Layoffs

Why is Red Lobster bankrupt? No, it’s not just about endless shrimp

The beloved seafood chain has filed for Chapter 11 bankruptcy protection, but we can’t blame the whole thing on a single loss-making promotion.



Red Lobster officially filed for bankruptcy Monday, after a grim week that saw nearly 100 stores shut down around the country. The restaurant chain has cycled through multiple owners and leadership cabals over the past 10 years, and each of them attempted to stabilize the chain, to no avail. One of these rescue plans was the restaurant’s now-infamous Endless Shrimp promotion—in which, for $20, customers could order an unlimited supply of fried shrimp, shrimp scampi, or “street corn shrimp” to their table. The plan, as far as I can tell, was for guests to fill up on just enough shellfish to preserve Red Lobster’s profit margin. It backfired spectacularly: The restaurant’s clientele scarfed down enough shrimp to accumulate an $11 million operating loss in the fourth quarter of 2023.

Of course, the actual reasons Red Lobster is circling the drain are more complicated than a runaway shrimp promotion. Business Insider’s Emily Stewart explained the long pattern of bad financial decisions that spelled doom for the restaurant—the worst of all being the divestment of Red Lobster’s property holdings to rent them back on punitive leases, adding massive overhead. (As Ray Kroc knows, you’re in the real estate business!) But after talking to many Red Lobster employees over the past month—some of whom were laid off without any notice last week—what I can say with confidence is that the Endless Shrimp deal was hell on earth for the servers, cooks, and bussers who’ve been keeping Red Lobster afloat. They told me the deal was a fitting capstone to an iconic if deeply mediocre chain that’s been drifting out to sea for some time.

“I had a guy come in with his family. It was a family of five. And he did 16 rounds of shrimp scampi,” said James Berke, a 23-year-old in New Jersey, who until very recently worked at a Red Lobster. “He was there for over two hours on a busy Friday night. They had one of my biggest tables. I just had to watch this man eat plates upon plates of the scampi, which isn’t even served over pasta. It’s shrimp in a garlic-wine butter. It was so gross.”

Berke quickly noticed two major problems with the Endless Shrimp promotion. First, and most important, a $20 charge for dinner is fairly low compared with the rest of Red Lobster’s menu. According to Berke, the average entree price at the restaurant is around $35, which means that once the all-you-can-eat format became a permanent fixture in the company’s dining rooms last summer, he was suddenly making far less on tips. “I usually made $200 a night before Endless,” said Steve, another Red Lobster employee, who asked to remain anonymous. “Once it became a thing, I was down to $90.”

There was also the fact that when parties arrived at Red Lobster looking to pig out on a barge of shrimp, they simply wouldn’t leave. Berke’s experience serving a man who put away 16 servings over two hours was actually mild compared with some of the other stories I’ve heard. Josie, 19, who also asked to be anonymous, worked at a (now-shuttered) Kansas City Red Lobster, where she watched a solo diner take down 30 orders of fried shrimp within four hours. According to the nutritional information on Red Lobster’s website, that’s something like 14,000 calories.

“He was a skinny guy too,” Josie said. “I was like, Where is it all going?

But the top things employees will not miss about Red Lobster are the arguments and confrontations they’d frequently endure when informing customers about the rules that come buoyed to the Endless Shrimp deal. For instance, guests cannot request a box to take their Endless Shrimp home, nor can they share their servings with the rest of the table. (In other words, only one phantasmagoric shrimp binge per person.)

“You had groups coming in expecting to feed their whole family with one order of endless shrimp,” Josie said. “I would get screamed at.” She already had her share of Cheddar Bay Biscuit battle stories, but the shrimp was something else: “It tops any customer service experience I’ve had. Some people are just a different type of stupid, and they all wander into Red Lobster.”

Steve told me he’s “never been more disrespected in my life” than by the Endless Shrimp patrons. (“My manager got spat in the face,” he added.) Steve also noticed a subtle shift in the makeup of Red Lobster’s dining room, as the older folks who “dressed up and looked nice” for a meal at the restaurant were edged out by a younger, rowdier crowd.

But none of this is Josie’s or Berke’s problem anymore. Both of them worked Mother’s Day—one of the biggest days on the sit-down restaurant calendar—and woke the next morning to learn that their Red Lobsters had been padlocked for good. (“They made us work Mother’s Day to get that quick buck, and then they closed us,” Berke said.) Some 500 locations will remain open for now during the bankruptcy process, but their future is uncertain.

