Red Lobster’s shareholders say its chronic shrimp crisis was a ploy to squeeze it for profits.
Red Lobster’s infamous $20 “Ultimate Endless Shrimp” promotion nearly sunk the restaurant chain, with shareholders now saying the promotion was a ploy by a large Thailand-based shareholder to squeeze as much profit as possible from the restaurant.
A May lawsuit filed in Orange County, Fla. is a trust representing shareholders alleging that Thai Union Group, one of the world’s largest seafood producers whose shares trade on the Stock Exchange of Thailand (SET), abused its controlling stake, CNBC reported.
“Thai Union doubled down on the campaign to extract every drop of price it could from contracts that did not benefit Thai Union and did not make economic sense for Red Lobster,” the lawsuit reads.
In fact, the relentless promotion of shrimp at one point left the company $11 million in the red in one quarter.
Red Lobster and Thai Union did not immediately respond Good luckrequest for comment.
Shareholders say they are owed millions after a Chapter 11 bankruptcy filing in May 2024 and want to disgorge about $32 million in cash that Thai Union allegedly pressured the chain into by 2023, Bloomberg reported. They want a trial in order to get the damages they are owed.
Red Lobster has used an endless shrimp offering as a seasonal promotion for two decades, and it has consistently helped bring in customers. But the request was short-lived.
Instead, shareholders say, Thai Union is pushing for permanent raises starting in 2023 and has turned a “successful Red Lobster strategy” into a “car accident,” CNBC reported, citing the lawsuit.
Thai Union bought a small portion of Red Lobster in 2016 and in 2020 led a buyout that gave it more control. Thai Union then helped install Paul Kenny, a shareholder and experienced restaurant executive, as interim CEO in 2022.
Soon after, shareholders say, Kenny pushed to end the shrimp’s incessant advertising and make Red Lobster’s controlling shareholder, Thai Union, the chain’s exclusive shrimp supplier, the lawsuit said.
Kenny, the suspect says, “used to say that Red Lobster ‘owes’ Thai Union to buy only its products.”
After Kenny’s neutrality made the endless shrimp promotion a standard offering in 2023, Red Lobster restaurants moved quickly to implement and promote it. However, as customers rushed to take advantage of the promotion, this new influx of sales was not enough to combat “the losses created by offering premium shrimp at such a low price.”
Kenny did not immediately respond to a request for comment on LinkedIn.
Restaurants across the country were “inoperative” as they quickly ran out of shrimp, the lawsuit said. Meanwhile, the promotion moved customers away from the higher-end items on the menu, reducing the amount of money customers spend per visit.
“When it became clear that the Everyday $20 Ultimate Endless Shrimp offer was causing damage to Red Lobster and its balance sheet, Kenny responded by continuing the offer—and generating tens of millions of dollars more in Thai Union shrimp orders—and ultimately left Red Lobster with a massive oversupply, according to the law.
Red Lobster raised the price of the promotion twice, from $20 to $22, and then to $25, before finally removing it from the menu entirely in 2024. But by then the chain had already defaulted on a $275 million term loan from Fortress Investment Group due in September 2023, a sign of how quickly its finances have deteriorated.
The chronic shrimp was not the only reason for the decline in the company’s financial situation. Other factors include a tough macroeconomic environment and increased competition in the restaurant industry, former CEO and restructuring expert Jonathan Tibus wrote in a court filing when the company filed for bankruptcy. Still, the perennial shrimp played a role.
By the time the chain filed for bankruptcy protection in May 2024, Thai Union had already exited Red Lobster, not filing for Chapter 11 bankruptcy.
Red Lobster exited bankruptcy in September 2024, but not before closing about 130 locations and laying off about 10% of its corporate workforce.
Under new manager Damola Adamolekun, Red Lobster has worked to refresh its menu and improve its service standards. In February, the CEO told The Wall Street Journal that sales were up 10% compared to last year.
Adamolekun once declared that the infinite shrimp will never return “because I can do the math.” But in April, Red Lobster brought it back—this time, for a limited time only.
