No, Red Lobster’s ‘endless shrimp’ deal is not the main reason the chain went bankrupt

After Red Lobster filed for bankruptcy protection on May 19, the seafood restaurant chain’s endless shrimp offering, which was a once limited-time deal that was turned into a permanent offering for $20 last year, became the talk of social media.

Multiple X posts seen thousands of times claimed that “Red Lobster is literally going bankrupt because people took ‘all you can eat shrimp’ too literally.” Others countered that the restaurant’s downfall was caused by mismanagement from hedge fund ownership.

Was Red Lobster’s endless shrimp deal the primary reason it went bankrupt?

No, Red Lobster’s endless shrimp deal is not the primary reason it went bankrupt.

Red Lobster did lose money on its permanent endless shrimp deal, which contributed to its bankruptcy. But that loss was minor compared to low overall sales and high rent priced above market rates.

As part of the restaurant’s bankruptcy filings, Red Lobster CEO Jonathan Tibus, who was promoted this year to help the company restructure, wrote that Red Lobster suffered $11 million in losses since the endless shrimp deal became permanent in May 2023.

That $11 million loss was only a small part of the $76 million net loss in fiscal year 2023, which Tibus attributed to weak restaurant performance. Tibus also cited inflationary and wage pressures, “unfavorable leases” totaling $190.5 million in 2023 alone and mismanagement by its investor ownership as contributing to Red Lobster’s decline and eventual bankruptcy.

Many people online have pointed a finger at Red Lobster’s investor owners for driving the restaurant into bankruptcy. Its investors are behind some of the decision-making that Tibus said doomed Red Lobster.

In 2014, Red Lobster’s parent company, Darden Restaurants, sold Red Lobster to Golden Gate Capital, a private equity firm, for $2.1 billion. At the time, Red Lobster owned the land and buildings of its restaurants.

Golden Gate Capital financed its purchase, in part, by entering what’s called a “sale-leaseback transaction.” Golden Gate Capital sold the properties of about 500 Red Lobster restaurants to American Realty Capital Properties, which then agreed to lease the properties back to Red Lobster. Golden Gate Capital made $1.5 billion back from those sales. 

In Red Lobster’s bankruptcy filing, Tibus said that “a material portion of the Company’s leases are priced above market rates.” Many of these leases are for underperforming stores, which Tibus said “has caused significant strains on the Company’s liquidity.” 

That means that even if Red Lobster wanted to close underperforming locations, it is still locked into long-term leasing contracts it would have to continue to pay. American Realty Capital Properties said at the time of the property sales that the average lease was for 25 years.

While the endless shrimp deal cost Red Lobster little compared to bad leases and general company underperformance, Tibus used it as an example of Red Lobster’s owner investors making decisions that harmed the restaurant chain.

In 2016, Thai Union Group, a seafood supplier that includes Red Lobster among its customers, purchased a stake in Red Lobster. By 2020, Thai Union Group and a group of other investors bought out Golden Gate Capital’s remaining stake, giving Thai Union the largest stake of the restaurant.

In April 2022, Thai Union directed Red Lobster to appoint Paul Kenny as its interim CEO after Red Lobster’s previous CEO resigned, Tibus said. In May 2023, Kenny made the endless shrimp deal permanent despite significant pushback from other members of the company’s management team, and his “decision-making process circumvented the Company’s normal supply chain and demand planning processes,” according to Tibus. Meanwhile, Red Lobster reduced its number of shrimp suppliers to the benefit of Thai Union Group.

“Mr. Kenny made a series of decisions that eliminated two of the Company’s breaded shrimp suppliers, leaving Thai Union with an exclusive deal that led to higher costs to Red Lobster,” Tibus wrote. 

Tibus said that Red Lobster is “currently investigating the circumstances around these decisions.” In January 2024, Thai Union Group announced that it planned to exit its investment in Red Lobster. 

The endless shrimp deal is now only available on Mondays for a limited time for $25, according to the restaurant’s website.

Red Lobster is not planning to close its restaurants immediately. In a press release, Red Lobster said it plans to use the bankruptcy protection filing to “drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets.”

“Red Lobster’s restaurants will remain open and operating as usual during the Chapter 11 process,” the company wrote in its press release.