The new CEO of seafood chain Red Lobster said the bottomless shrimp deal was the nail in the coffin for the brand, which filed for bankruptcy this week.
While the crab, lobster and seafood restaurants remain open, new CEO Jonathan Tebus – a restructuring consultant – is critical of his predecessor’s decisions and apparently dislikes them.
Tebus, who also serves as a managing director in the North American division of consulting firm Alvarez & Marsal, criticized former Red Lobster boss Paul Kenney for marketing and operational “mistakes.”
In the Chapter 11 filing seen by Fortune, Tebus wrote: “Certain operating decisions made by prior management harmed the interests of the debtors.” [Red Lobster] Financial situation in recent years. Historically, the Ultimate Endless Shrimp (“UES”) Debtors Offer has been used as a limited-time promotion. However, in May 2023, Paul Kenny, former CEO of the Debtors, made the decision to add UES as a permanent $20 item to the list despite significant opposition from other members of the company’s management team.
The decision cost the Florida-based brand $11 million and also saddled the company with “onerous supply obligations” related to one company in particular: Thai Union, which acquired a 49% stake in the company in 2016.
Thai Union is a producer of seafood products, supplying customers with chilled, frozen and refrigerated seafood through retail channels such as restaurants and wholesalers.
Even then, Thai Union said it knew the company wouldn’t make much money from the promotion. During an earnings call last year, Thai Federation CFO Ludovic Garnier said: “In this promotion, we don’t make a lot of money. At $22 we don’t do that. The idea was to bring in some traffic. Some revisions led to a price hike of $20. To $ 25 to stop some flow, but according to CNNGarnier added: “We need to be more careful about what is the entry point? What is the price we are offering for this promotion?
Even raising prices on the famous but ill-fated promotion could not heal the wound. In January This year, the Thai association announced its intention to sever ties with Red Lobster, saying “Red Lobster’s ongoing financial requirements are no longer aligned with our capital allocation priorities.”
In the first nine months of 2023 – during the time when Red Lobster’s UES bid became permanent – the Thai federation recorded a share of loss from the chain of $19 million.
Tibus appears unimpressed by Kenney’s decision to tie Red Lobster’s faltering deal to a seafood supplier, which has had significant influence on the board. The UES promotion, according to Tibus, also received an “unusual” amount of promotion in connection with the deal, which in turn led to “supply issues that led to significant shrimp shortages with restaurants often going days or weeks without certain types of shrimp.” .
The Thai Federation and Red Lobster did not immediately respond luck‘s Request for comment.
Suspicious business
But the restructuring expert is also examining other options made under Kenney’s leadership regarding increasing dependence on Thai union supplies.
The new CEO claimed that the shareholder – who had a market value of about $1.9 billion at the time of writing – had a “significant influence on shrimp buying in the company”.
Thibus claims that this influence was clearly demonstrated through a number of decisions. In 2023, for example, Kenney directed Thai Union to continue producing shrimp for Red Lobster at levels that “do not flow through the traditional sourcing process, bidding cycle or adherence to the company’s demand forecasts.”
Thai Union products also began appearing more widely in Red Lobster restaurants after two baked shrimp suppliers the chain had previously used were dropped, which Tibus claimed happened “under the guise of a ‘quality review.’” The expulsion of those suppliers led to the decision regarding an exclusivity deal for Thai Union and higher costs for the restaurant brand.
External factors
While the multi-million-dollar shrimp debacle may not have helped Red Lobster’s outlook, the brand said in its Chapter 11 filing that it has liabilities between $1 billion and $10 billion — an amount too large to lay entirely on anyone’s feet. another person. – Promoting edible seafood.
In its extract from Red Lobster, Thai Union said the brand was battling the after-effects of the pandemic as well as “ongoing industry headwinds, rising interest rates and rising material and labor costs.”
In fact, analysis conducted by Thibus and his team since March paints a picture of a company mired in problems. Among the issues he identified in his announcement was a decline in customer numbers, down 30% since 2019 with only a “marginal” rebound post-coronavirus.
Moreover, there is a factor spoiling the industry more broadly: inflation. Consumers are less willing to eat out right now, Tebus wrote, adding that this decline in customer revenue has been coupled with higher labor costs due to increased minimum wage bills.
Elsewhere, the company spends huge amounts of money on leasing stores that do not generate a return on investment, the president added. “In 2023, the company spent approximately $190.5 million on lease liabilities, of which more than $64 million related to underperforming stores,” he wrote.
This situation may have already changed. for every USA Today, 87 restaurants in 27 states are listed on Red Lobster’s website — which was not operating at the time of writing — as “temporarily closed.”