That is bad news for Michael Durrant, a 23-year-old who told me he is “very broke” and recently relied on a night with Red Lobster’s Endless Shrimp to sustain him while his account balance looked bleak. Durrant agreed to speak to me to satisfy my curiosity about the other side of this equation: the people who ate all that damn shrimp.

Durrant said he once spent between three and four hours in the dining room, downing 83 shrimp in total, and took “at least one nap” at the table.

“I am bummed that Red Lobster is going away,” Durrant said. “But I get it. There’s not really anything on the menu worth getting other than the Endless Shrimp.”

 

Although much has been made about the restaurant’s decision to make its $20 endless shrimp deal a permanent menu item—underestimating demand and leading to an $11 million loss, according to its largest shareholder, Bangkok-based Thai Union Group—that loss-making promotion is only one part of the chain’s financial difficulties, which date back years.

Here’s what you need to know:

THE RISE AND FALL OF A FAST-CASUAL GIANT

Founded in 1968 in Lakeland, Florida, by Bill Darden and Charley Woodsby, Red Lobster brought affordable seafood to inland America, revolutionizing casual dining. General Mills acquired the brand two years later, helping it expand rapidly. But Red Lobster has since struggled to keep up with changing market dynamics, consumer preferences, and, more recently, inflationary pressures. 

Fast-casual chains like Chipotle Mexican Grill and quick-service giants like Chick-fil-A have eroded Red Lobster’s market share. “Red Lobster had incredible popularity among baby boomers,” but had trouble bringing in younger diners, noted Alex Susskind, a food-and-beverage scholar at Cornell University, in an interview with CNN.

Obviously, this wasn’t just about shrimp: Former executives and industry analysts also highlight that successive ownership changes and corporate strategies have not favored the chain’s long-term health. A former Red Lobster executive, speaking anonymously to CNN, criticized Thai Union’s cost-reduction strategies, describing them as “penny wise and pound foolish” because they ultimately harmed sales.

In January, when Thai Union Group announced it was seeking to unload its ownership share in Red Lobster, it cited a combination of “the Covid-19 pandemic, sustained industry headwinds, higher interest rates, and rising material and labor costs.”

Rental leases for its restaurants have proven to be a particular burden. In bankruptcy filings on Monday, the company said that it was seeking to reject unexpired leases “and abandon any personal property remaining at leased premises on an emergency basis . . . to avoid incurring post-petition administrative rent.”

With a future very much uncertain, Red Lobster appointed Jonathan Tibus as its new chief executive, a restructuring expert known for guiding companies through financial turmoil. Meanwhile, Neal Sherman, CEO of TAGeX Brands, is promoting a “Winner Takes All” liquidation sale for the chain’s fixtures, furniture, and equipment from shuttered locations. 

And, of course, Red Lobster isn’t alone among troubled restaurant chains. Tijuana Flats announced last month that it was under new management after a bankruptcy filing. The owner of Boston Market attempted a second bankruptcy only to be blocked by a judge. And TGI Friday’s began the year announcing dozens of closures.

For its part, Red Lobster said it will keep operating during the Chapter 11 process and use the proceedings to “drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets as a going concern.”

Nevertheless, social media is filled with saddened responses from distraught Red Lobster loyalists, some of whom fear this is a sign that the days of affordable family dining are coming to a close. 

 Red Lobster, which filed for Chapter 11 bankruptcy in Florida on Sunday night, is investigating the role its majority owner Thai Union played in the restaurant chain's "endless shrimp" promotion that caused $11 million in losses, court documents showed.
Red Lobster said the debacle was part of a pattern of mismanagement by the global seafood company that owns most of its equity and supplies shrimp to its restaurants.
Red Lobster, with about 550 casual dining restaurants in the U.S., had offered a $20 endless shrimp dish as a limited-time promotion. Former CEO Paul Kenny made it a permanent, year-round option in May 2023 despite "significant pushback" from other management team members, the documents said.
Some Red Lobster restaurants soon faced major shrimp shortages. Around the same time, it eliminated two breaded shrimp suppliers, leaving Thai Union with an exclusive deal that led to higher costs, current CEO Jonathan Tibus wrote in the filing.
"Thai Union exercised an outsized influence on the company's shrimp purchasing," Tibus wrote. "The Debtors are currently investigating the circumstances around these decisions."
Thai Union could not immediately be reached for comment on Monday.
Red Lobster, with $294 million in debt, plans to close some underperforming restaurants and sell the rest to a group of its lenders including Fortress Investment Group.
Red Lobster, based in Orlando, Florida, is one of the world's largest seafood restaurants with 54 outlets outside the United States and about 36,000 employees. It purchases 20% of all North American lobster tails and 16% of all rock lobsters sold worldwide, the documents showed.

