Orlando, Florida – Red Lobster, the nation’s largest seafood chain, faced a turbulent time as it filed for Chapter 11 bankruptcy protection after closing nearly 100 locations unexpectedly. The chain, which previously had 650 locations, cited its failed all-you-can-eat shrimp promotion as a contributing factor to its financial struggles. The promotion led its largest shareholder, Thai Union, to write off a whopping $530 million in the fourth quarter.
The company’s CEO, Jonathan Tibus, raised concerns about Thai Union’s influence in the shrimp promotion debacle. Tibus alleged that the Thailand-based seafood company, holding a 49% stake in Red Lobster, had a significant impact on the company’s shrimp procurement. The decision to make the $20 unlimited shrimp promotion a permanent menu item was attributed to a former CEO, Paul Kenny, despite opposition from other company executives.
Red Lobster experienced shrimp shortages due to Thai Union and Kenny’s promotion strategies, resulting in prolonged periods without certain types of shrimp in stores. Investigations are ongoing to determine if Kenny bypassed the company’s usual supply chain and demand planning processes. Additionally, the company’s partnership with Thai Union raised suspicions about the price paid for seafood, potentially above market rates.
With a history of multiple CEOs since 2021, Red Lobster’s reliance on Thai Union came under scrutiny amidst financial turmoil. The company’s cost-cutting measures, overseen by Thai Union, were criticized for compromising sales and employee wages. Despite the bankruptcy filing, Red Lobster assured the public that its remaining locations, including the iconic Times Square restaurant in Manhattan, would continue operations during the proceedings.
To address its financial challenges and refocus on growth, Red Lobster’s restructuring under Chapter 11 bankruptcy aims to secure existing lenders’ support. The plan includes selling the business to an entity controlled by the company’s term lenders. While some employees faced abrupt closures last week, the company emphasized its commitment to emerge as a smaller, more resilient chain. Auctioning off furniture and supplies at various locations served as a strategy to mitigate financial losses and reorganize effectively for the future.