Red Lobster Bankruptcy and the Troubles with “Endless Shrimp”

Red Lobster's Bankruptcy and the Troubles with Endless Shrimp

Red Lobster, a popular seafood restaurant chain, recently filed for Chapter 11 bankruptcy in Florida. According to court documents, the company is looking into the actions of its majority owner, Thai Union, regarding a promotional campaign called “Endless Shrimp” that resulted in $11 million in losses.

The investigation stems from allegations made by Red Lobster that Thai Union, a global seafood company that holds most of its shares and supplies shrimp to its restaurants, mismanaged the promotion. The restaurant chain claims that this incident is just one example of a larger pattern of mismanagement by the Thai Union.

Here are some key details from the court documents:

The “Endless Shrimp” Promotion of Red Lobster

  • Red Lobster offered a limited-time promotion featuring an all-you-can-eat shrimp dish for $20.
  • Former CEO Paul Kenny decided to make this promotion available year-round starting in May 2023, despite objections from other management team members.

Shrimp Shortages and Supplier Dealings

  • As a result of the increased demand for shrimp due to the ongoing promotion, certain Red Lobster locations experienced significant shortages.
  • Around the same time, Red Lobster terminated contracts with two breaded shrimp suppliers, opting for an exclusive deal with Thai Union.
  • This decision led to higher costs for Red Lobster, as Thai Union became its sole shrimp supplier.

Allegations Against Thai Union:

  • Red Lobster’s current CEO, Jonathan Tibus, stated in the filing that Thai Union had too much control over the company’s shrimp purchasing decisions.
  • The exact circumstances surrounding these decisions are currently being investigated by Red Lobster.

Financial Challenges and Restructuring Plans

In addition to the issues related to the “endless shrimp” promotion, Red Lobster highlighted several other factors that have negatively impacted its business:

  • Poor management decisions
  • High inflation rates
  • Unsustainable rent costs
  • Increased competition in the restaurant industry

These challenges have resulted in a significant financial burden for Red Lobster, which currently has $294 million in debt. To address these issues and facilitate its recovery, the company intends to take the following steps:

  • Closing underperforming restaurants: Red Lobster plans to shut down some of its locations that are not generating sufficient revenue.
  • Selling remaining restaurants to lenders: A group of lenders, including Fortress Investment Group, will acquire the remaining Red Lobster restaurants.

Red Lobster’s headquarters are based in Orlando, Florida, and it operates globally with 54 outlets outside of the United States and approximately 36,000 employees. The court documents also revealed that Red Lobster is a major purchaser of lobster tails and rock lobsters, accounting for 20% and 16% of their respective global sales.

Red Lobster attributed its decline in business to several factors, including poor management decisions, high inflation, unsustainable rent costs, and increased competition. In 2023, the company reported a net loss of $76 million and subsequently decided to close 93 restaurants as part of its cost-cutting measures.

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