Red Lobster’s Potential Chapter 11 Bankruptcy: Insights into Restructuring and Future Strategies
The restaurant industry is reportedly considering applying for Chapter 11 bankruptcy protection in order to restructure its obligations in accordance with the internet business trend, according to a Bloomberg article.
According to the restaurant industry, Jonathan Tibbs was named the company’s new CEO by restructuring firm Alvarez & Marsal last month. There has been some speculation that Thai Union Group, for which Tibbs was the third CEO in the last two years, is getting ready to sell the brand.
As reported by Bloomberg, Red Lobster, an Orlando-based company, is seeking legal counsel from King & Spalding in order to exit from long-term contracts and renegotiate leases.
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The seafood firm, which has over 650 outlets across the country, has had difficulties lately as a result of poor leadership and poor strategic decisions. Due to economic difficulties that have affected most American firms since the start of the COVID-19 epidemic, the company’s financial difficulties have gotten worse.
Red Lobster lost more than $33 million in 2022, and the Thai Union Group decided to cut relations with the restaurant chain in January and look for a buyer, according to reports.
Red Lobster closed 16 locations due to declining customer traffic and rising labour and food expenses as a result of these losses.
Red Lobster ran a “$20 You Can Eat Shrimp” promotion in the past summers. While the promotion was well-liked by patrons, it cost the business more than $11 million in a single quarter.
According to a Bloomberg article that cites reliable sources, Red Lobster is thinking of declaring Chapter 11 bankruptcy in order to deal with its growing labour expenses and to renegotiate cumbersome leases and other long-term arrangements.
Although a final decision on restructuring or declaring bankruptcy has not yet been taken, the legal firm King & Spalding is advising the network of seafood restaurants on this topic.
The business can keep running while working with lenders and investors to create a debt reduction plan by filing for Chapter 11 bankruptcy, which will open the door to future improvements in financial stability. An inquiry for comments was not immediately answered by Red Lobster.
The seafood chain has had numerous owners and significant investors since Bill Darden and Charley Woodsby founded it in 1968. These individuals have held various positions within the company. After acquiring the business in 1970, General Mills helped it grow quickly throughout the US and Canada. Two decades later, the company became Darden Restaurants, a stand-alone public company.
In 2014, Golden Gate Capital purchased Red Lobster from Darden Restaurants. In 2021, the Thai Union, which had previously owned a quarter of the business, bought Golden Gate’s interest.
Declaring in regulatory documents that the restaurant chain’s present financial demands are no longer in line with Thai Union’s capital allocation principles, the company revealed earlier this year that it intends to sell from Red Lobster and is preparing an exit strategy.
Jonathan Tibbs was named Red Lobster’s new CEO last month. Having spearheaded multiple restructuring initiatives, Tibbs is acknowledged as a specialist in creating and carrying out restructuring strategies for faltering eateries, retail establishments, and hospitality businesses.