Red Lobster is contemplating filing for bankruptcy, according to a recent report by Bloomberg. The move, if pursued, aims to enable the company to navigate its financial challenges by restructuring its debts and expenses, as informed by sources familiar with the matter and reported by Bloomberg. Red Lobster is purportedly seeking counsel from the law firm King & Spalding, though neither Red Lobster nor the law firm responded to Bloomberg’s requests for comment.

All-You-Can-Eat Deals Turn Sour

Red Lobster’s financial woes come on the heels of its efforts to attract more customers through its famed all-you-can-eat promotions, which seem to have backfired. Renowned for its “Ultimate Endless Shrimp” deal, which has been a staple for over 18 years, Red Lobster decided to offer the promotion daily instead of weekly, aiming to draw larger crowds. However, the overwhelming response to the “very cheap” deal led to unforeseen operating losses, prompting Red Lobster to incrementally raise prices from USD 20 to USD 25.

Ludovic Garnier, Chief Financial Officer of Thai Union Group, an investor in Red Lobster, cited the promotion as a significant factor contributing to operating losses, with the company reporting an USD 11 million loss in the third quarter of 2023, followed by a USD 12.5 million loss in the fourth quarter of the same year.

Strategic Adjustments

Undeterred by the financial setbacks, Red Lobster introduced another all-you-can-eat deal, the “Endless Lobster Experience,” in February. This time, the promotion was meticulously structured, limiting participation to 150 winners nationwide and imposing constraints on the quantity and type of lobsters consumed within a specified time frame.

Red Lobster’s struggles reflect broader challenges faced by the food and beverage industry in the current economic climate. Rising inflation and consumer spending constraints, highlighted by McDonald’s CFO Ian Borden, underscore the difficulties in attracting and retaining customers amidst increasing costs.

Outlook

As Red Lobster contemplates its financial future, the specter of bankruptcy looms large. However, the company’s strategic adjustments and efforts to address operational challenges may provide a pathway towards stability in an increasingly volatile market landscape.

Requests for comment from Red Lobster and its legal counsel, King & Spalding, remained unanswered at the time of reporting.