Red Lobster said its business has suffered from poor management decisions, high inflation, unsustainable rent costs, and increased competition. It posted a $76 million net loss in 2023, and recently closed 93 restaurants to cut costs.

If you’re looking to save money on groceries and other essential items (and who isn’t?), Target might be your new best bet.

On Monday, Target announced it will lower prices on about 5,000 items including paper towels, diapers, fruits, vegetables, and more. The price reductions will hit some of the store’s own brands, like EverSpring and Good & Gather.

“We know consumers are feeling pressured to make the most of their budget, and Target is here to help them save more,” Rick Gomez, executive vice president and chief food, essentials, and beauty officer at Target, said in the announcement. “Our teams work hard to deliver great value every day, and these new lower prices across thousands of items will add up to additional big savings for the millions of consumers who shop Target each week for their everyday needs.”

According to the announcement, prices on some popular grocery items, including Good & Gather Frozen Chicken Breast, Prime Hydration Ice Pop Sports Drinks, Johnsonville Cheddar Smoked Sausages, and Good & Gather Shredded Cheese, have already been knocked down ahead of Memorial Day weekend. For a longer list of other items included in the price reductions, see the announcement here.

The price-slashing at Target comes as sky-high food prices have been crushing shoppers at the grocery store checkout. Recently, Walmart, which sells discount grocery items, announced that its earnings have been elevated even with high-income shoppers as more people have turned to the budget retailer for must-have items. Walmart also recently dropped a new premium grocery label.

Walmart’s chief financial officer John David Rainey told CNBC that the uptick in shoppers comes as the retailer strives to make cooking at home more affordable, and more convenient. He noted that Walmart’s delivery business is thriving. “We’ve got customers that are coming to us more frequently than they have before and newer customers that we haven’t traditionally had, and they’re coming into a Walmart whether it’s a virtual store online, or whether it’s one of our physical stores,” Rainey said.

Even as inflation has leveled off, grocery store prices have remained high. And in a December 2023 survey, consumers cited the exorbitant food prices as their greatest financial concern.

In the new announcement, Target also pointed to its Target Circle card as another way to save on top of the newly slashed prices. “Shoppers also can save an extra 5% if they pay with Target Circle Card, get Target Circle deals, and more,” it noted.

New Colorado legislation will add protections for consumers from artificial intelligence in a range of areas, including employment, but it has raised concerns. Colorado Gov. Jared Polis signed the bill, SB205, into law on May 17, though he also issued a letter noting reservations about the legislation.

The law requires developers of AI to use reasonable care to avoid algorithmic discrimination, though it doesn’t take effect until February 2026. Law firm Seyfarth Shaw noted the Colorado law is the first to be approved when it comes to regulating the use of AI in employment.

In his signing letter, Polis wrote the law creates complex compliance and affirmative reporting requirements.

“Laws that seek to prevent discrimination generally focus on prohibiting intentional discriminatory conduct,” Polis wrote. “Notably, the bill deviates from that practice by regulating the results of AI system use, regardless of intent, and I encourage the legislature to reexamine this concept as the law is finalized before it takes effect in 2026.”

The Chamber of Progress, which describes itself as a center-left tech industry policy coalition, had sent a letter to Polis earlier this month urging him to veto the bill. While agreeing that discrimination is wrong, the group said the legislation stifles innovation and represses competition.

“There’s a good reason that even Gov. Polis’s signing statement raises concerns about Colorado’s AI legislation: It threatens to wrap up the state’s tech economy in red tape,” Chamber of Progress founder and CEO Adam Kovacevich said in a press release after the signing. “Thankfully, there’s still time before this bill takes effect for state legislators to get AI regulations right.”

The US Chamber of Commerce had also called for Polis to veto the bill.

“Guardrails are important when gaps exist in existing laws and regulations, including in areas like AI,” according to the chamber’s letter. “However, no comprehensive analysis to determine regulatory gaps was undertaken before SB205 was introduced, and little attention was focused in this area as the bill proceeded through the legislative process.”

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