Red Lobster: Another One Bites the Dust

Too many shrimp? Or, are shrimp small enough and fungible enough that we can say "too much shrimp"?

In a statement on X, i.e. twitter, last week, Red Lobster reacted to some of the distressed reactions regarding its filing for bankruptcy the preceding weekend.

"Bankruptcy is a word that is often misunderstood" it said. "Filing for bankruptcy does not mean that we are going out of business. In fact, it means just the opposite. It is a legal process that allows us to make changes to our business and our cost structure so that Red Lobster can continue as a stronger company going forward."

I appreciate the Pollyanna-ish note there, but ....

To speak more strictly, chapter 11 is a legal process that allows a court to make a decisions on fundamental changes to a business, (dissolution remains a possible result), inclusive of changes as to who owns what interests in it -- changes to the content of the "we" and "us" in that statement.

There has been talk about how Red Lobster miscalculated on shrimp. It has been pushing its "ultimate endless shrimp" promotion --a loss leader to get people in the door, where they will presumably buy stuff other than shrimp while there.

But then there are contrary arguments: Red Lobster was a portfolio company of Golden Gate Capital, a private equity concern, from July 2014 until August 2020. There have been accusations that GGC engaged in "asset stripping" during that period at the expense of RL's liability as an ongoing concern, and that RL has never been able to recover.

There is another hypothesis: that the problem was a spiking of labor costs.

It all may provide a fascinating case study for business schools in training the next generation of MBAs.

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