Dive Brief:

• Red Lobster filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court for the Middle District of Florida, the company said in a press release on Sunday. 
• The company plans to use the proceeding to improve operations, reduce its number of locations to simplify its business and pursue a sale of “substantially all of its assets as a going concern.” 
• As part of its filing, the chain said it has entered into a stalking horse purchase agreement with an entity formed and controlled by its existing lenders. 

Dive Insight:

The long-rumored bankruptcy is a culmination of a months-long downward spiral in its financial performance, which included trouble paying its bills on time and minority owner Thai Union Group deciding to sell its stake. In April, the company was reportedly looking for a buyer.

Red Lobster’s has struggled for years — sales were down even before the pandemic. Its troubles worsened last year after it decided to offer Endless Shrimp for $20 daily to try and bolster traffic.

Foot traffic rose by 3.7% in June, 4.3% in July and 10.7% in August following the promotion, according to Placer.ai data emailed to Restaurant Dive. Traffic remained elevated through the rest of the year, but the menu item — in which a guest could choose two shrimp items and then keep going — was so popular, it led to $11 million in losses during Q3 2023.

“Red Lobster is an interesting case for visitation trends over the past two years. The chain was seeing year-over-year visit declines through much of 2022 and the first half of 2023 when the company brought back the ‘Ultimate Endless Shrimp’ promotion in the summer of 2023,” R.J. Hottovy, Head of Analytical Research at Placer.ai, said in an email to Restaurant Dive. “That helped to drive strong year-over-year visits, but as Red Lobster's parent company (Thai Union) discussed in its third-quarter 2023 update, it also negatively impacted the chain's profitability.”

Last week, the chain closed nearly 100 locations, of which at least 48 auctioned off equipment and furniture. As of March, the company has been paying its bills on average 48 days past its payment terms, which suggests that the chain lacked the cashflow to sustain it through losses, revenue declines or the current challenging market conditions, according to Creditsafe. 

Bankruptcy will help alleviate some of its financial pressures from high rents and labor costs. During its bankruptcy, the company plans to remain open and operational. The chain is working with its vendors to ensure that operations are not impacted. The chain said it received $100 million in debtor-in-possession financing commitment from its lenders. 

“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,” CEO Jonathan Tibus said in a statement. “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.”