Bankrupt - Red Lobster

one claims it's the company's only chance for [Music] survival Atari has filed for chapter 11 bankruptcy protection 31y old Ewa presents the difference Kodak is filing for chapter 11 bankruptcy [Music] protection what's up guys my name is Jake and welcome to the 26th episode of bankrupt for many people Red Lobster declaring bankruptcy was somewhat abrupt it's a company that's been around since the late 1960s and has been nothing but a tremendous success for over half a century but over the last few years the corporation has traded hands and in a relatively short amount of time has brought this once extremely profitable company to the edge of catastrophe now it's left with an uncertain future and a lot on the line so how did this incredibly popular seafood chain fumble this hard and what does the future hold for Red Lobster Southwest of Orlando in the central Florida City Lakeland two colleagues Charlie woodsby and Bill Darden would start a small seafood restaurant called Red Lobster in it was 1968 and the two wanted to bring the Florida Coastal Seafood culture Inland taking inspiration in both concept and a naming from Gary's duckin over in Orlando they built this restaurant at the cost of around $330,000 or around $2.9 million today and it had an overall capacity of $250 diners with its distinctive nautical theming both inside and out along with an actual Lake View servers dressed in Sailor uniforms would bring you a selection of seafood steak and chicken this all proved to be very popular and the restaurant was an enormous success for the two so much so that they sought to expand in Just 2 years the businessmen would grow Red Lobster into five locations across Florida planning even more in the years to come however by 1970 they caught the interest of a much larger company wanting to get into the restaurant business General Mills they purchased the controlling shares of the brand for an undisclosed amount and made the two business partners employees at their new parent company General Mills would continue the expansion in fact they would ramp it up enormously in just 5 years General Mills would construct over 145 new restaurants across 23 states around America and by 1977 they had served over 54 million customers the company would continue to expand their reach opening multiple new locations every week by this point the brand was introducing new promotions some of which like offering endless crab legs were very successful this not only brought Seafood to many Inland smaller cities around America but did so at an affordable price Red Lobster was a great value proposition to many and this resulted Ed in great sales and even more growth General Mills would begin renovating their existing locations through the end of the 1970s bringing in warmer wood tones and Booth seating but still keeping with the overall nautical themes throughout Red Lobster made up the majority of sales and profits for General Mills overall restaurant division increasing year-over-year oftentimes exceeding their sales expectations in just 1980 alone the brand earned over $525 million with the average restaurant in the chain earning around $1.9 million in sales this was an extremely profitable restaurant chain and this success continued through the decade they'd make their first International expansion now opening locations in Canada as well as Japan all while sales continued to rise domestically updates in both the interior and exterior were once again implemented within the chain and by 1988 Red Lobster had surpassed the $1 billion mark across 400 locations the Brand's rise was Monumental by this point opening hundreds of restaurants and Counting along with well over a billion dollars in Revenue all within just 20 years General Mills was also on top of growing the brand and keeping it relevant spending money to ensure their locations were still looking fresh and focused on introducing specials to keep customers coming through the door Red Lobster was a special night out for many While others were regular customers either dining out for dinner or stopping by for for a seafood lunch the early '90s saw this trend continue with even more openings and the introduction of promotions like lobsterfest over 100 million customers dined within their restaurants through 1990 and the average location was approaching $3 million in average sales their Interiors were once again updated making guests feel more like they were an acquaint Fisherman's Restaurant a highly themed environment that now had just introduced the cheddar bay biscuits complimentary and unlimited biscuits served warm and buttery before your meal this proved to be extremely popular and along with new dish promotions like the 30 shrimp platter the brand was continuing its Stellar performance it's almost hard to articulate how popular and successful this brand was I mean there's many reports through this time of city leaders and smaller population municipalities hoping that one day a Red Lobster would set up in their Town one article interviewing a city official saying quote it seems that Red Lobster has been the Holy Grail of restaurant them around here and then later on stating that when Red Lobster comes to town usually many others follow the chain was now made up of over 618 locations overall a fantastic and well performing company but a major shift in ownership was coming for the brand General Mills had decided to spin off their restaurant business they would do so through Darden Restaurants Inc the company which was created by Red Lobster's original founder bill Bill darten Bill himself passed away just a year before the split and General Mills would go back to focusing on their Core Business which was consumer food products this was while the public Darden Restaurants would take over their brands like Olive Garden China coast and of course Red Lobster but this new spin-off wasn't as exciting for investors as it may have seemed Darden restaurant's IPO was a bit lackluster failing to meet share price targets all while year-over-year sales for Red Lobster had fell slightly due to competition by the mid 1990s this trend continued Across America as corporately owned restaurants had flooded the marketplace and chain restaurants became a saturated industry with only so many customers to go around Darden would ultimately close several underperforming Red Lobster locations and cautioned investors that a turnaround might be a slow process they once again refurbished restaurants and slowed down the expansion efforts as a whole all while