Red Lobster Officially Files for Chapter 11 Bankruptcy

It’s been a difficult spring for the restaurant business, which is still dealing with being turned upside down by the fiscally catastrophic events of the pandemic. And now, two high-profile companies have filed for bankruptcy, rattling everyone even further.

Orlando-based seafood chain Red Lobster filed for Chapter 11 bankruptcy on Monday in Florida. Meanwhile, Outfox, the parent company behind Chicago’s Foxtrot and Dom’s gourmet markets, sought Chapter 7 bankruptcy on May 14 in Delaware.

Chapter 11, which means that a company plans to reorganize and clean up its debt, often under the same leadership, may signal the potential for a new direction for Red Lobster. Meanwhile, when companies file for Chapter 7 bankruptcy, it often means the liquidation and sale of all assets. In Foxtrot’s case, its assets have recently been sold to an investment firm. (No one, it seems, was interested in buying Dom’s). 

Red Lobster’s bankruptcy filing included 166 pages of creditors to whom it owes money. They range from lawn companies to locksmiths and air conditioner maintenance firms, to the technicians who keep the aquariums running for live seafood — a sobering reminder of the breadth of businesses that have dealings with Red Lobster’s restaurants.

In a press release, Red Lobster chief executive Jonathan Tibus said the move is “the best path forward for Red Lobster. It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth.” He added that the company hoped to conclude its restructuring “quickly and efficiently while remaining focused on our employees and guests.” 

Even before the court documents were filed, Red Lobster closed nearly 100 locations of roughly 650 restaurants across the United States. More than 50 of them were put up for sale by TAGeX Brands, a liquidation company, whose website declared it to be “the biggest restaurant equipment auction ever.” 

The locations were sold lock, stock, and lobster — including everything inside the buildings, down to tanks of live lobsters. Rumors of a Red Lobster bankruptcy filing have circulated for weeks. The immediate blame was laid on last summer’s Ultimate Endless Shrimp deal, offering all-you-can-eat crustaceans for just $20 a person (the price was subsequently bumped to $25). While schools of customers responded, Red Lobster posted an $11 million third-quarter loss. 

But Red Lobster also was a victim of budget-minded consumers’ reluctance to dine out as often as they did before the pandemic, thanks to higher menu prices. Black diners, who buy more seafood than other constituencies and were loyal customers, will be hit particularly hard by the bankruptcy, wrote Robyn Autry on MSNBC. “The rise and slide of Red Lobster, and all the stumbles along the way, parallels a rise and backslide of Black working- and middle-class gains,” Autry said. 

In Chicago, Texas, and the Washington, D.C. area, Foxtrot was aimed squarely at young, upwardly mobile customers, many of whom were left bewildered when the markets closed abruptly on April 23. There was no official word at the time whether their parent company, Outfox, would seek bankruptcy protection. The unexpected move violated federal and state requirements for advance notice of mass layoffs and sparked a class action suit by employees. According to the Chicago Sun-Times, Outfox’s board of managers actually authorized  bankruptcy proceedings that day, clearing the way for a liquidation. 

On May 10, even before the court papers were filed, an auction of the Foxtrot and Dom’s assets took place. Further Point Enterprises won most of Foxtrot’s assets for the bargain price of $2.3 million; no one bid for Dom’s, and the Chapter 7 case was filed four days later. The bid, which gives Further Point to right to relaunch Foxtrot if it chooses, was peanuts compared with the $180 million that Foxtrot raised from investors since it was founded a decade ago, including a $100 million outpouring in 2022. The liquidation appears to leave former employees in the lurch. With Foxtrot’s assets dispersed, there’s probably nothing left for them to collect, and they aren’t eligible to sue the subsequent version that might emerge under new ownership.

Syed Hussain, an attorney representing a group of employees, told Food & Wine it was likely the case “would be stayed, now that the bankruptcy is filed.” 

No matter whether it was legal, the Outfox move thwarted the way employee protection is supposed to work. Under federal and Illinois state laws, both called the Worker Notification and Retraining Notification Act, companies employing more than 100 people must give at least 60 days’ notice of mass layoffs affecting 50 or more people. Without notice, employers are required to pay employee wages, benefits, vacation pay, and other money owed to them for the next 60 days. 

Chicagoans have long memories. People still call the Willis Tower the Sears Tower, refer to the stadium where the White Sox play as Comiskey Park, and perpetually mourn the departure of Marshall Field, which is now Macy’s. Knowing what happened to the staff, as well as the small vendors with which the gourmet groceries did business, Chicago may not look kindly on whatever succeeds Foxtrot.