How endless shrimp drove Red Lobster to bankruptcy

Nathaniel Meyersohn, CNN

NEW YORK (CNN) — Last summer, Red Lobster made $20 endless shrimp a imperishable paper item.

Endless shrimp was a successful yearly limited-time connection for Red Lobster for 20 years. But Red Lobster’s latest awesome shareholder, Thai Union, a Bangkok-based canned seafood company, saw nan promotion arsenic a measurement to waste disconnected nan mountains of shrimp it was catching and turned it into an mundane item. (Thai Union became Red Lobster’s largest investor successful 2020.)

The alteration costs Red Lobster $11 million.

Red Lobster filed for bankruptcy Sunday, and nan bankruptcy filing sheds caller ray connected Thai Union’s domiciled successful nan endless shrimp mishap. Red Lobster said it is investigating nan circumstances of that promotion, which Red Lobster guidance opposed.

Under a CEO appointed astatine nan guidance of Thai Union, Red Lobster eliminated 2 of its breaded shrimp suppliers, leaving Thai Union pinch an exclusive woody to supply shrimp for nan chain, nan filing said.

That led to higher costs, and it did not comply pinch nan company’s emblematic decision-making process for picking suppliers based connected projected demand, according to nan chain’s filing.

“This determination created some operational and financial issues for [Red Lobster]… saddling nan institution pinch burdensome proviso obligations” to Thai Union, Red Lobster said successful nan filing.

Thai Union did not instantly respond to CNN’s petition for comment.

Endless shrimp unsocial didn’t punishment Red Lobster. The American poster kid for seafood was dragged down by a scope of factors, opportunity erstwhile leaders astatine nan concatenation and edifice analysts — including handoffs betwixt a operation of investors and firm parents and Thai Union’s mismanagement.

“Certain operational decisions by erstwhile guidance person harmed [Red Lobster’s] financial business successful caller years,” Red Lobster said successful its bankruptcy filing.

The explosive maturation and fame of fast-casual chains for illustration Chipotle and quick-service chains for illustration Chick-fil-A complete nan past 2 decades besides squeezed Red Lobster. And years of underinvestment successful Red Lobster’s marketing, nutrient quality, work and edifice upgrades wounded nan chain’s expertise to adhd Millennials to its halfway Baby Boomer customer base.

“Red Lobster was nan instauration of casual dining. They had a position of powerfulness and prominence and revolutionized really American consumers eat seafood,” said Alex Susskind, a professor of nutrient and beverage guidance astatine Cornell University, successful a erstwhile question and reply pinch CNN.

But nan institution didn’t build connected that foundation, Susskind said. “Red Lobster had unthinkable fame among Baby Boomers. They didn’t bring successful a newer generation.”

Owned by General Mills

When nan first Red Lobster opened successful 1968 successful Lakeland, Florida, an hr southbound of Orlando, casual eating was successful its infancy.

The marque was started by confederate restaurateurs Bill Darden and Charley Woodsby. Darden owned respective Howard Johnson’s restaurants, 1 of nan first casual eating concepts.

“Our motto was informal and family prices,” Woodsby later said. They saw an opportunity to bring seafood to landlocked group astatine much affordable prices than fine-dining restaurants.

“In astir of mediate America, you couldn’t get decent seafood. Red Lobster brought it to nan masses,” said Jonathan Maze, nan editor successful main astatine Restaurant Business Magazine, a waste and acquisition publication. “Red Lobster was portion of this casual eating revolution.”

Just 2 years into Darden and Woodsby’s venture, General Mills acquired nan brand. General Mills owned brands for illustration Wheaties, Cheerios and Betty Crocker, and nan institution wanted to participate nan edifice manufacture pinch Red Lobster’s 5 no-frills restaurants.

By nan early 1970s, pinch General Mills’ advertizing musculus down it, Red Lobster opened restaurants crossed nan South.

Red Lobster roseate quickly and was nan first casual eating concatenation to advertise connected web television, according to a Harvard Business School study. Red Lobster besides developed nan first nationalist seafood distribution strategy successful nan 1970s.

