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Which Beloved Restaurant Is Going Belly Up Next?

Austin Smith

Published: April 21, 2024 7:30 am

Last Updated: May 17, 2024 9:09 pm

With reports that Red Lobster is considering bankruptcy after an unlimited shrimp deal gone awry, what other family restaurant brands could go belly up next? While Red Lobster’s performance appears self inflicted, there are plenty of other operators in this space that could suffer the same fate, including stalwart restaurant operator Darden Brands (NYSE: DRI), and Bloomin’ Brands (Nasdaq: BLMN).

Transcript:

Austin, let’s talk Red Lobster.
It’s a beloved chain.
People love their endless shrimp, their lobster fest, but it looks like they could be trimmed down because a report from Bloomberg this week says they are looking to declare Chapter 11 bankruptcy and restructure.
This isn’t the first casual sit-down restaurant to be a victim of the economy in recent years.
I’m wondering, you know, if Red Lobster’s cooked, which other restaurant chains could be next?
Yeah, it’s kind of a fun question to ask.
Specific to Red Lobster, this does look to be a bit of a self-inflicted wound with their endless shrimp.
And we’re not really aware of any similar programs at other restaurant chains.
But it does actually beg an interesting question.
If that’s all it takes is one fiasco like this to push a beloved chain to bankruptcy, maybe a lot of these restaurants are closer than we think.
And as we’ve seen in Jamie Dimon’s most recent letters and some of the CPI reports that have come out, inflation doesn’t appear to be licked yet.
It’s still here.
It’s still just as high as ever.
So you have to assume that the economy can only tolerate inflation this high for so long.
So that mid-tier sit-down family restaurant chains are going to be a real, it’s going to be a group under pressure if your average American eater feels like they can’t afford to go out.
So other people in this tier to look at, you’ve got to look at Darden.
I mean, this is, they kind of own this industry.
You’ve got Longhorn Steakhouse, Olive Garden, Ruth Chris.
You could see any sort of price shock in any one of their major inputs, be it steak or chicken, maybe pushing them over the edge.
And of course, Red Lobster themselves used to actually be owned by Darden Brand.
So they’re right in that zone there.
And then there’s also Bloomin’ Brand, same story.
They own Bonefish Grill and Outback Steakhouse.
So we’re not calling for their bankruptcy, but this does make you look at them a lot more closely and wonder if there’s any additional shutters in the economy or persistent inflation, could they be next?