Mounting menu prices, fewer guests, and bankruptcy filings from some of the biggest names in U.S. foodservice have left restaurant operators in a tough spot heading into the rest of 2024.
Research firm Technomic noted a 0.7 percent year-over-year decline in restaurant traffic as of January 2024. There has also been an uptick in menu pricing for proteins, Technomic said, with seafood particularly impacted. Prices for appetizers, entrees, and sides featuring seafood jumped 3.7 percent, 1.2 percent, and 4.7 percent in 2023, respectively.
Other proteins have not seen price hikes to the same degree as seafood, the firm said.
“Menu prices overall continue to rise, so seafood dishes rising in cost is in line with the rest of the industry,” Technomic Editor Katie Belflower told SeafoodSource in April. “Additionally, the perceived health halo of seafood as compared to other proteins could be driving demand and, thus, driving prices.”
Foot traffic for quick-service restaurants also started the year out slower, with a 3.5 percent decline recorded for the segment by Revenue Management Solutions (RMS) in the first three months of 2024. Around 25 percent of low-income consumers – those earning less than USD 50,000 (EUR 46,700) annually – reported to RMS that they were eating less fast food. Nearly half of that same group said they were making fewer trips to both fast-casual and full-service eateries, per RMS.
Those early predictions of a tough year have been playing out in the results of major restaurant companies. Orlando, Florida, U.S.A.-based Darden Restaurants – which operates fine-dining restaurants and popular chains like Olive Garden and Longhorn Steakhouse – saw its sales fall short of expectations. Foot traffic at the company's resturants were mixed, with increases in June and August but a 0.5 percent decrease in July.
“The significant step down in traffic during July led to our first-quarter earnings being lower than expected,” Darden CFO Raj Vennam said.
Meanwhile, Red Lobster and Rubio’s Restaurants made headlines with bankruptcy filings announced this spring.
In May, Orlando, Florida, U.S.A.-based Red Lobster officially filed for Chapter 11 bankruptcy in May after shuttering over 100 restaurants. The firm said it will use the bankruptcy process to drive operational improvements, simplify the business through a reduction in locations, and “pursue a sale of substantially all of its assets as a going concern."
After a roughly five-month process, Red Lobster was sold to Fortress Credit on 5 September, and the company named a new CEO. Throughout the process the company closed only 23 resturants, compared to the more than 100 it projected.
In tandem with the proceedings, Red Lobster said it is also conducting an investigation into former minority owner Thai Union’s involvement in the company’s failed Ultimate Endless Shrimp promotion, which racked up USD 11 million (EUR 10 million) in losses for the firm. Intended to be a limited-time only campaign, the Endless Shrimp offering became a permanent fixture on Red Lobster’s menu in May 2023 at the behest of Paul Kenny, the company’s interim CEO at the time, now former CEO Jonathan Tibus wrote in court documents. The item was priced at USD 20.00 (EUR 18.41), “despite significant pushback from other members of the company’s management team,” Tibus said.
“This decision created both operational and financial issues for the debtors … saddling the company with burdensome supply obligations, particularly with its equity sponsor: Thai Union,” Tibus said.
Moreover, Tibus said that Thai Union exerted “outsized influence on the company’s shrimp purchasing.” This includes Kenny’s April 2023 purported direction to Thai Union to continue producing shrimp for Red Lobster that “did not flow through the traditional supply process or bid cycle or adhere to the company’s demand projections,” Tibus wrote.
Tibus also highlighted that in “apparent coordination with Thai Union and under the guise of a ‘quality review,’ Kenny made a series of decisions that eliminated two of the company’s breaded shrimp suppliers, leaving Thai Union with an exclusive deal that led to higher costs for Red Lobster.”
There are several legal avenues that Red Lobster can take against Thai Union, according to New York City, New York, U.S.A.-based data firm Debtwire.
“Courts have held that shareholders trying to exercise control over a corporation have fiduciary duties similar to those of a corporate director. With respect to cooperation, the debtors could explore either a conspiracy or aiding and abetting claim,” Debtwire said.
The big question to address within legal proceedings is “whether [Kenny] breached [his fiduciary] duties by circumventing the company’s normal supply processes by directing Thai Union to produce shrimp for Red Lobster regardless of the latter’s need or eliminating lower cost suppliers and requiring the purchase of higher-cost shrimp from Thai Union,” the firm added.
Thai Union called the accusations meritless in a statement sent to SeafoodSource.
As for the remaining Red Lobster restaurants that are still open and operating, the company partnered with loyal customers, like rapper Flavor Flav, to keep its Crabfest promotion top-of-mind.
“Together, Red Lobster and Flavor Flav are letting fans everywhere know that Crabfest is back, and when you gotta have seafood, you gotta have Red Lobster,” the chain said.
The rapper served as a spokesperson for Crabfest, which allows customers to order 1 pound of wild-caught crab legs – either snow or bairdi – with a choice of seasoning, including Cajun Butter, Roasted Garlic Butter, or Simply Steamed.
“We love seeing our fans show up and rally for us, so when Flavor Flav reached out, we answered the call and invited him to join us in reminding fans we’re here to stay,” Red Lobster Chief Experience Officer Sara Bittorf said. “Crabfest has been a guest-favorite event for years, and we’re excited to bring the flavor, along with a variety of wild-caught crab for our guests to enjoy – now and for generations to come.”
Red Lobster isn’t the only chain undergoing bankruptcy proceedings – San Diego, California, U.S.A.-based Rubio's Restaurants also announced a Chapter 11 filing.
Last month, after revealing that it was closing 48 California restaurants, Rubio’s said it had filed for bankruptcy to help facilitate the sale of its business to an entity formed and controlled by its existing lender in a stalking horse purchase agreement.
“Like the restaurant industry overall, Rubio's has been negatively affected over the past few years by diminishing in-store traffic attributable to work-from-home practices remaining in place and by rising food and utility costs that, combined with significant increases to the minimum wage in California, put pressure on a number of its locations,” the company said.
Rubio’s Chief Restructuring Officer Nicholas Rubin added that efforts to “right-size the company” were no match for “the continued challenging economic conditions,” which “negatively impacted [Rubio’s] ability to meet the demands of its debt burden.”
The company believes the best path forward for Rubio's is through a court-supervised sale process that will position the brand for long-term success to grow and flourish," Rubin said.
Rubio’s has received a commitment from its existing lender to provide debtor-in-possession financing and has “more than adequate liquidity” to meet all its operating needs during the sale process, the company said.
Despite hard news for foodservice to start 2024, major foodservice distributors, such as US Foods and Sysco, have been growing their sales. The National Restaurant Association (NRA) has also forecast for restaurant sales to exceed USD 1.1 trillion (EUR 1 trillion) in 2024. Per the NRA’s “2024 State of the Restaurant Industry Report,” nearly eight in 10 restaurant operators anticipate their sales will either increase (33 percent) or at least hold steady (45 percent) compared to 2023.
