Surviving in the restaurant business is often said to be an uphill task as operators have to grapple with competition as well as wild business fluctuations. In the case of the casual-dining chain Red Lobster, the combination of debt and a failed all-you-can-eat shrimp campaign may result in a bankruptcy filing later this month.
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Red Lobster’s Bankruptcy
Red Lobster, the largest seafood restaurant chain in the U.S., has been facing challenges in recent times. It recorded operating losses of $11 million in the third quarter and has closed numerous locations across nearly 20 states.
According to Technomic, the company generated approximately $2.2 billion in revenue last year, marking an 8% decline from 2022. This decline occurred amidst economic challenges affecting consumer spending and rising costs. Additionally, the company’s attempt to revive its fortunes with an all-you-can-eat shrimp deal backfired, resulting in significant losses due to overwhelming customer demand.
To worsen the situation, Thai Union Group (TU), the majority owner of Red Lobster, decided to divest its ownership stake, leading to a write-down of its investment in the restaurant chain.
And Next Steps
Now, Red Lobster plans to use the bankruptcy proceedings to win concessions from its landlords and clinch a deal with its creditors so that it can continue its operations, according to the Wall Street Journal.
Which Shares Are the Best to Buy in the Restaurant Industry?
The struggles at Red Lobster highlight the current challenges for the broader restaurant industry. Over the past year, names such as McDonald’s (NYSE:MCD) and Red Robin Gourmet Burgers (NASDAQ:RRGB) have trended lower. While Domino’s (NYSE:DPZ), Wingstop (NASDAQ:WING), and Chipotle (NYSE:CMG) have fared better, the TipRanks Stock Comparison tool implies the highest upside potential of nearly 133% in RRGB stock over the coming periods.
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