In 2016, American seafood chain Red Lobster went viral when music icon Beyoncé referenced the restaurant in her song “Formation”. The musical promotion led to a massive influx in sales for the food retailer but it proved to be just a flash in the pan. In the past decade, Red Lobster has been struggling to maintain profits due to several factors, including rising seafood costs, skyrocketing real estate prices and lackluster marketing efforts. All of which eventually led the company to file f
file for a Chapter 11 bankruptcy in May.
More recently, a group of lenders, led by Fortress Investment Group, have taken over Red Lobster and have tapped former PF Chang’s CEO Damola Adamolekun to lead the struggling seafood restaurant brand out of the dark.
As Adamolekun said in a statement, “With our new backers, we have a comprehensive and long-term investment plan, including a commitment of more than $60 million in new funding, that will help to reinvigorate the iconic brand while keeping the best of its history.”
“Red Lobster has a tremendous future, and I cannot wait to get started on our plan with the Company’s more than 30,000 team members across the USA and Canada.”
What happened to Red Lobster?
Founded by entrepreneur Bill Darden, Red Lobster came onto the retail scene in 1968, at a time when few restaurant retail chains were providing an elevated dining experience for the blue-collar customer.
Fifty-six years later, however, Red Lobster has been unable to hold onto its edge amid stiff competition from a larger array of quick-service restaurants, elevated rental prices and increased consumer concern around food spending.
“The restaurant, fast casual, and quick service resturant space has become complicated for consumers to justify spending in since they can alternatively grocery shop and eat at home to save money,” Melissa Minkow, a director of retail strategy at CI&T, told Inside Retail.
The nails have been slowly hammered in Red Lobster’s coffin over the past decade since Darden sold the business to private equity firm Golden Gate Capital for $2.1 billion in 2014.
In 2020, seafood distributor Thai Union Group, based in Thailand, becamethe largest Red Lobster shareholder, with a 49 per cent stake in the company, and since then, the company has been suffering, according to reports.
As a former Red Lobster employee told CNN, “Thai Union forced huge cost reductions, including many that were penny wise and pound foolish because they hurt sales.”
In hindsight, Thai Union’s biggest mistake was an ill-advised “Endless Shrimp” promotion last summer. Red Lobster turned its $20 endless shrimp offer into a permant item on the menu for the first time. The switchup ended up costing the company a whopping $11 million.
Can Red Lobster come back from the dead?
Whether Red Lobster’s proposed restructuring will be enough to turn around the business remains to be seen.
“While the endless shrimp promotion shouldered a lot of the blame for the demise of Red Lobster, the truth is more prosaic. This was simply a very badly run company that had made years of missteps,” Neil Saunders, managing director and retail analyst at GlobalData, told Inside Retail.
“Constant cost-cutting left too many restaurants in a sorry state. A terrible sale and lease-back agreement on many properties made many locations uneconomical and damaged profit. And a fading brand, that was never invested in, put off consumers who found newer fast casual chains more appealing.”
However, Saunders believes the restaurant can make a comeback if it focuses on three key areas.
“The first step in turning all of this around is to put in place a proper, focused management team with the interests of the business at heart. The second is to exit unfavorable leases and locations to stabilize the finances. The third is to revive the brand and get customers back,” he said.
Minkow is also optimistic: “I always believe a company can make a successful turnaround, but Red Lobster will have to find a way to resonate with the value mindset consumers want in ways that generate profit. The new CEO’s experience at PF Chang’s lays a promising foundation for this turnaround.”