Food

How Red Lobster's endless shrimp deal fueled a $275 million collapse

The Endless Shrimp deal was great for customers, but likely contributed to the company's financial downfall, forcing it to file for Chapter 11 bankruptcy. ©Image Credit: Wikicommons / Harrison Keely

Red Lobster's endless shrimp deal has always sounded too good to be true, and now the numbers are in. The company has called it a "car crash" and played a huge role in Red Lobster's Chapter 11 bankruptcy filing in May 2024.

Endless shrimp wasn't a win for the restaurant

Red Lobster is known for all kinds of tasty dishes on its menu, but its "Everyday $20 Ultimate Endless Shrimp" offer is by far its most iconic.

The offer was great for customers, but it wasn't great for the bottom line. Creditors have now sued Thai Union, the former controlling shareholder of Red Lobster, calling the shrimp deal a "car crash."

Red Lobster was forced to file for Chapter 11 in 2024 after defaulting on a massive $275 million term loan.

Creditors are calling out Thai Union

In the lawsuit, creditors called out Thai Union, which is a Thai seafood producer. The creditors say that Thai Union knew in 2023 just how bad things looked for the restaurant and still went full steam ahead and risked insolvency.

The creditors' lawsuit makes it clear they want a jury trial so that damages can be determined.

“Thai Union doubled down on a campaign to squeeze out every drop of value that it could through uneconomic contracts that benefited Thai Union and made no economic sense for Red Lobster,” states the lawsuit.

Thai Union pressured Red Lobster to buy its products

The lawsuit also claims that Thai Union put pressure on the restaurant chain to purchase shrimp from the supplier at overpriced rates. The creditors claim that this helped speed up the losses.

The suit also claims that the shrimp purchased was sold at above-market prices, and even banned a competitor from supplying Red Lobster.

“Thai Union treated the company as little more than a distribution arm for its own products, milking whatever value it could from Red Lobster, especially as the company became insolvent,” the lawsuit said.

A precarious time for the restaurant

Considering the string of closures of Red Lobster restaurants and the current lawsuit, times aren't looking so smooth for the chain. Only time will tell if the restaurant can survive the headwinds.

Source: CNBC

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