Red Lobster's bankruptcy report included a blow-by-blow account of its path toward financial ruin, and it was as juicy as a fresh crab leg dipped in butter and washed down with a crisp Chardonnay.
ICYMI: Red Lobster on Sunday began its widely anticipated bankruptcy process, hoping to offload debt and raise cash to keep the business from foundering, my colleague Nathaniel Meyersohn writes.
Most likely, that means you can still get your cheddar biscuit and bottomless shrimp fix, though it closed nearly 100 restaurants last week and many more locations will shut down in the coming months.
What went wrong for Red Lobster, the chain that effectively introduced the concept of affordable seafood and kitschy coastal aesthetic to landlubbers across the Midwest and beyond?
First, Red Lobster got screwed by private equity. Then, it got screwed by its own managers.
Back in 2014, the Darden restaurant group spun off Red Lobster to a private equity firm. To finance the deal, that PE firm sold off most of Red Lobster's property assets and then leased them back to the restaurants. But, as we learned in the bankruptcy filing, the vast majority of those restaurants were being charged rent at above market rates.
That cash drain might have been manageable under normal circumstances.
But then 2020 came.
Red Lobster was hit with "financial and operational challenges" — namely, the one-two punch of the pandemic and the price inflation it set off, followed by the bone-headed strategic blunders that left the restaurant with $1 billion in debt and less than $30 million in cash on hand.
Management wasn't doing the chain any favors, either, as Red Lobster's new CEO/bankruptcy shaman Jonathan Tibus notes in the Chapter 11 filing. Specifically, Tibus takes aim at his predecessor Paul Kenny and Thai Union, the Bangkok-based seafood supplier that took a majority stake in Red Lobster in 2020. Thai Union hand-picked Kenny to lead Red Lobster two years ago.
Thai Union, under Kenny's direction, elbowed out other shrimp suppliers, "leaving Thai Union with an exclusive deal that led to higher costs to Red Lobster," according to the filing.
And if you're the exclusive provider of shrimp to America's biggest seafood chain, what'd be better than making that limited-time all-you-can-eat shrimp deal a permanent menu item?
Ultimately, it was Kenny who pushed through the decision to turn Red Lobster's "Ultimate Endless Shrimp" promotion into a permanent $20 menu item "despite significant pushback from other members of the company's management team," according to the filing.
(CNN has reached out to Kenny for comment. Thai Union didn't respond to requests for comment.)
The all-you-can-eat shrimp deal alone didn't doom Red Lobster, but boy did it do some damage at a time when the chain was already buckling.
The promotion had historically been a limited time thing, and it was a huge hit. Twenty bucks, for all the shrimp? Sign me up! Of course, that's how every other crustacean-consuming American responded. Because in this country, "all you can eat" is as much a dare as it is a deal. And the lingering hangover of inflation left everyone hungry for a $20 meal that could conceivably provide a week's worth of sustenance in a single sitting.
It cost Red Lobster $11 million over three months.
Kenny and Co. not only underestimated how much we could eat, but how long we would take to do it. Once the Endless Shrimp order was placed, folks lingered at their tables to maximize their ROI. Wait times got longer, frustrating staff and customers alike.
What happened to the Red Lobster of the '80s and '90s? Like so many beloved brands, it got caught in the net of private equity before being reeled in and gutted.
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