The new chief executive of seafood chain Red Lobster says the endless shrimp trade is the nail in the coffin for the brand, which filed for bankruptcy this week.
While the crab, lobster and seafood brand’s restaurants remain open, incoming CEO Jonathan Tibbs, a restructuring adviser, is picking apart his predecessor’s decisions but seems unimpressed.
Tibbs, who is also managing director of the North American division of consulting firm Alvarez & Marsal, accused former Red Lobster boss Paul Kenney of “missteps” in marketing and operations.
In a Chapter 11 statement seen by Fortune, Tibbs wrote: “Certain operating decisions by previous management were detrimental to the Debtors’ interests.” [Red Lobster] financial situation in recent years. Historically, Debtors’ Ultimate Endless Shrimp (“UES”) promotion was used as a limited time promotion. However, in May 2023, former debtor CEO Paul Kenny decided to add UES to the menu as a permanent $20 item, despite strong opposition from other members of the company’s management team.
The decision cost the Florida-based brand $11 million and left it with “onerous supply obligations” related to one business: Thai Union, which it acquired in 201649 % shares.
Thai Union is a seafood product manufacturer that provides ambient, frozen and refrigerated seafood to customers through retail channels such as restaurants and wholesalers.
Even at the time, Thai United said it knew the business wouldn’t make much money from the promotion. During last year’s earnings call, Thai Union Chief Financial Officer Ludovic Garnier said: “We don’t make a lot of money on this promotion. We don’t buy at $22. The idea is to bring in some traffic. Price tag The increase from $20 to $25 stopped some traffic, but according to CNN, Garnier added: “We need to be more cautious, what is the entry point? What is the price we are offering for this promotion?
Even raising prices during a popular but ill-fated promotion couldn’t heal the wound. In January, Thai Union announced its intention to sever its relationship with Red Lobster, saying “Red Lobster’s ongoing financial requirements are no longer consistent with our capital allocation priorities.”
In the first nine months of 2023, when Red Lobster’s UES offer became permanent, Thai Union recorded a share loss worth $19 million for the chain.
Tibbs seemed unfazed by Kenney’s decision to tie a failing Red Lobster deal to a seafood supplier that wields significant influence on the board. According to Tibus, UES’s promotions also received “atypical” promotional volumes associated with the deal, which in turn caused “supply issues, resulting in severe shrimp shortages, with restaurants often going days or weeks without certain types of shrimp.” .
There was no immediate response from Thai Union and Red Lobster. of wealth Request to comment.
shady business
But restructuring experts are also picking among other choices made under Kenney to deal with growing reliance on joint supplies from Thailand.
The new CEO claims that the shareholder, with a market capitalization of approximately $1.9 billion at the time of writing, “has enormous influence over the company’s shrimp purchases.”
Tibbs claims that this impact was clearly felt through a series of decisions. For example, in 2023, Kenney directed Thai Union to continue producing Red Lobster shrimp at a level that “does not comply with traditional supply processes or bidding cycles or adhere to the company’s demand forecasts.”
Thai Union’s products also began appearing more widely in Red Lobster restaurants after two of the chain’s previously used suppliers of breaded shrimp were fired, which Tibus claimed “happened under the guise of a ‘quality review.'” The firings Two suppliers resulted in exclusive deals for Thai Union and higher costs for the restaurant brand.
External factor
While the multimillion-dollar shrimp disaster probably didn’t help Red Lobster’s prospects, the brand did say in its Chapter 11 filing that it had liabilities of between $1 billion and $10 billion — a huge amount, It cannot be entirely borne by anyone.
Thai Union said the brand is dealing with the aftermath of the pandemic as well as “ongoing industry headwinds, higher interest rates and rising material and labor costs” during the extraction of Red Lobster.
Indeed, analysis conducted by Tibbs and his team since March paints a picture of a business in trouble. One of the issues he outlined in his statement was a decline in customer numbers, down 30% since 2019, with only a “marginal” rebound in the wake of the coronavirus pandemic.
On top of that, there’s a factor plaguing the industry more broadly: inflation. Consumers are currently less willing to dine out, Tibbs wrote, adding that the decline in customer income is related to rising labor costs due to minimum wage increases.
Elsewhere, the boss added, the company spent dizzying sums of money on leasing stores but the money was not delivering a return on investment. “In 2023, the company spent approximately $190.5 million on lease obligations, of which more than $64 million was related to underperforming stores,” he wrote.
That may have changed. According to USA Today, 87 restaurants in 27 states are listed as “temporarily closed” on Red Lobster’s website (which is not live at the time of this writing).
