The recent CEO of seafood chain Red Lobster said a never-ending shrimp deal was a nail within the coffin for the brand, which filed for bankruptcy this week.
While the crab, lobster and seafood brand’s restaurants remain open, recent CEO Jonathan Tibus – a restructuring consultant – echoes his predecessor’s decisions and appears unfazed.
Tibus, who can also be managing director of the North American division of consulting firm Alvarez & Marsal, criticized former Red Lobster boss Paul Kenny for “missteps” in marketing and operations.
In a Chapter 11 statement seen by Fortune, Tibus wrote, “Certain operational decisions made by former management have harmed the Debtors.” [Red Lobster] financial situation in recent times. In the past, the Debtors’ Ultimate Endless Shrimp (“UES”) promotion was used as a limited-time promotion. “However, in May 2023, Debtors’ former CEO Paul Kenny made the decision to add UES to the menu as a permanent $20 item despite significant opposition from other members of the Company’s management team.”
The decision cost the Florida-based brand $11 million and in addition saddled the corporate with “onerous delivery obligations,” particularly with respect to 1 company: Thai Union, which acquired a 49% stake in the corporate in 2016.
Thai Union is a seafood manufacturer and supplies fresh, frozen and chilled seafood to its customers through retail channels akin to restaurants and wholesalers.
Even then, Thai Union said it knew the corporate would not make much money from the campaign. Ludovic Garnier, Thai Union’s chief financial officer, said on an earnings call last yr: “We’re not making a lot of money from this promotion. At $22, that’s not the case. The idea was to bring some traffic.” Some revisions to the worth from $20 to $25 dampened among the inflow, but loudly CNNGarnier added: “We have to be much more careful, ‘What is the entry point?’ And what price are we offering for this action?”
Even a price increase on the favored but ill-fated promotion couldn’t heal the wound. In January This yr, Thai Union announced its intention to chop ties with Red Lobster, stating: “Red Lobster’s ongoing financial needs are no longer aligned with our capital allocation priorities.”
In the primary nine months of 2023 – when Red Lobster’s UES offer became everlasting – Thai Union reported the chain’s loss share of $19 million.
Tibus seems unfazed by Kenny’s decision to tie a sinking Red Lobster deal to a seafood supplier who conveniently had a whole lot of influence within the boardroom. According to Tibus, UES also received an “unusual” amount of promoting related to the deal, which in turn led to “supply issues that led to major shrimp shortages, with restaurants often going without certain types of shrimp for days or weeks.”
Thai Union and Red Lobster didn’t immediately respond Fortune’s Please comment.
Fishy business
But the restructuring expert can also be examining other decisions made under Kenny’s leadership related to an increasing reliance on supplies from Thai Union.
The shareholder, which had a market cap of about $1.9 billion on the time of writing, had an “outsized influence on the company’s shrimp purchasing,” the brand new CEO claimed.
That influence was evident in a series of choices, Tibus claims. In 2023, for instance, Kenny instructed Thai Union to proceed producing shrimp for Red Lobster in quantities that “did not flow through the traditional supply process or supply cycle or meet the company’s demand forecasts.”
Thai Union products also began appearing more continuously in Red Lobster restaurants after two previous suppliers of breaded shrimp were terminated from the chain. According to Tibus, this was done “under the guise of a ‘quality review’.” The firing of those two suppliers resulted in an exclusive contract for Thai Union and increased costs for the restaurant brand.
External aspects
While a multimillion-dollar shrimp debacle may not have helped Red Lobster’s prospects, the brand said in its Chapter 11 filing that it has liabilities between $1 billion and $10 billion — an amount that is just too high to attribute it entirely to an all-you-can-eat seafood promotion.
In its excerpt from Red Lobster, Thai Union said the brand was scuffling with the aftermath of the pandemic in addition to “ongoing industry headwinds, higher interest rates and rising material and labor costs.”
In fact, the evaluation Tibus and his team have been producing since March paints an image of an organization drowning in problems. Among the problems he cites in his statement is a decline in customer numbers, down 30% since 2019 and only recovering “marginally” post-COVID.
Additionally, there may be one other factor that’s hurting the industry more broadly: inflation. Consumers are currently less prone to need to eat out, Tibus wrote, adding that this decline in customer revenue is linked to higher labor costs resulting from rising minimum wage bills.
Elsewhere, the boss added that the corporate spends exorbitant amounts of cash on renting stores, but it surely doesn’t repay. He wrote: “In 2023, the company spent approximately $190.5 million on lease obligations, of which over $64 million related to underperforming businesses.”
This situation can have already modified. Per USA today 87 restaurants in 27 states were listed as “temporarily closed” on Red Lobster’s website – which was down on the time of writing.
