In one of the most cataclysmic promotional offers of modern times, an unlimited shrimp deal has caused Red Lobster, a seafood chain with over 500 locations across North America employing 36,000 people, to file for Chapter 11 bankruptcy protection.
Court documents filed before the United States Bankruptcy Court in the Middle District of Florida, Orlando Division, detailed the doomed shrimp promotion.
The Ultimate Endless Shrimp (UES) promotion was made a permanent menu item at $20 in May 2023 under the direction of former chief executive Paul Kenny.
This decision led to several issues, not least significant operational burdens and financial losses costing the company $11 million and saddling the company with burdensome supply obligations, particularly with its equity sponsor, Thai Union.
The excessive promotion of UES led to shrimp shortages, as Thai Union, the equity sponsor and a major supplier, influenced purchasing decisions. This resulted in increased costs and supply constraints.
Decisions were made to eliminate two breaded shrimp suppliers, giving Thai Union an exclusive deal that further increased costs for Red Lobster.
Current chief executive Jonathan Tibus wrote in his declaration: “The excessive merchandising decision led to supply issues resulting in major shortages of shrimp with restaurants often going days or weeks without certain types of shrimp.
“Moreover, the debtors are investigating whether Mr. Kenny’s decision-making process circumvented the company’s normal supply chain and demand planning processes.
“Furthermore, I understand Red Lobster’s supply process was strained by virtue of its relationship with Thai Union, which, in addition to being the company’s equity sponsor and 100% owner of Red Lobster Master Holdings GP, has historically been a large-scale supplier to Red Lobster.
“I understand that Thai Union exercised an outsized influence on the company’s shrimp purchasing, as indicated by, for example, Mr. Kenny’s April 2023 purported direction to Thai Union to continue producing shrimp for Red Lobster that did not flow through the traditional supply process or bid cycle or adhere to the Company’s demand projections.
“I also understand that in apparent coordination with Thai Union and under the guise of a ‘quality review,’ Mr. Kenny made a series of decisions to eliminate two of the company’s breaded shrimp suppliers, leaving Thai Union with an exclusive deal that led to higher costs to Red Lobster.”
The company’s estimated liabilities are between $1 billion and $10 billion split between more than 100,000 creditors.
Among the largest creditors in the Chapter 11 are Performance Food Group, Rubin Postaer and Associates, Gordon Food Service Canada, The Wasserstrom Company and Doordash.