Struggling seafood chain Red Lobster is looking for a buyer to avoid bankruptcy. The company has thought about filing for bankruptcy to help deal with its debt and get out of expensive leases. But it’s also been trying to find a buyer recently, according to people familiar with the situation who spoke to CNBC.
At least one company was interested in buying Red Lobster, but a deal didn’t happen. It’s not clear how Red Lobster will solve its money problems. It could find a buyer, file for bankruptcy, or its lenders might take control of it.
Even if Red Lobster finds a buyer, it might still have to file for Chapter 11 bankruptcy. That’s because it’s trying to get out of many leases, and breaking those contracts is tough outside of bankruptcy, the people said.
Bloomberg first reported last week that Red Lobster was thinking about filing for Chapter 11. Red Lobster didn’t respond to a request for comment.
The long-standing chain, famous for its cheddar bay biscuits and unlimited shrimp, is looking for a new owner at a time when getting money is expensive and big restaurant groups are being cautious because casual dining isn’t doing great.
Over the past decade, Red Lobster has taken on debt and made a lot of long-term lease agreements for its 700-plus locations, which has hurt its financial situation.
Jonathan Tibus, who has experience with struggling restaurant chains, was recently made Red Lobster’s CEO after many top executives left. But Tibus didn’t respond to a request for comment.
This year marks 10 years since Darden Restaurants sold Red Lobster after investors wanted them to get rid of it. Private equity firm Golden Gate Capital bought Red Lobster for $2.1 billion and tried to improve it.
In 2016, Thai Union Group, a seafood supplier, bought a part of Red Lobster. Then, during the pandemic in 2020, Thai Union Group and an investor group called the Seafood Alliance bought the rest of Red Lobster from Golden Gate Capital.
Unlike many other restaurants, Red Lobster didn’t have to file for bankruptcy during the pandemic. But its longtime leader Kim Lopdrup retired in 2021, starting a string of CEOs leaving.
Kelli Valade became CEO in 2021 but left after a year to lead Denny’s. Then Horace Dawson took over, but he left after around six months. Finally, in March, Jonathan Tibus was named CEO.
But Red Lobster’s problems are bigger than just changing CEOs. Casual dining has been struggling for about 20 years, especially with competition from fast-casual chains like Panera Bread and Chipotle Mexican Grill. The pandemic made things worse, especially for full-service restaurants like Red Lobster.
Red Lobster also hurt itself with some bad decisions, like its “endless shrimp” promotion. Last year, it changed the deal from once a week to every day to try to boost sales in the second half of the year.
But the deal was too good, and diners flocked to Red Lobster for cheap food, which hurt its profits. As a result, Red Lobster lost $11 million in the third quarter and $12.5 million in the next quarter.
In January, Thai Union Group said it wanted to sell its part of Red Lobster.
