- It may be the end of the line for the seafood chain Red Lobster.
- Bloomberg reported that the restaurant was mulling bankruptcy and had sought legal advice.
The seafood chain Red Lobster is considering filing for bankruptcy, Bloomberg has reported.
Declaring bankruptcy would allow Red Lobster to keep its business going while paring down its debts and expenses, people familiar with the matter told Bloomberg. The report, published Wednesday, said Red Lobster was being advised by the law firm King & Spalding.
Red Lobster and King & Spalding didn't respond to Bloomberg's requests for comment.
The news came after Red Lobster's attempts to draw in more customers with its signature all-you-can-eat deals backfired.
The seafood restaurant is best known for its "Ultimate Endless Shrimp" deal, which has been running for more than 18 years. For $20, customers could gorge themselves with as much shrimp as they wanted.
Last summer, Red Lobster decided to offer the promotion every day instead of once a week.
But while the promotion brought in the crowds, Red Lobster said it wildly underestimated the overwhelming response to this "very cheap" deal. The resulting operating losses eventually caused Red Lobster to raise prices to $22 and then $25.
Ludovic Garnier, the chief financial officer of Thai Union Group — a Red Lobster investor — said in an earnings call in November that the promotion was "one of the key reasons for the losses we generated in Q3 2023."
Red Lobster incurred an operating loss of $11 million that quarter. It then reported a $12.5 million operating loss in the fourth quarter of 2023.
To be sure, restaurants such as Red Lobster do run the risk of losing money on their all-you-can-eat deals if their customers are intent on getting their money's worth.
Back in August, a woman went viral on TikTok after she posted a video of herself dining at Golden Corral for 12 hours straight. The TikTok user said she paid $12 for a breakfast set but stayed on for lunch and dinner as well.
But losses from the shrimp-fest didn't faze Red Lobster. The company launched another all-you-can-eat deal in February — the "Endless Lobster Experience."
This time round, Red Lobster was careful to include multiple caveats in its promotion.
For instance, the complimentary deal was available to only 150 winning customers nationwide. Also, customers could eat a maximum of 12 1 ¼-pound live Maine lobsters, followed by servings of Maine lobster tails or Caribbean Rock lobster tails. And they had to scarf them down in the restaurant's two-hour time limit.
Red Lobster's struggles underscore the challenges faced by the food and beverage industry when trying to draw in customers amid rampant inflation.
In July, the CFO of McDonald's, Ian Borden, told investors their customers were ordering less and switching to value-menu items to save money.
The drop in consumer spending, Borden said, was because of a "challenging macro environment including rising interest rates and elevated costs."
Representatives for Red Lobster and King & Spalding didn't immediately respond to requests for comment from Business Insider sent outside regular business hours.