The Raiding of Red Lobster
The bankrupt casual restaurant chain didnt fail because of Endless Shrimp. Its problems date back to monopolist seafood conglomerates and a private equity play.
BY LUKE GOLDSTEIN MAY 22, 2024
The ongoing retail apocalypse claimed another victim this week.
Red Lobster, the casual dining restaurant chain with 550 locations, is entering Chapter 11 bankruptcy proceedings, turning over ownership for a second time in ten years as its sales and revenues continue to nosedive precipitously.
The company abruptly shuttered roughly 50 of its locations across the country last week without informing employees, who showed up to work only to find signs announcing the closures, which may be a potential labor law violation. According to staff complaints, they only later received notice that theyd be laid off or transferred to the remaining stores, in some cases many miles away.
Several observers have attributed Red Lobsters implosion to its Endless Shrimp promotional deal, which the company hoped would bring more foot traffic in the door. It might have been a hit with stoners, but broadly speaking the deal was a disaster that raised costs for individual restaurants without a compensating increase in revenue.
The companys current management and CEO are eager to pin its demise on Endless Shrimp, which totaled $11 million in losses. Upon filing for bankruptcy, they also launched an internal investigation into whether their majority shareholder Thai Union Group, which is also their main seafood supplier, might have pushed the shrimp promotion in order to boost their own sales at the cost of the retailers finances. This ownership structure between parties that are supposed to be on opposite sides of restaurant transactions does appear to be a clear conflict of interest.
https://prospect.org/economy/2024-05-22-raiding-red-lobster/
jimfields33
(16,717 posts)We will be seeing many. I dont remember a lot of chat about ponderosa, benegans, old country buffet, burger chef, and so many others that closed. We will servive not having red lobster. Im sure of it.
unblock
(52,880 posts)Blue Owl
(51,253 posts)JohnnyRingo
(18,832 posts)The private equity firms raped the company and bled it of as much value as possible before filing. They even sold the property under the stores to a leasing company and ran up the company's debt.. They walked away with billions for their investors and left behind a broken debt ridden shadow of a business.
Romney
unblock
(52,880 posts)Bankruptcy will take care of the debts. Successfully emerging from bankruptcy is more a function of whether or not the underlying operations are profitable.
Toys r us had a somewhat similar story but ultimately, retail toy stores just aren't a great business in the internet/amazon age.
Red lobster, though, has a good brand and fills a niche, particularly inland where there are few reliable seafood restaurants.
The process may take 1.5 - 2 years, but I think they will come back.
Passages
(434 posts)Not funny to people who work there.
JohnnyRingo
(18,832 posts)In the show a furniture store owner with a serious gambling problem was allowed credit by the mob. One day, when his debt reached an uncontrollable level, the Soprano family came calling.
They informed him they would be taking over the business to recoup the money he owed. They sold merchandise from the backs of trucks and maxed out the stores credit cards buying more merchandise. Eventually, there was nothing left but massive debt and a wasted shell of an empty store that would have to be liquidated for pennies on the dollar. Then the Sopranos walked away leaving the broken owner to commit suicide.
Who knew that's also how private equity firms work?
Passages
(434 posts)You could say the show was educational. ha ha
JohnnyRingo
(18,832 posts)They were a specialty steel company that delivered small orders for company's that needed special steel that big companies didn't want to bother with.
they were around since I was born, and my dad even worked there for a while in the '60s. When business got a little tight in the '80s, they sold it to a Japanese company that promised they would save them.
That equity company ran up Copperweld's debt and sold off much of the steelmaking equipment and property that they clamed they no longer needed, leaving only one small building to sell off piecemeal. They filed for bankruptcy and left the country.
Passages
(434 posts)jaxexpat
(7,063 posts)They're the "un" in unregulated capitalism. They have multiple disguises and aliases.
It was a mistake when Capone wore a white collar.
pstokely
(10,558 posts)?