Cast your mind back to last summer, when the now-bankrupt restaurant chain made its $20 Ultimate Endless Shrimp promotion permanent. The scheme, engineered by former CEO Paul Kenny and then-majority shareholder Thai Union, sparked a surge in customers at Red Lobster’s more than 640 locations.
But while diners feasted on shrimp, they neglected other seafood.
The flashy marketing ploy scalded Red Lobster. In just three months, the company lost more than $11 million. But the popular casual dining chain is already struggling, CEO Jonathan Tibus said in the bankruptcy filing.
With Thai Union holding a 49% stake, it squeezed out rival shrimp suppliers and secured an expensive and more exclusive deal for itself. As a result, Red Lobster, founded in 1968, faces “onerous supply obligations,” Tibus said.
But the private equity firm’s tactics also played a role in Red Lobster’s demise. In 2014, Darden Restaurants, which owns Red Lobster, Olive Garden and several other chains, sold Red Lobster to Golden Gate Capital for $2.1 billion.
Golden Gate financed the acquisition by selling the Red Lobster property in a sale-leaseback transaction. That forced the chain to pay exorbitant rent for what Thibus called “bloated and inefficient restaurant space.”
Red Lobster sank, Tibus explained, due to a decade of “failed or ill-advised strategic initiatives.” The company has also replaced five CEOs since 2021.
Thai Union, the Thai owner of seafood brands including Chicken of the Sea, has since divested its stake. Golden Gate left Red Lobster in 2020.
Today, Red Lobster has more than $1 billion in debt but less than $30 million in cash. A “stalking horse” proposal has reportedly been announced. The hope is that the bankruptcy court will cancel about 100 leases and close most of the restaurants. Tibus, a veteran of corporate restructuring, has helped bankrupt a long list of eateries, including sandwich shop Quiznos in 2014; Ignite Restaurant Group, owner of Joe’s Crab Shack in 2017; Real Mex Restaurants, Chevy’s parent company, in 2018; Kona Grill in 2019; and the fast food restaurant “Crystal” in 2020.