Red Lobster May File for Bankruptcy as Labor Costs Skyrocket: Report

A new report said the Red Lobster seafood restaurant chain is considering a Chapter 11 bankruptcy filing.

Under Chapter 11, a business can remain open while it reorganizes to deal with expenses such as debt that are putting a strain on profitability.

Red Lobster’s object would be to exit some long-term contracts and renegotiate some leases, according to Bloomberg, which cited sources it did not name as saying the chain was working with the law firm of King and Spalding on a filing.

Bloomberg said labor costs have also been an issue for Red Lobster.

Thai Union Group PLC is the majority owner of the chain.

In January, Thai Union said on its website it was ending its investment in Red Lobster.

“The combination of COVID-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted Red Lobster, resulting in prolonged negative financial contributions to Thai Union and its shareholders,” Thai Union Group CEO Thiraphong Chansiri said.

Red Lobster’s losses led to a $19 million share loss for Union Group during the first nine months of 2023, the majority owner said.

A company release said that it is recording a $530 million one-time non-cash impairment charge in its fourth-quarter 2023 earnings report for its investment in Red Lobster.

“Red Lobster is done and over with,” Chansiri said in February, according to the website Delish.

“[We’re] just waiting for the sale to happen but we do not expect any significant value to be gained,” he said.

The website Restaurant Business said that an all-you-can-eat shrimp deal ate into the profits as well.

Red Lobster offered Ultimate Endless Shrimp as a daily menu item beginning in  June 2023. The deal allows a customer to choose two types of shrimp and eat all they want for $20.

Red Lobster posted an operating loss of more than $11 million in the third quarter, with the deal cited as a contributing factor.

Red Lobster is considering filing for bankruptcy

Its recent history:

– Three CEOs in two years
– Current owners trying to divest
– Total losses of $22 million last year
– Miscalculated ‘Endless Shrimp’ promo

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Rising minimum wage rates have made labor costs an issue for the restaurant sector, with California leading the way.

Beginning on April 1, fast-food workers in California at chains that have more than 60 locations across the country must be paid $20 per hour, above the existing $16-per-hour minimum wage rate for other industries, according to CNBC.