Seafood restaurant chain Red Lobster finds itself navigating iffy financial waters, contemplating a Chapter 11 bankruptcy filing to address mounting debt following an ill-fated endless shrimp promotion. According to Bloomberg, the chain is considering bankruptcy as it deals with more than a $11 million shortfall incurred from the promotion.

Red Lobster’s limited-time endless shrimp promotion was added permanently to the menu in June 2023, resulting in Q4 losses of $12.5 million.

The decision to explore bankruptcy comes following advice from legal experts at King & Spalding, aimed at restructuring the chain’s debts while reassessing its long-term contracts and leases. Fortress Investment Group, a significant lender to Red Lobster, is actively engaged in ongoing debt negotiations, Good Morning America reported.

The chain recently appointed Jonathan Tibus as Red Lobster’s new CEO as a move to mitigate financial challenges. Tibus is experienced in overseeing corporate restructurings, having previously guided other restaurant chains through the Chapter 11 process, including Kona Grill and Krystal.

The genesis of Red Lobster’s financial woes can be traced back to its decision to extend the “Ultimate Endless Shrimp” promotion beyond its intended timeframe. Originally conceived as a limited-time offer, the promotion garnered an overwhelming customer response, prompting its permanent inclusion on the menu in June. However, the surge in demand proved unsustainable, resulting in a staggering $12.5 million loss in the fourth quarter of 2023.

In October 2023, about 70 percent of Red Lobster’s bills were late–37 percent of them were 31 to 60 days late and over 9 percent were over 91 days late, Restaurant Dive reported. But by February, 25 percent of its bills were paid on time and over half were paid 61 to 90 days late, according to Creditsafe.

And, Red Lobster’s major investor, Thai Union Group, decided to divest its holdings, another sign of trouble for the chain, which was founded in 1968.

Photo by Terje Sollie: https://www.pexels.com/photo/boiled-shrimps-566344/