Much of the focus in the Red Lobster bankruptcy filing is on an aggressive Endless Shrimp promotion. But where that shrimp was coming from may be just as important.
The casual-dining chain is probing whether Red Lobster inappropriately directed its shrimp purchasing entirely through its owner, the Bangkok-based Thai Union, without going through typical channels, according to court documents.
It is also questioning whether the control Thai Union exerted over the supply chain process drove up costs for the chain, worsening its financial condition as an aggressive shrimp promotion hammered its profitability.
“Red Lobster’s supply process was strained by virtue of its relationship with Thai Union,” Jonathan Tibus, a restructuring expert guiding the company through its bankruptcy process, said in a court filing.
Thai Union owns 100% of Red Lobster. But it has also historically been a large-scale supplier to the chain. Thai Union has “exercised an outsized influence on the company’s shrimp purchasing,” Tibus wrote.
In April 2023—one month before CEO Paul Kenny implemented the $20 Ultimate Endless Shrimp deal—he had Thai Union produce shrimp without going through the traditional supply process, bid cycle or “adhere to the company’s demand projections.”
Red Lobster also eliminated two of the company’s breaded shrimp suppliers, which gave Thai Union an exclusive deal that led to higher costs for the restaurant chain.
The company is “exploring the impact of the control Thai Union exerted, in concert with Mr. Kenny and other Thai Union-affiliated entities and individuals,” and whether that control was appropriate.
Red Lobster filed for bankruptcy over the weekend with $300 million in debt, days after it abruptly closed about 100 locations, or one-sixth of its U.S. unit count.
The company was undone by costly leases, plunging customer traffic and high costs coming out of the pandemic. The Endless Shrimp deal was marketed aggressively in stores and led to substantial losses last year. Red Lobster had a net loss of $76 million last year.
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