In the course of one day last month, nearly 100 communities across the U.S. lost their local Red Lobster.
The wave of 93 closures on May 13 shrunk the chain’s footprint by about 15%, leaving a sudden, widespread gash in the casual-dining seafood market.
Now with about 550 units, Orlando-based Red Lobster is still the largest seafood chain in the country by far. But it is also in the midst of the darkest period in its 56-year history as it navigates Chapter 11 bankruptcy and a difficult market for old-guard casual-dining chains.
And things could get worse before they get better: More than 100 additional Red Lobsters could close if the company can’t negotiate better leases at those locations.
The chain’s decline has created an opening for a host of competitors, including emerging seafood brands, steakhouse chains and even grocery store fish counters, all of which could stand to benefit from a drop in supply of Red Lobster signatures like shrimp and lobster.
“I think it’s a very big opportunity,” said Joseph Sabbagh, president of seafood consultancy Sax Maritime Associates. “They were doing business, and now they aren’t there anymore, so people that want to eat seafood are going to have to try to find someplace else to eat it.”
Red Lobster’s current struggles are the result of a cascade of problems that date back to at least 2014, when the brand was sold by venerable operator Darden Restaurants to private-equity firm Golden Gate Capital. Golden Gate sold much of Red Lobster’s underlying real estate, which deprived the chain of a valuable asset and saddled it with rent. Its growth then stagnated for years.
The situation worsened after Golden Gate sold a large portion of the chain to Bangkok-based seafood supplier Thai Union Group in 2020. Leadership gaps, profitability challenges and the infamous Endless Shrimp debacle ensued.
But at least some of Red Lobster’s issues stem from the simple fact that it is an aging, full-service seafood brand at a time when many diners have lost their appetite for such concepts. Last year, the five biggest casual-dining seafood chains in the U.S. averaged total sales growth of negative 1.5%, according to Technomic.
“We’re in a declining industry right now,” Sabbagh said. “You can’t have 600 dinner house concepts in this country, or even 400 dinner house concepts in this country. … Seafood is simply too expensive.”
With that being the case, it will be virtually impossible for another seafood chain to replace Red Lobster at the top of the segment. Despite sales growth of negative 8%, it still generated nearly $2.2 billion in sales last year, according to Technomic—about $1.5 billion more than its next-largest competitor, Bonefish Grill.
Bonefish had sales growth of just 1.8% last year, and Dave Deno, CEO of parent company Bloomin’ Brands, said in May that the 176-unit chain is “not a growth vehicle for us.”
The next biggest seafood player is Pappadeaux Seafood Kitchen, a regional chain with just 39 locations. Pappadeaux’s sales rose 1.7% last year, and it has not opened a new restaurant in years.
Much of the growth in seafood is instead coming from smaller brands with innovative menus. Three of the top five fastest-growing seafood chains last year, for instance, were crab boil concepts, according to Technomic.
These upstarts have likely already put a dent in Red Lobster’s sales, said Kevin Schimpf, director of industry research for Technomic. “So many of those chains have popped up in recent years, and those seafood boil concepts tend to appeal more to younger consumers than Red Lobster does,” he said.
At Arizona-based Angry Crab Shack, customers can mix and match a dozen seafood items with a variety of sauces and spices to create their own boil-in-a-bag feast. They then eat it with their hands directly off of paper-lined tabletops.
The 24-unit chain opened four restaurants last year and believes there could be room for as many as 75 in the U.S. over the next decade.
Angry Crab Shack specializes in seafood boils. | Photo courtesy of Angry Crab Shack
“I think it’s in a great spot to grow,” said Angry Crab President Andy Diamond. “Because the menu is flexible, we can add new sauces, we can do a lot to the menu without really changing who we are.”
Angry Crab is keeping a close eye on where Red Lobster is closing restaurants, he said, not only because it could see a bump in traffic as a result, but also for real estate reasons.
“That might be something that we say, ‘We like that location better than the one we’re at, that makes sense for us to move for,’” Diamond said.
At the same time, smaller, more traditional seafood concepts could also win over some Red Lobster fans by default.
Fish City Grill, a family-owned chain of 22 restaurants, has only a few stores that are located near a Red Lobster. But those restaurants have done well, said founder Bill Bayne, and he does expect to see some benefit from Red Lobster customers looking for an alternative.
Founded nearly 29 years ago, Dallas-based Fish City has grown steadily behind a combination of scratch cooking, friendly service and a menu that changes based on the season and the clientele. Its goal is to open about two new stores each year.
Fish City Grill has restaurants in Texas, Oklahoma, Arkansas and Florida. | Photo courtesy of Fish City Grill
The chain prides itself on the high quality of its fish, yet its average check is only about $30, a price point that encourages customers to visit two or three times a week. “We are not a special occasion restaurant,” Bayne said.
That puts it firmly in league with Red Lobster. And though the two don’t overlap in many markets, Fish City will look to capitalize on Red Lobster’s slide in at least one way: It will soon bring back a promotion called Shrimp-a-palooza, a play on one of Red Lobster’s most popular items.
Consumers still have a healthy appetite for seafood, Bayne said. What has changed since the early days of Fish City is the variety of places where they can get it.
“Twenty years ago we were competing with other seafood restaurants for the seafood customer,” he said. “Now we’re competing with a whole lot of non-seafood concepts.”
Given the lack of an obvious Red Lobster successor in the seafood segment, it could be those non-seafood concepts that stand to take the most share, said Joe Pawlak, managing principal at Technomic.
“If anybody’s gonna benefit, I think it’s gonna be the casual-dining steak guys,” he said. “They already have seafood on their menu, and they could expand seafood.”
Steak chains, with their indulgent fare and emphasis on ambiance and service, have been among the biggest winners coming out of the pandemic. The average casual-dining steakhouse chain had systemwide sales growth of 6.5% last year, compared to 3.9% for seafood chains, according to Technomic data. And two of the largest—Texas Roadhouse and LongHorn Steakhouse—have seen three-year sales skyrocket, by 83% and 72%, respectively, per Technomic.
Some of that has undoubtedly come at the expense of other casual-dining players, including Red Lobster.
Sabbagh agreed that these brands should be adding more seafood, and in particular shrimp, a crowd-pleaser that can be prepared a number of ways across the menu.
“Shrimp should be a major promotion and major item on pretty much every restaurant menu in the country,” he said. “There’s a tremendous supply of it, and I don’t see that changing anytime soon.”
Steakhouses are not the only seafood-adjacent restaurant segment that has been thriving recently. Sushi chains, including Kura Sushi and Blue Sushi Sake Grill, were some of the fastest-growing brands in the booming Asian casual-dining category last year.
Like crab boils, sushi lends itself to group dining and tends to appeal to a younger audience. It is also being quickly democratized by grocery stores, where sushi has exploded into a $2 billion category.
“In terms of the number of households buying supermarket sushi, it has the fastest growth in household penetration across virtually the entire store,” said Anne-Marie Roerink, principal at 210 Analytics.
She believes sushi is primed for an even wider breakthrough via vending machines in places like airports, convenience stores and apartment buildings. All of the above could steal trips that used to go to Red Lobster.
Still, with more than 500 restaurants nationwide and $2 billion in revenue, the home of Cheddar Bay Biscuits and Lobsterfest remains the prohibitive leader in seafood, wounded as it may be. With bankruptcy proceedings underway and new ownership in the wings, a comeback can’t be counted out.
“It’s not going away,” Pawlak said. “I think there’s going to be sunny days ahead of them in the future.”