After filing for bankruptcy, closing dozens of locations and facing mounting losses, a once-iconic seafood chain is now considering additional restaurant closings to stabilize its business and return to growth.
For many customers, the chain’s financial woes signaled the potential end of an era, taking with it its Cheddar Bay crackers and popular Endless Shrimp promotion. Instead, the company has spent the past two years fighting for a comeback, looking to rebuild its brand and win back customers by restructuring operations and cutting costs.
For nearly 68 years, Red Lobster has built its reputation on affordable, high-quality seafood and has expanded to more than 500 locations worldwide. However, the very strategy of premium offerings at low prices that fueled its growth eventually became too difficult to sustain.
After closing about 130 restaurants during its Chapter 11 bankruptcy restructuring, Red Lobster is now reviewing its real estate portfolio and is eyeing additional closings in 2026. The goal is to cut costs and focus on better-performing markets.
Many of the chain’s current challenges date back to 2014, when private equity firm Golden Gate Capital acquired Red Lobster from Darden Restaurants ( DRI ) for $2.1 billion. To help finance the deal, the company sold its real estate for $1.5 billion in a sale-leaseback transaction.
While the move provided short-term liquidity, it left the chain paying substantial rent, driving up operating costs. Through 2023, annual lease obligations have climbed to about $190.5 million, about 10 percent of its revenue, with more than $64 million tied to underperforming locations, according to the bankruptcy filing.
Red Lobster ended 2024 with approximately 528 locations. However, some leases bundle multiple restaurants together, making it difficult to close weaker stores without affecting stronger ones.
“Much of the liquidity from the sale-leaseback has gone toward paying dividends to private equity investors, rather than addressing systemic operational issues or adapting the menu and brand to changing market demands,” Gad Allon, a professor of operations, information and decision making at the University of Pennsylvania, wrote on Substack. “This misallocation of resources underscores the risks of prioritizing short-term gains over strategic reinvestment.”
Red Lobster is reviewing additional restaurant closings in 2026. Richard Levine/Corbis via Getty Images ·Richard Levine/Corbis via Getty Images
Since emerging from bankruptcy, Red Lobster has revamped its menu and marketing to better align with changing consumer preferences and evolving trends.
Red Lobster CEO Damola Adamolekun said in an interview with The Wall Street Journal (WSJ) that sales were up about 10 percent from last year, although the chain has not yet returned to pre-bankruptcy levels and many locations still require renovations.
The company has cut costs in other areas of its business. At the end of 2025, Red Lobster has laid off about 10 percent of its corporate workforce and 200 restaurant employees, according to Bloomberg. The WSJ also reported that the chain is renegotiating with its vendors amid rising seafood prices, in part because of the tariffs.
Industry analysts warn that aggressive cost-cutting may backfire.
“When restaurants reduce labor to manage costs, service suffers. When they reduce food quality to preserve margins, customer satisfaction declines. When they postpone maintenance to save cash, the dining experience deteriorates,” said analysts at the Value Creation Innovation Institute.
Red Lobster filed for Chapter 11 bankruptcy protection in May 2024 after accumulating nearly $300 million in debt. The company cited rising costs, declining consumer traffic and significant financial losses from its $20 all-you-can-eat shrimp promotion, which alone contributed to an $11 million quarterly loss.
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The chain emerged from bankruptcy four months later under new ownership by RL Investor Holdings LLC after receiving court approval for its restructuring plan.
As part of its turnaround, Red Lobster named 36-year-old Damola Adamolekun as CEO in August 2024, following a string of short-lived CEOs, each serving less than a year.
Red Lobster is not alone in its struggles. Several well-known chains filed for Chapter 11 bankruptcy from 2024 to 2026.
Many of these chains share similar challenges, including large footprints, heavy lease obligations, declining foot traffic, and high food and labor costs.
Food away from home prices rose 4% in the 12 months ending in January 2026, according to the latest data from the US Bureau of Labor Statistics.
Over the past five years, food and labor costs for the average restaurant have each risen about 35 percent, according to the National Restaurant Association.
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To offset these increases, menu prices rose an average of 31% between February 2020 and April 2025, according to data from the US Bureau of Labor Statistics.
As prices rise, customer traffic fell 1 percent in the food service industry during the quarter ending June 2025, according to Circana.
“This presents a significant challenge for restaurants, as home-cooked meals directly displace demand for dine-in establishments, which translates into lower revenue and lower customer traffic,” said Coresight Research analyst Sujeet Naik.
Due largely to lower sales and traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) fell 0.8% in December 2025 from the previous month, the lowest reading since March.
“If you combine restaurant margins under pressure with weak financials, all it takes is one or two things to go wrong,” Bank of America senior restaurant analyst Sara Senatore told Time Magazine.
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This story was originally published by TheStreet on February 19, 2026, where it first appeared in the Restaurants section. Add TheStreet as a favorite source by clicking here.
