Red Lobster files for bankruptcy blaming it on 'endless shrimp' promotion

Red Lobster has filed for bankruptcy. (Representational)

Red Lobster, the beloved American seafood chain, has filed for bankruptcy, citing financial missteps and management blunders tied to its once-successful "Endless Shrimp" promotion. The move has cast a spotlight on the strategic errors of its major shareholder, Thai Union, and the broader challenges facing the casual dining sector.

For two decades, Red Lobster's "Endless Shrimp" was a seasonal favourite, drawing in seafood lovers with its promise of limitless crustaceans. However, the promotion's transition to a permanent menu item last summer under Thai Union's direction proved disastrous.

This shift, intended to offload surplus shrimp caught by the Bangkok-based seafood giant, ended up costing Red Lobster a staggering $11 million.

Red Lobster's management, which opposed making the promotion permanent, pointed to Thai Union's influence as a major factor in the company's downfall. According to bankruptcy filings, the CEO appointed by Thai Union eliminated two of Red Lobster’s breaded shrimp suppliers, securing an exclusive deal for Thai Union.

This decision not only increased operational costs but also bypassed Red Lobster's standard supplier selection process, leading to what the company described as "burdensome supply obligations."

The endless shrimp debacle was not the sole factor in Red Lobster's financial woes. Analysts and former leaders highlight a series of missteps and broader industry trends that compounded the chain's problems.

"Certain operational decisions by former management have harmed [Red Lobster’s] financial situation in recent years," the company admitted in its filing.

The explosive growth of fast-casual chains like Chipotle and quick-service giants like Chick-fil-A over the past two decades squeezed Red Lobster. Simultaneously, years of underinvestment in marketing, food quality, service, and restaurant upgrades hampered its ability to attract younger customers, particularly Millennials.

Founded in 1968 in Lakeland, Florida, Red Lobster quickly became a pioneer in casual dining. By the late 1970s, with the backing of General Mills, it had established itself as a household name, introducing network television ads and creating the first national seafood distribution system.

Yet, despite its early success, Red Lobster struggled to maintain its footing in a rapidly changing market.

When General Mills spun off its restaurant division in 1995, Red Lobster found itself overshadowed by its sibling brand, Olive Garden. Subsequent ownership changes, including a sale to Golden Gate Capital in 2014 and a sale-leaseback agreement that pressured finances further, only added to the strain.

Thai Union, a long-time shrimp supplier, increased its stake in Red Lobster in 2020, hoping to expand its influence and business. However, its attempts to cut costs, such as overburdening waitstaff, led to high executive turnover and operational instability. In 2022, the chain saw a complete overhaul of its C-suite, with new executives cycling through within two years.

The final blow came with the all-you-can-eat shrimp promotion. Thai Union CEO Thiraphong Chansiri acknowledged the miscalculation, stating, "We were expecting an increase of 20% in customer traffic, but the actual number was up to 40%."

Despite these challenges, Thai Union plans to divest from Red Lobster, taking a $530 million loss on its investment.