When people start cutting their budgets, one of the first things to go is eating out.
That not only takes some of the fun out of life for many, but it also creates a huge problem for people who invested in restaurants and the millions who work for these iconic chains.
Now one popular and iconic seafood chain is barely treading water, and it could become yet another victim of Bidenomics.
Red Lobster weighs bankruptcy filing
An anonymous source with inside information told Bloomberg that the popular seafood chain Red Lobster is weighing a possible Chapter 11 bankruptcy filing.
The source said that the chain sought advice from the law firm King & Spalding to discuss how to shed a few long-term contracts and a chunk of its leases to help restructure the company’s mounting debt.
In recent months, Red Lobster has taken a massive hit thanks to rising labor costs, strenuous leases, and an $11 million loss that may be due in part to the chain’s “Ultimate Endless Shrimp” deal.
Red Lobster’s shrimp deal became much more popular than anticipated, and it’s now being blamed for a good chunk of the company’s financial hit.
Endless Shrimp was a limited-time promotional deal that allowed patrons to choose two types of shrimp for $20, and they could eat as much as they wanted in a single visit.
Eventually, the promo became a permanent fixture on the Red Lobster menu in June 2023 and now costs $25.
The company’s owner, Thai Union Group Plc, said the restaurant chain is headed for a $20 million loss for 2023 but a final decision about the bankruptcy filing has not yet been made.
Restructuring talks are still ongoing between Red Lobster and Thai Union Group, key lender Fortress Investment Group, and King & Spalding.
If the company files for Chapter 11, it would still be able to serve its popular favorites, including cheddar bay biscuits and affordable seafood dishes, while working to develop a plan to cut its debt.
Thai Union Group previously owned 25% of the company but took control over Red Lobster in 2021 when it purchased Golden Gate Capital’s stake.
Earlier this year, Thai Union Group wrote on its website that Red Lobster’s “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”
Red Lobster has seen industry headwinds
Thai Union Group chief Thiraphong Chansiri said, “The combination of [the] 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.”
It also said that it recorded a share loss of approximately $19 million in the first nine months of 2023 just from Red Lobster.
However, Red Lobster is not the only popular American chain dealing with rising labor costs.
Several franchise owners in California have been struggling since the state’s new minimum wage law took effect on April 1 for fast-food chains or eateries with at least 60 locations nationwide.
Those owners now have to pay their workers $20 per hour – 25% higher than the state’s general minimum pay.
Government data also shows that an increase in food costs has also hit companies and consumers, pushing the latest Consumer Price Index higher.
Informed American will keep you up-to-date on any developments to this ongoing story.
