A massive restaurant franchisee has now filed for a Chapter 11 bankruptcy in Florida at an alarming rate.
This popular restaurant has had over 700 locations nationwide.
This is of course the seafood restaurant Red Lobster.
Red Lobster has always attracted a vast array of customers and food critics with its enormous deals.
In 2023, Red Lobster may have just taken a gigantic leap with its unlimited shrimp deal that led to its untimely downfall.
The notorious Ultimate Endless Shrimp promotion had allowed guests to order different types of unlimited shrimp dishes, like Garlic Shrimp Scampi to Shrimp Linguini Alfredo, for just $20.
Seeing the demand of these dishes, Red Lobster greedily raised the prices up to $25.
This has led to an enormous loss of approximately $11 million in operating loss in their Q3 2023 earnings reports.
“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Thai Union CFO Ludovic Regis Henri Garnier said in the Q3 earnings call.
“So we wanted to boost our traffic, and it didn’t work.”
The franchisee filed for a Chapter 11 bankruptcy in Florida and as a result has closed down over 100 locations, reports The Street.
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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy
Other Economy News Today
An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.
Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.
Supply Source brands include The Safety Zone and Impact Products.
The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.
Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.
Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products
The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.
However, the company’s financial performance deteriorated in subsequent years.
Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.
The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.
In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.
Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.
The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.
The excess inventory forced the debtor to secure additional storage space, which increased storage costs.
These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.
The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.
The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.
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Also Read: This Massive Mall Retailer Is Now Closing In California
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