On May 19th, 2024, Red Lobster, a long-time favorite for American lovers of affordable seafood, filed for bankruptcy. The chain’s announcement came as a surprise to its customers but not to some who follow the company closely. The chain was founded in 1968 by Bill Darden and Charley Woodsby. Until 2023, when Red Lobster had $2.6B in sales and over 700 restaurants, all seemed to be going well with the chain, but in reality management faced several financial and operational struggles. To overcome its challenges, Red Lobster sought to boost its profit with a Hail Mary effort – an endless shrimp promotion in late 2023. Unfortunately, it backfired and quickly became the final straw in putting the company in bankruptcy. So what exactly went wrong?

Red Lobster is being credited with bringing seafood to the masses with the philosophy of staying affordable and informal. In 1970, Red Lobster was acquired by General Mills, whose investment in the business caused the company’s growth to accelerate. After a period of expansion, Red Lobster was spun off into Darden Restaurants. However, Red Lobster’s sales soon began to fall behind its sister brand, Olive Garden, causing Darden to start investing less in the company. Ultimately, in 2014, Darden sold Red Lobster to Golden Gate Capital, a private equity firm, for $2.1B. Red Lobster sold off significant real estate assets, and entered into long-term leases. Entering into these financial commitments was the first step towards the eventual downfall of the chain. 

In 2016, Thai Union Group, a Bangkok-based canned seafood company, bought a minority stake in Red Lobster. In 2020, Thai Union bought out Golden Gate Capital’s share, becoming the controlling shareholder.  

Unlike many other restaurant chains, Red Lobster made it through the pandemic intact. However, Red Lobster recently had trouble attracting younger customers due to their preference for fast casual chains such as Chipotle and Cava. In an effort to attract new customers, Red Lobster began an everyday endless shrimp promotion in the second half of 2023. This promotion worked, but in fact it may have worked too well. The actual increase in customer traffic was 40% instead of the 20% management predicted. And because of rising prices and inflation in the overall economy, consumers were hungry for a good deal and therefore they stuffed themselves with shrimp. Due in part to the end of the endless shrimp promotion, Red Lobster reported losses of $11m in Q3 2023 and $12.5m Q4 2023. 

But while the “success” of the endless shrimp promotion was called out by management and the media as the move that put Red Lobster in bankruptcy, the financial troubles easily could’ve been tied to an arrangement with Thai Union. In addition to being the owners of Red Lobster, Thai Union became the sole supplier of shrimp for the chain. Selecting a sole supplier for shrimp went against Red Lobster’s normal competitive supplier selection process. This single supplier model ultimately led to Red Lobster paying higher prices for its shrimp over the last few years. Given the number of consumers eating vast portions of high cost shrimp, this supplier arrangement was likely more of a cause for Red Lobster’s downfall than the endless shrimp promotion.

While the high-cost shrimp was endless, the resources of Red Lobster weren’t, leading to them filing for Chapter 11 bankruptcy on May 19th, 2024.

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Fonrough, G. & Lucas, A., Red Lobster seeks a buyer as it looks to avoid bankruptcy filing, CNBC, April 25, 2024, https://www.cnbc.com/2024/04/25/red-lobster-seeks-a-buyer-as-it-looks-to-avoid-bankruptcy-filing.html

Haddon, H. (2024). Red Lobster Gets Stung by Endless Shrimp, The Wall Street Journal, May 20, 2024, https://www.wsj.com/business/red-lobster-endless-shrimp-bankruptcy-23d2bdeb

Mayersohn, N. (2024). How Red Lobster’s misguided endless shrimp promotion drove it into bankruptcy, CNN Business, May 20, 2024, https://www.cnn.com/2024/05/20/business/what-went-wrong-at-red-lobster/index.html

Red Lobster (eds.) (2024). Red Lobster files voluntary Chapter 11 petition to strengthen financial position and maximize value for shareholders, May 19, 2024, https://www.redlobster.com/news-press/press/2024/05/19/red_lobster-files-voluntary-chapter-11-petitions-to-strengthen-financial-position-and-maximize-value-for-stakeholders/

Post written by Duncan McIntosh with support from Gerhard Apfelthaler