Bankruptcy Disaster: Red Lobster CEO Blames Endless Shrimp Deal for Brand’s Demise

Orlando, Florida – The new CEO of Red Lobster, Jonathan Tibus, has identified the infamous endless shrimp deal as a contributing factor to the seafood chain’s recent bankruptcy filing. Despite the chain’s restaurants remaining open, Tibus, a restructuring advisor, is critical of decisions made by his predecessor, Paul Kenny.

Tibus, who also serves as the managing director at consulting firm Alvarez & Marsal’s North America division, pointed to operational and marketing missteps made under Kenny’s leadership. In a Chapter 11 declaration, Tibus highlighted the detrimental effects of the decision to make the Ultimate Endless Shrimp promotion a permanent menu item at a fixed price, causing financial harm to the company.

The decision not only cost the Florida-based brand $11 million but also resulted in burdensome supply obligations, particularly to Thai Union, a major seafood supplier that acquired a stake in the company in 2016. Thai Union, known for its seafood products, experienced financial strain from the promotion, leading to a share of loss worth $19 million during the promotion period.

Despite attempts to increase prices on the promotion, the financial strain persisted, prompting Thai Union to announce its intention to sever ties with Red Lobster earlier this year. The relentless financial requirements of Red Lobster no longer aligned with Thai Union’s capital allocation priorities, leading to the decision to part ways with the struggling chain.

Tibus expressed dissatisfaction with the increasing dependence on Thai Union’s supply under Kenny’s leadership. He cited decisions that allowed Thai Union an outsized influence on the company’s shrimp purchasing, contributing to supply issues and shortages within the restaurants. The exclusive deal with Thai Union, prompted by the dismissal of other suppliers, led to higher costs for the restaurant brand.

Aside from the shrimp debacle, Red Lobster faced additional challenges highlighted in Tibus’ analysis, including declining customer counts, industry headwinds, inflation, and rising costs of materials and labor. The chain also struggled with underperforming stores, with significant spending on lease obligations that failed to yield a positive return on investment.

As Red Lobster grapples with these challenges, temporary closures of numerous restaurants across the country indicate the severity of the situation. The chain’s future remains uncertain as it navigates through a complex web of financial troubles and operational issues under new leadership, striving to stay afloat in a demanding industry landscape.