Is Red Lobster going out of business? Bankruptcy reports leave customers concerned

Red Lobster fans are worried that they’ll have to say goodbye to cheddar bay biscuits amid news that Red Lobster is filing for bankruptcy.

Red Lobster is a popular hotspot for a lobster dinner and some of those famous Cheddar Bay Biscuits, however, despite clever marketing campaigns in the past few years (like their April Fools’ prank), the business has been struggling.

According to a report published by Bloomberg on April 16, Red Lobster is considering filing for Chapter 11 bankruptcy that would allow them to continue business as normally as possible whilst restructuring their debt.

There has been some turbulence for the chain over the past few years, having recently appointed their third CEO in two years.

What is Chapter 11 bankruptcy?

According to United States Courts, “A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a “reorganization” bankruptcy. Usually, the debtor remains “in possession,” has the powers and duties of a trustee, may continue to operate its business, and may, with court approval, borrow new money.”

This basically means that Red Lobster can still operate pretty much as normal whilst still technically being ‘bankrupt.’

How did shrimp help put Red Lobster into bankruptcy?

According to Restaurant Business, the downfall of Red Lobster is down to “Leadership problems, a tough economy and all-you-can-eat shrimp.”

In 2022, Red Lobster lost $33 million and closed 16 of their restaurants. In a bid to bring paying customers back to their restaurants, they launched $20 all-you-can-eat shrimp in Summer 2023.

The deal was really popular and certainly brought seafood fans through the door, but supplying this much shrimp to their branches cost them $11 million in one quarter.

Current owners Thai Union Group, who bought the chain for $2.1m in 2014, are currently preparing the brand for sale.

All of this may seem like pretty bad news for Red Lobster, however, the chain still has 650 restaurants across the US and even if it is sold, it could simply be a case of re-branding or coming up with marketing campaigns that don’t cost the brand $11 million…

As it stands though, Red Lobster is not currently going out of business. Recent consideration of filing for bankruptcy could be a step in the right direction as it allows Red Lobster to focus on the brand rather than their debt.

Bear in mind that this is not the first fast-food chain to file for bankruptcy, and even McDonald’s and Wendy’s franchisees filed at one point. What this means for the future of the chain, though, remains to be seen.