putting a larger focus on their menu introducing affordable dishes under $10 by the end of the '90s things were actually turning around for the brand finally seeing positive numbers once again come the early 2000s Red Lobster was once again climbing and held quite the market position in the Casual Seafood space commanding a massive 46% market share with over $2.2 billion in total sales a record for the brand a full bar setup was now being installed in various locations while the brand enjoyed marginal growth over the next couple couple of years the company still focused on their menu and introduced new items like the quick catch lunches and this overall increased customer satisfaction this is also around the time when myself and my family were coming to Red Lobster and it really was a bit of a special occasion something I was genuinely excited for as a kid by 2004 they had introduced endless shrimp a very popular promotion that would later become a staple for the brand as a yearly attractor for customers looking to indulge in all you can eat rmp again though Darden was very careful with overexpansion and only grew the Chain by what they saw as what the market could handle and as a result Red Lobster had plateaued a bit but at least it was still stable and profitable the chain was now made up of over 690 restaurants and under darden's management they brought all of their brands through the 2008 recession rather unscathed this was accompanied by yet another new look this one modeled after New England architecture and begun implementation across their whole chain see food differently was the clever new slogan while a $15 four course platter was introduced all in an effort to stay affordable and competitive however darden's Golden Child was no longer King and they began shifting their focus over to Olive Garden which was seeing much better growth and surpassing Red Lobster in both number of locations and massively in overall Revenue after a 1.7% decrease year-over-year by 20 4 Darden would ultimately decide to sell their brand after a few years of shareholder deliberation in their annual report of that year they state that quotes the decision to pursue a separation of businesses was not an easy one we believe however that it was the right decision as consumer demand Dynamics have changed Red Lobster's appeal to the most attractive consumer segments have declined in addition its prospects for the future have become much more uncertain compared to our other Brands the buyer for Red Lobster as you might have guessed was a private Equity Firm called Golden Gate Capital they would acquire the brand for $2.1 billion marking a symbolic end for darden's oversight 46 years after Bill had founded it Golden Gate would move the newly independent company's headquarters to a downtown office complex in Orlando all while they continued on with the chain Wide Remodeling while Golden Gate's purchase wasn't all cash offer it was still a massive chunk of money for the firm plus some debt and because of this they needed to find some extra cash out of their sale somewhat quickly so they started to sell off Red Lobster's large portfolio of real estate assets since of course many of their restaurants were owned by the company that structure typically benefits the company because the chain as a whole is very asset rich with a lot of long-term benefits stemming from it but if you want cash quickly while still keeping the those locations you could also just sell those restaurants as real estate assets bring in a whole bunch of money right away and then just lease back those spaces to continue restaurant operations it's called a sale leaseback and that's exactly what Golden Gate capital Did they explained that by doing this it would reduce their long-term exposure to real estate markets not really sure what they were forecasting though is statistically commercial real estate has only appreciated since then but okay they would earn over $1.5 billion by selling off nearly 500 locations across America as a private company we don't exactly know what their overall Financial State was like but we do know that Red Lobster continued to lose their foothold in the markets likely saw a dilution of their market share and as a result declined in sales competition in the Quick Service space from Brands like Panera Bread and Captain D's ate away at the Casual Family Dining Market as a whole and Red Lobster felt that pressure ultimately Golden Gate Capital wouldn't stick around for much longer they would sell the company to one of their largest investors taii Union who had already bought a quarter of the brand back in 2016 they would acquire the majority shares of the corporation in 2020 the sale price wasn't disclosed but the new owner was interesting as Tai unun was a Thailand based Seafood supplier who is also the same company that supplied much of Red Lobster Seafood and had been doing so for decades but there also and this is important not a restaurant company they had no idea how to run a restaurant company in America but their overarching influence could be felt across the company as their prerogative was centered around cost cutting according to CNN taii Union began stretching weight staff obligations to the Limit all in an effort to save on wages all while menu items were cut down and longtime suppliers were cut off the quality of both the customer experience and the food itself had sharply declined and this was all while prices were raised I personally remember during this time two different instances that I've been to Red Lobster one was in Myrtle Beach just before we filmed the rest of the abandoned Hard Rock Park where for some reason we filmed this bit my food there was terrible and it was just really an overall bad experience and then we went again when we filmed this abandoned mall Red Lobster was literally the only restaurant in town and the restaurant also happened to be located on the perimeter of the abandoned Mall when we went there I was honestly shocked at how bad everything was I barely ate my meal I mean it was terrible and I definitely wasn't alone I've seen many people have very similar experiences now the pandemic and Rising food and labor cost hit the company especially hard and now they were in a uniquely bad position since golden gay Capital sold off all of their properties and instead of paying off minor mortgages they they were now making Hefty rental payments for all of their restaurants that was fine when the company was making lots of money but now with margin shrinking and not a lot of profit