcy on Monday, placing 550 locations across the U.S. in dangerous waters.
Earlier in May, the company abruptly announced the closure of 99 restaurants across 27 states, with much of the blame for the decision landing on poor management and costly shrimp deals.
Read more: The Best Rewards Credit Cards for Restaurants and Takeout
Newsweek has mapped the downfall of the brand, once a household name, in three charts.
"Endless Shrimp" Deals
The chain launched a $20 all-you-can-eat shrimp promotion in summer 2023. Although the price of shrimp often fluctuated, the restaurant was slow to react to market changes. Company losses of more than $11 million dollars for the third quarter of this year were largely attributed to the deal.
Global shrimp prices have been steadily rising since the end of 2023, continuing an upward trend over the past 12 months.
Management at Red Lobster would eventually raise the price on the deal to $22, then $25 dollars.
Although stores saw an increase in traffic of four percent as a result, Thai Union CFO Ludovic Garnier told investors: "We need to be much more careful regarding what are the entry points and what is the price point we are offering for this promotion."
"If anything, the Endless Shrimp deals are probably as much a symbol of just either desperation or poor management or both," Restaurant Business Magazine editor-in-chief Jonathan Maze said in an interview with Business Insider.
Americans Shun Dining Out As Inflation Bites
Amid elevated inflation, data from Statista shows that Americans chose to eat out less than they did previously. Only 13 percent of respondents in April 2023 said they dined out at full-service restaurants more than they did six months ago.
Statista data also highlighted a sharp decline in U.S. household expenditure in 2020 because of stay-at-home measures during the COVID-19 pandemic.
Worse for Red Lobster, executives at its parent company noted that menus across many restaurants had not been updated to reflect rising inflation.
Read more
- Red Lobster: What happens to my rewards, gift vouchers?
- Red Lobster's 'Endless Shrimp' and 5 other disastrous promotions
Restaurant menu prices across the U.S. increased 4.1 percent year-on-year in April, according to an analysis by the National Restaurant Association. For full service establishments, the increase was slightly less at 3.4 percent.
According to the U.S. Bureau of Labor Statistics, prices for food and beverages are more than 22 percent higher (22.04) in 2024 compared to 2020, with an average inflation rate of 5.11 percent per year.
The U.S. Chamber of Commerce cites labor shortages, supply chain disruptions, post-pandemic increases in food demand and high oil prices, which raise shipping costs and some of the key factors driving food inflation.
Sales Slump
Financial reports leading up to 2024 reveal that Red Lobster faced significant financial challenges.
In Q3 2023, the company reported a net loss of $11 million, attributed largely to the popularity of their "Endless Shrimp" promotion. By the end of 2023, Red Lobster's net losses amounted to more than $22 million, as the company continued to struggle with slumping traffic and rising costs.
Red Lobster lost $76 million in the last financial year, with its operating earnings falling 60 percent.
Read more
- Rob Schneider weighs in on Red Lobster closures
- Red Lobster restaurant sale launches—"Entire contents" from $1,600
Annual sales have proved sluggish for the casual eatery, remaining broadly flat since it was sold to a private equity firm in 2014, save a big drop in 2020 amid the COVID-19 from which the company struggled to recover from.
The company recently reported it had more than $1 billion in debt and less than $30 million in cash.
Thai Union Group, the Bangkok-based seafood supplier bought the seafood chain as part of a consortium from its previous owners Golden Gate Capital in 2020.
The group announced it would be parting ways with Red Lobster in an early 2024 press release due to the restaurant's "negative financial contributions to Thai Union and its shareholders."
Red Lobster did not immediately respond to a request for comment.
Do you have a story we should be covering? Do you have any questions about Red Lobster? Contact LiveNews@newsweek.com
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
");jQuery(this).remove()})jQuery('.start-slider').owlCarousel({loop:!1,margin:10,nav:!0,items:1}).on('changed.owl.carousel',function(event){var currentItem=event.item.index;var totalItems=event.item.count;if(currentItem===0){jQuery('.owl-prev').addClass('disabled')}else{jQuery('.owl-prev').removeClass('disabled')}if(currentItem===totalItems-1){jQuery('.owl-next').addClass('disabled')}else{jQuery('.owl-next').removeClass('disabled')}})}})})
