The well-known American seafood restaurant Red Lobster’s new owner stated that the pain will continue for some time. After failing to receive any bids and a failed auction, Red Lobster was transferred to the lender group Fortress Investment Group, LLC in July.
Fortress Managing Director Morgan McClure recently told The Wall Street Journal that private equity firms willing to bet on restaurants are becoming scarce, and banks are also more cautious about lending to the food service industry, leading some chain stores to potentially reduce or cut back on their market presence.
McClure said, “The pain will continue for a while.” This year, he examined investments in nearly 100 restaurant companies, most of which he chose to abandon.
Fortress Investment Group has extensive experience in restaurant management, owning chain restaurants such as Krystal, Logan’s Roadhouse, and J. Alexander’s.
Fortress recently provided Red Lobster with a $100 million loan to sustain its operations.
Established in 1968, Red Lobster is the largest seafood chain restaurant enterprise in North America. Since 2019, Red Lobster’s customer traffic has decreased by about 30%.
By the beginning of summer 2024, Red Lobster had closed over a hundred of its restaurants. The chain currently has about 500 stores in North America, significantly down from last year’s 650.
The US restaurant industry generates over $1 trillion in value annually, but has been struggling to recover since the onset of the COVID pandemic over four years ago.
According to The Wall Street Journal’s analysis of bankruptcy records on the BankruptcyData website, American restaurant chains and operators are expected to reach a new high in bankruptcy filings in 2024, except for 2020.
Restaurant executives, lawyers, and lenders warn that more restaurants on the brink of bankruptcy may file for bankruptcy in the coming year.
Some chain stores are still struggling as customers dine out less, and high loan interest rates impact companies that expanded too quickly with thin profits.
According to market research firm Black Box Intelligence, as of October 6, same-store sales traffic for US restaurants this year has decreased by 3.3% compared to the same period in 2023. Casual dining restaurant traffic decreased by 4.5%.
In recent years, Red Lobster chain restaurants have undergone multiple changes in ownership and management. Thai Union Group Plc acquired control of Red Lobster in 2021, but reduced its stake in 2024.
During the 2023 fiscal year, Red Lobster reported a net loss of $76 million, with part of the loss attributed to the $20 “all-you-can-eat shrimp” promotion policy.
To boost sales in the second half of the year, Red Lobster changed the promotional policy from one day a week to daily, hoping to revitalize slowed sales performance. While this promotion stimulated customer traffic, it ultimately could not withstand customers’ hearty appetites, further weakening Red Lobster’s profitability due to the heavy costs.
As consumers face tightening budgets due to inflation, the entire food service chain industry is dealing with declining customer traffic. Industry data shows that many casual dining chain restaurants rely on consumers with incomes of $50,000 or less, and the dining frequency or order volume of this group is decreasing.
However, investors purchasing chain stores through the bankruptcy process still express cautious optimism. Fortress has pledged an additional investment of over $60 million to “revitalize” Red Lobster, a “iconic brand,” believing that they can turn the situation around by cutting costs, closing stores, and improving efficiency.
At Red Lobster restaurants, executives are streamlining menus, trying to make the seafood chain more operationally manageable without cutting too much.
“This requires a lot of work,” McClure said. “There’s no simple solution.”
In early September, after being approved for restructuring to avoid bankruptcy, Fortress appointed former CEO of the chain restaurant “Hu Guan,” Damola Adamolekun, as the new CEO of Red Lobster.