“Many diners preferred their seafood fried successful those days, and Red Lobster’s hush puppies could beryllium considered an early ‘signature item,’” Joe Lee, nan first wide head astatine Red Lobster and later its president, said successful a journal article. “Families were welcomed pinch precocious chairs and a 59-cent child’s plate.”

By 1978, Red Lobster had 236 restaurants and $291 cardinal successful sales. It had 372 restaurants and $834 cardinal successful income successful 1985.

In 1995, General Mills spun disconnected its edifice section into a caller company, Darden Restaurants, named for Red Lobster laminitis Bill Darden. The institution initially included nan bequest Red Lobster concatenation and Olive Garden, an upstart concatenation General Mills had started successful 1982.

Red Lobster stalls

But Red Lobster fell down its sister marque Olive Garden nether Darden.

By 2008, Olive Garden’s income had eclipsed Red Lobster’s. Darden besides acquired fast-growing chains specified arsenic Longhorn Steakhouse, Capital Grille and Yard House.

“Darden stopped investing successful Red Lobster. Things slow deteriorated,” Les Foreman, a head of operations and divisional vice president astatine Red Lobster from 2002 to 2022, told CNN. Red Lobster’s income began declining and Darden prioritized investments successful its different brands.

Darden soon faced unit from activistic investors pushing nan institution to divided successful two.

Darden responded to activistic unit by announcing plans successful 2013 to sell Red Lobster, separating nan concatenation from nan remainder of its business.

The pursuing year, Darden sold Red Lobster to Golden Gate Capital, a backstage equity firm, for $2.1 billion. To thief money nan deal, Red Lobster spun disconnected its existent property assets successful a transaction known arsenic a waste leaseback agreement. Red Lobster had agelong owned its ain existent property but would now beryllium paying rent to lease its restaurants.

Sale leasebacks are very communal successful nan edifice industry, but nan statement coiled up hurting Red Lobster because it became stuck pinch leases it nary longer could spend to pay.

“That produced costs pressures connected Red Lobster that they’ve ne'er had before,” said expert John Gordon. “It became a problem.”

At nan aforesaid time, fast-casual and quick-service restaurants grew pinch little prices, thousands of caller drive-thru locations and online delivery. These chains pressured nan casual eating sector.

Casual eating has slipped from 36% of full edifice manufacture income successful 2013 to 31% successful 2023, according to Technomic, a edifice investigation firm.

‘Cutting costs everywhere’

A ‘location closed’ motion hangs successful nan model of a closed Red Lobster edifice successful Torrance, California, successful May 2024. | Patrick T. Fallon, AFP/Getty Images via CNN Newsource

Red Lobster’s controlling shareholder Thai Union besides wounded nan brand, opportunity erstwhile labor and analysts.

Thai Union was a apical supplier of shrimp to Red Lobster for much than 20 years. In 2016, Thai Union took a $575 cardinal number liking successful nan brand. In 2020, Thai Union deepened its financial liking successful Red Lobster.

Thai Union saw an opportunity to turn its business and besides go a bigger supplier to Red Lobster.

It besides tested squeezing Red Lobster’s waitstaff to nan breaking constituent to prevention connected labour costs, switching from waiters covering 3 tables to 10.

Red Lobster executives began to tally for nan doors nether Thai Union’s management, resulting successful a immense magnitude of C-suite churn. In 2021 and 2022, Red Lobster brought connected a caller CEO, main trading officer, main financial serviceman and main accusation officer. All near nan institution wrong 2 years.

Then came nan all-you-can-eat shrimp mishap past year.

“We were expecting an summation of 20% successful customer traffic, but nan existent number was up to 40%,” Thai Union CEO Thiraphong Chansiri said successful November.

Two months later, Thai Union said it would divest from Red Lobster and return a $530 cardinal nonaccomplishment connected its investment. The institution blamed nan pandemic, arsenic good arsenic “sustained manufacture headwinds, higher liking rates and rising worldly and labour costs.”

“I’m going to extremity eating lobster,” Chansiri said this year.

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