Can Red Lobster Successfully Continue With New Owners?

Red Lobster has filed for Chapter 11 bankruptcy after abruptly closing numerous locations. The company plans to streamline operations, reduce restaurant numbers, and seek a sale of most assets. The remaining locations will stay open with a $100 million financing commitment from lenders. CEO Jonathan Tibus said the restructuring will address financial challenges and strengthen the company.

According to The Washington Post, Red Lobster said in the court filing that “it has more than 100,000 creditors,” and its liabilities are estimated between $1 billion and $10 billion, worsened by COVID-19 and rising costs. The popular Endless Shrimp promotion significantly contributed to financial losses.

TAGeX Brands conducted an online auction for equipment and furnishings from Red Lobster restaurants that closed in several states, including five locations each in California and Florida and four each in Maryland and Colorado. The auction, described as the “largest restaurant equipment auction ever,” ran through Thursday, May 16. Available items included high-performance ovens, refrigerators, and dining room furniture. Each auction was winner-takes-all, meaning the highest bidder for each location received all the contents from that restaurant.

Though only around 50 Red Lobster restaurants were listed on the auction site, there have been reports that more locations could be closing down. According to USA Today, last week, Red Lobster’s website listed 87 stores in 27 states as “temporarily closed.”

In a press release shared on Sunday night, Red Lobster announced that it has “entered into a stalking horse purchase agreement” as part of the bankruptcy filing, where the business will be sold to a new entity that will be entirely owned and controlled by its current lenders.

The restructuring process is expected to provide Red Lobster with the necessary tools to overcome its financial hurdles and position itself for future growth. By transferring ownership to its lenders, Red Lobster aims to stabilize its financial situation and streamline its operations. This move is seen as a crucial step in revitalizing the brand and reinforcing its presence in the competitive restaurant industry.

“This restructuring is the best path forward for Red Lobster. It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth. The support we’ve received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests.” 

CEO Jonathan Tibus via Red Lobster

There is speculation that a resilient future for Red Lobster is possible due to the reduced number of locations. This decrease could paradoxically heighten public demand, creating a more exclusive and sought-after dining experience.

One analyst proposed an innovative approach to bolster the brand’s finances and engage its dedicated customer base: a “Save Red Lobster” crowdfunding campaign. This initiative could tap into the loyalty and passion of Red Lobster’s fans, rallying them to contribute to the brand’s revitalization. By involving the community directly, such a campaign could not only provide a much-needed financial boost but also strengthen the emotional connection between the restaurant and its patrons.

On social media, users have taken to posting nostalgic Red Lobster commercials and advertisements for the restaurant. Some have wondered if the store closings will affect the production and availability of Red Lobster’s frozen grocery offerings. Another user linked to a promotion showcasing an “Endless Lobster Experience” that’s coming soon.

As Red Lobster navigates its restructuring, this combined strategy of streamlining operations and leveraging public support could play a crucial role in ensuring its long-term viability and success.