Exterior of Red Lobster restaurant in Austin, Texas on May 20, 2024. Red Lobster has filed for Chapter 11 bankruptcy protection after a failed leaseback deal and an advertisement for “Endless Shrimp” backfired on the company’s bottom line.
Brandon Bell | Getty Images
Restaurant chain Red Lobster’s “$20 Everyday Ultimate Endless Shrimp” offering has been described as a “car crash” after the chain’s creditors sued former controlling shareholder Thai Union.
In a lawsuit filed in May in Orange County, Florida, creditors said: thailand union The seafood producer, whose shares trade on Thailand’s stock exchange, knew the chain faced significant financial headwinds in 2023 and was at risk of bankruptcy. The lawsuit, brought by a trust on behalf of Red Lobster’s creditors, requests a jury trial to determine damages.
Instead of considering the restaurant chain’s interests, “Thai Union redoubled its campaign to extract as much value as possible through uneconomic contracts that benefit Thai Union and make no economic sense for Red Lobster.”
Thai Union and Red Lobster did not immediately respond to CNBC’s requests for comment.
Faced with increased competition, expensive leases, a widespread pullback in consumer spending, and the fallout from its shrimp promotion, Red Lobster filed for bankruptcy in May 2024, closing restaurants across the country and filing for Chapter 11 protection.
The company defaulted on a $275 million term loan from Fortress Investment Group in September 2023.
The company reportedly exited Chapter 11 in September 2024 after being acquired by private investor group RL Holdings, led by Fortress. RL Holdings still owns Red Lobster.
The complaint alleges that the Thai coalition pressured Red Lobster to buy more shrimp at above-market prices and prohibited competitors from supplying the restaurant chain.
The lawsuit alleges that Thai Union and then-interim CEO Paul Kenney “planned and executed” an unlimited shrimp promotion over the objections of Red Lobster employees, who are not affiliated with Thai Union, resulting in restaurants across the country running out of shrimp and being unable to turn tables and “get stuck.”
“When it became clear that the $20 daily ultimate endless shrimp offering was wreaking havoc on Red Lobster and its balance sheet, Kenny doubled down. He responded by continuing to offer it, generating tens of millions of dollars more in overpriced shrimp orders to the Thai Union, ultimately leaving Red Lobster with a massive oversupply,” the filing states.
Red Lobster brought back its Endless Shrimp promotion in April, but said the promotion was for a limited time and did not list costs, according to the company’s website.
Thai Union bought a minority stake in Red Lobster in 2016 and then partnered with another related shareholder in 2020 to acquire a majority stake and three of the five seats on Red Lobster’s board of directors, effectively controlling the company.
The company subsequently sold its shares in May 2024, but the lawsuit claims the company did not contribute any capital to the Chapter 11 proceeding.
“Thai Union treated Red Lobster as little more than a distribution arm for its own products and squeezed as much value as possible from Red Lobster, especially when the company went into bankruptcy,” the complaint said.
