Red Lobster’s endless-shrimp promotion was a ‘car crash,’ lawsuit says
The exterior of a Red Lobster restaurant on May 20, 2024 in Austin, Texas. Red Lobster has filed for Chapter 11 bankruptcy protection after a failed lease-back agreement and “endless shrimp” promotion backfired against company revenue.
Brandon Bell | Getty Images
Restaurant chain Red Lobster’s “Everyday $20 Ultimate Endless Shrimp” offering was described as a “car crash” as creditors of the chain sued former controlling shareholder Thai Union.
In a suit filed in Orange County, Fla., in May, the creditors said that Thai Union — a seafood producer with shares traded on Thailand’s stock exchange — knew in 2023 that the chain was facing significant financial headwinds and risked insolvency. The suit, filed by a trust on behalf of the Red Lobster creditors, requests a jury trial to determine damages.
Instead of considering the interests of the restaurant chain, “Thai Union doubled down on a campaign to squeeze out every drop of value that it could through uneconomic contracts that benefited Thai Union and made no economic sense for Red Lobster.”
Thai Union and Red Lobster didn’t immediately respond when contacted for comment by CNBC.
Red Lobster filed for bankruptcy in May 2024, shuttering restaurants around the U.S. and filing for Chapter 11 protection as it faced increased competition, expensive leases, a broader pullback in consumer spending, and fallout from the shrimp promotion.
The company had defaulted on a term loan of $275 million from Fortress Investment Group in September 2023.
The company exited Chapter 11 in September 2024 after being acquired by private investor group RL Holdings, reportedly led by Fortress. RL Holdings still owns Red Lobster.
The suit alleged that Thai Union had pressed Red Lobster to purchase increasing amounts of its shrimp at above-market prices and banned a competitor from supplying the restaurant chain.
Thai Union and then-interim CEO Paul Kenny “engineered and implemented” the endless-shrimp promotion over the objections of Red Lobster employees not affiliated with Thai Union, and this led to restaurants around the country being “immobilized” as they ran out of shrimp and were unable to turn over tables, the lawsuit alleged.
“When it was clear that the Everyday $20 Ultimate Endless Shrimp offering was wreaking havoc on Red Lobster and its balance sheet, Kenny doubled down. He responded by continuing the offering—and generating tens of millions of dollars more in overpriced shrimp orders for Thai Union—and ultimately left Red Lobster with a massive oversupply,” the filing read.
Red Lobster brought back the endless-shrimp promotion in April, according to its website, though it said the promotion was for a limited time and didn’t provide the cost.
Thai Union had bought a minority stake in Red Lobster in 2016, then effectively controlled the company after teaming up with another related shareholder in 2020 for a majority stake and three out of five of Red Lobster’s board seats.
It later divested its stake in May 2024, and the suit alleged that it did not contribute any capital in the Chapter 11 process.
“Thai Union treated the company as little more than a distribution arm for its own products, milking whatever value it could from Red Lobster, especially as the company became insolvent,” the lawsuit said.