coming in they just couldn't keep up with the rising lease payments and as a result struggled to stay profitable by 2022 Red Lobster lost $22 million for taii Union dragging down profit for the entire company to add even more debt to the company's bottom line Executives at Thai Union pushed to have the famous endless shrimp promotion permanently added to the menu from their perspective this would be a great way to bring in customers who were always drawn in by the special deal and would also be a way for thaun to burn through their massive supply of excess shrimp so it would be a win-win except it wasn't give customers an inch and they'll take a mile people absolutely took advantage of the endless shrimp because of course they did and it ended up costing Red Lobster much more than originally anticipated it C worked in getting customers back through the doors but it also added even more debt to the brand specifically losing them 11 million in just the first year since the promotion went live in early 2023 by the end of that same year Red Lobster had lost $76 million overall after paying off interest debt payments some of which was from Golden Gate capitals leveraged biots the company's liquid cash reserves suddenly ran dry in a relatively short amount of time Red Lobster was in a dire position with a chain of expensive to run and operate restaurants which were no longer turning to profit many locations hadn't been updated since 2014 and after burning through five different CEOs in Just 2 and 1/2 years there was just no cash flow in the company and little corporate Direction Over 70% of payments made by Red Lobster were late and with a dangerously low cash reserve and an unprofitable chain as a whole it was reported that Red Lobster was Was preparing to file for bankruptcy a surprise to many who weren't familiar with the Brand's recent past on May 13th 2024 the company abruptly announced that at least 99 locations would close and sure enough 7 days later on May 20th 2024 Red Lobster had filed for chapter 11 bankruptcy protection in their filing they didn't really specify their assets and liabilities publicly instead stating they had assets between 1 billion and10 billion and liabilities within the same range so yeah thanks that's very helpful so obviously the situation is not good as taii Union also claimed that they would be divesting their stake in the company by the end of 2024 with for some reason their CEO jokingly adding in a shareholder meeting that he was going to stop eating lobster so this leaves the ownership of the brand sort of up in the air as it's now partially owned by various private entities the good news is that $100 million has been secured to keep operation going as normal this is while corporate figures out a way to renegotiate leases and reduce debt but to anyone visiting a Red Lobster lately I mean this decline was clearly palpable I actually went to a Red Lobster the night of the bankruptcy filing actually a really surreal experience for me I went there of course in preparation for this video what I found was a tired looking dirty restaurant with food and drink that ranged from bad like the shrimp fetuccini to actually pretty good like the salmon bowl with Brussels Sprouts the biscuits were honestly the Highlight as I'm sure it is for many but I'm not sure if I'd ever go out of my way to visit a Red Lobster just to get those biscuits especially when you can just buy the kits at most grocery stores but regardless this is putting the livelihoods of over 36,000 Red Lobster employees on the line and when I asked our very kind and hardworking waitress on what her situation was it was absolutely heartbreaking Not only was she not communicated to At All by corporate but she also found out with everyone else the morning of she told us she's Crossing her fingers that she doesn't show up one day and there's chains on the doors kind of like the other employees did at the other 99 locations that they suddenly closed so now when you look back clearly Darden knew what they were doing when they sold the brand when they did as they're now stronger than ever Red Lobster meanwhile was gutted by a private Equity Firm who gave them problems they didn't need took the money turned it around and sold it to the next company Tai unun had no idea what they were doing and clearly made things much worse by devaluing their brand and saddling it with poor decisions and financial losses that were only exacerbated by the burdens the last company put on it and it's weird to see how the story has been reported by many large outlets and Publications basically implying or reducing the story all down to just being about endless shrimp and their losses because of it but obviously there's a lot more to it than that so what does the future hold well it's hard to say the bankruptcy is pretty recent and only time will tell if the company can survive on their own and who might take on the shares that Tai Union will be divesting the board has hired a new CEO that is experienced in guiding companies out of bankruptcy and he has put together a strategy one that focuses on key areas like efficiency improving corporate culture and providing a better standard of service among many others it will take time to see how these ideas and strategies are implemented and there is likely to be more cost cutting within the company before things start to improve but Red Lobster is a strong brand name perhaps one of the strongest among the casual restaurant chains and their legacy is a long and successful one it's almost easy to forget though how it all started 55 years ago with just a single location in Lakeland one that's now a fishing store by the way its rise was explosive and with the backing of a massive company like General Mills there was no stopping its enormous growth and its immense financial success but after being spun off and private Equity coming in its enthusiasm for a future slowed to a craw and I think it could be argued that entities had more interest in taking than they did Growing ultimately that left this longtime restaurant Juggernaut drowning in an ocean of its own design if you like what I do and want to support my work further you can head over to patreon.com Bright films where you can get exclusive perks like your name at the end of each video early video previews and exclusive merch but subscribing and following me on Instagram is also a great way to stay in touch with me and everything that I'm working on my name is Jake and thank you very much for watching [Music] [Applause] oh [Music]