A lawyer for Red Lobster Canada, Inc. says he will ask an Ontario court today to recognize and enforce the chain’s U.S. bankruptcy protection proceedings, a process which documents show could include selling Canadian assets.
Linc Rogers told The Canadian Press in an email that he would make an application to the Ontario Superior Court of Justice on behalf of the beleaguered seafood restaurant chain’s Canadian operations Tuesday. He declined to comment further on Red Lobster’s future in Canada.
However, a May 20 affidavit filed with the court from the chief executive of Red Lobster Management LLC says the goal of the U.S. proceedings is to orchestrate a sale of most or all of the company’s assets, including those owned by Red Lobster Canada.
“With a looming liquidity crisis and no meaningful ability to raise fresh capital, the RL Group’s board of directors … determined that a value-maximizing sale would be the best possible alternative,” the filing from Jonathan Tibus says.
Red Lobster, which expanded to Canada in 1983, has 2,000 Canadian employees, who are mostly part-time, non-unionized and working at the chain’s 27 locations across Ontario, Alberta, Manitoba and Saskatchewan.
The company leases 26 properties in the country and owns two others in Ontario, including a Brantford restaurant site and an Etobicoke location on The Queensway, where it owns a building but not the land.
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The Canadian operations made up about 4.7 per cent of the overall company’s consolidated revenue last year.
Details of the chain’s Canadian footprint and performance are part of a filing made last week that convinced an Ontario court to grant the company a stay in proceedings, which prevents creditors from taking action against it.
The stay came as Florida-based Red Lobster Management LLC filed for Chapter 11 bankruptcy protection in the U.S. The American company had already shuttered dozens of locations while it grappled with rising costs.
Red Lobster, Tibus said, faced “significant challenges” in recent years, including “disruptions to its supply chain, hyperinflation affecting food, labour and delivery costs, substantial increases in the cost of capital and real property leases, and shifts in casual dining trends both during and after the COVID-19 pandemic.”
Another filing from the company shows its annual customer count dropped by 30 per cent since 2019 and has only “marginally improved from pandemic levels.”
Even its “Ultimate Endless Shrimp” promotion, which was at one-time made a permanent offering, hampered the company’s financial performance.
Tibus labelled it a “significant cash drain” that a separate filing from the company said cost Red Lobster US$11 million.
The company said it is now investigating whether its former chief executive Paul Kenny and Thai Union, a seafood conglomerate with a stake in Red Lobster, encouraged marketing of the promotion that was so “excessive” it triggered “major shortages of shrimp with restaurants often going days or weeks without” the seafood.
By June 2023, Tibus said the company had begun working on a plan to reduce spending and waste while restoring growth to the company. Court documents show the plan was meant to “simplify” the menu and “implement a sensible promotional calendar with fewer limited-time offers.”
However, Tibus said the brand is still facing “significant liquidity and operational challenges, which were exacerbated and accelerated by significant over-market and underperforming leases and poor operational and marketing decisions by prior management.”
Red Lobster did not respond to a request for comment on the filing or the future of its Canadian assets.
The chain was founded in the U.S. in 1968 but has since amassed 551 U.S. restaurants and several in Mexico, Ecuador, Japan, and Thailand.
Its court records say it counts more than 64 million customers per year and is responsible for 20 per cent of all North American lobster tails and 16 per cent of all rock lobsters sold worldwide.
It began as a privately owned company but was bought by food manufacturer General Mills, which eventually spun off its restaurant division as a publicly traded company.
General Mills sold the brand in 2014 to Golden Gate Capital and in 2016, Thai Union Group bought a stake in the chain but is reportedly divesting from Red Lobster.
© 2024 The Canadian Press
