Recall last summer, when the now-bankrupt restaurant chain made its $20 “Ultimate Endless Shrimp” promotion permanent. The scheme, cooked up by ex-CEO Paul Kenny and then-majority shareholder, Thai Union, sparked an uptick in customers at Red Lobster’s 640-plus locations.
But while patrons gorged on shrimp, they snubbed other seafood items.
The splashy marketing ploy scalded Red Lobster. It ended up losing more than $11 million in just three months. But the popular casual dining chain was already struggling, CEO Jonathan Tibus noted in the bankruptcy filing.
When Thai Union was a 49% stakeholder, it muscled out rival shrimp suppliers and inked an expensive—and more exclusive—deal for itself. This left Red Lobster, founded in 1968, with “burdensome supply obligations,” Tibus said.
But a private equity firm’s tactics had a hand in Red Lobster’s demise, too. In 2014, Darden Restaurants, which owns Red Lobster, Olive Garden and several other chains, sold off Red Lobster to Golden Gate Capital for $2.1 billion.
Golden Gate funded the acquisition by selling Red Lobster’s real estate as part of a sale-leaseback deal. This forced the chain to pay exorbitant rent on what Tibus called “a bloated and underperforming restaurant footprint.”
Red Lobster sank, Tibus explained, due to a decade of “failed or ill-advised strategic initiatives.” It has also cycled through five CEOs since 2021.
Thai Union, a Thailand-based owner of seafood brands including Chicken of the Sea, has since given up its stake. Golden Gate exited Red Lobster in 2020.
Today, Red Lobster is saddled with more than $1 billion in debt but less than $30 million in cash. A “stalking horse” bid is reportedly in place. The hope is that the bankruptcy court discards some 100 leases and shutters a large portion of its restaurants. Tibus, a corporate restructuring veteran, has helped a long list of eateries through bankruptcy, including sandwich shop Quiznos in 2014; Ignite Restaurant Group, owner of Joe’s Crab Shack in 2017; Chevy’s parent company, Real Mex Restaurants, in 2018; Kona Grill in 2019; and fast-food joint Krystal in 2020.
