Red Lobster is closing several outlets. It is no news that the current economic situation is forcing many businesses, especially restaurants, to take certain measures for financial stability. Red Lobster is not an exception. The restaurant is closing 23 more outlets across several states.
The seafood giant is making this move after already closing 100 other locations. As part of a larger recovery plan, it is trying to cut costs and protect its primary business. On May 19, the company’s CEO, Jonathan Tibus, announced that Red Lobster filed for Chapter 11 bankruptcy.
Why Are Red Lobster Locations Closing?
Red Lobster is closing due to the recent economic situation. Inflation is causing many businesses to struggle economically. Red Lobster attributes some of its financial woes to problematic promotions that it offered.
The chain’s all-you-can-eat shrimp special was one major promotion that didn’t generate much profit. Although the promotions were quite popular among consumers, they were not financially sustainable. The all-you-can-eat shrimp special promotion led to an $11 million loss in the third quarter of 2023.
The CEO further explained the reasons why Red Lobster is closing. “Due to the inflation, the food prices increased in the food industry. This situation makes consumers less likely to dine out and makes many outlets less profitable,” he said.
A large number of Red Lobster’s 687 locations had expensive leases. The company spent more than $190 million on leases, and more than $64 million went to stores that weren’t making enough money in return. The expenditures of those stores were more than the revenue, which means they were operating at a loss. Also, previous management’s poor decisions have worsened the company’s financial situation over the past few years.
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How Much Money Did Red Lobster Lose?
According to its CEO, Red Lobster lost $76 million during the financial year 2023. The company lost $31 million in cash from June 2023 to September 2023. In the third quarter, it reported a loss of $11 million due to poor promotion. All of these led to Red Lobster’s rapid decline in liquidity.
The seafood giant expected to generate a large amount of cash by December to recover from the cash losses, but things didn’t go as expected.
“By the end of 2023, it became apparent that Red Lobster’s financial troubles weren’t going to be solved by the usual boost in sales they get during holiday seasons,” Tibus said.
What Company Owns Red Lobster Now?
At the time of this article, Red Lobster is owned by Thai Union Group, a major seafood supplier based in Thailand. In 2014, Darden sold Red Lobster to a private investment firm called Golden Gate Capital for $2.1 billion. In 2020, Thai Union Group became the largest shareholder in Red Lobster, owning 49% of the company.
Presently, the company is trying to recover independently. The CEO created a three-part plan to help it improve its finances. The first part explains how he wants to strengthen Red Lobster by enhancing the work environment, which will make employees happier.
According to the details he gave in the bankruptcy filing, Tibus aims to maintain better and more consistent customer service for the second part of his plan. The final plan is to cut costs without reducing the quality of their food or service.
The plan is already in action, as the company has closed several stores. On May 14, Red Lobster closed 93 stores that were not doing well. Several stores in 14 states, including Virginia, Illinois, and Florida, were closed. Seven more outlets were closed in states like Alabama and Arizona in July.
Now, the Seafood company is looking at areas of the business where it can stop unnecessary spending. Tibus mentioned that they tried to move employees from the closed outlets to other locations nearby and reorganize some management positions. The CEO believes restructuring and reorganizing the company is the best way for Red Lobster to solve its financial woes and become stronger.
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Is Red Lobster the Only Company Closing Down?
Red Lobster is not the only restaurant chain that is closing outlets. The company’s situation is part of a much larger trend of financial difficulties in the retail and food industries. Other companies, like Conn’s HomePlus, are also going through bankruptcy.
Several fast-food chains are also on the verge of closing down some of their outlets in the food industry. Many restaurants have started offering special meals, deals, and promotions to make their brand thrive during this economic situation. These reflect a challenging economic environment for several companies in these industries.
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