A Red Lobster restaurant is seen on May 20, 2024, in Austin, Texas. The seafood chain sought Chapter 11 bankruptcy protection after a failed lease-back arrangement and an “endless shrimp” promotion put further pressure on its finances.
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Red Lobster’s “Everyday $20 Ultimate Endless Shrimp” deal was likened to a “car crash” in a lawsuit brought by the restaurant chain’s creditors against its former controlling shareholder, Thai Union.
The complaint, filed in Orange County, Florida, in May, alleges that Thai Union — a seafood producer listed on Thailand’s stock exchange — was aware in 2023 that Red Lobster was under serious financial strain and at risk of insolvency. The lawsuit, brought by a trust representing Red Lobster creditors, seeks a jury trial to determine damages.
Rather than acting in the restaurant company’s best interests, the suit claims, “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.”
Thai Union and Red Lobster did not immediately respond to CNBC’s requests for comment.
Red Lobster filed for bankruptcy protection in May 2024, closing locations across the United States as it dealt with mounting challenges, including tougher competition, high lease costs, weaker consumer spending and the financial fallout from its shrimp promotion.
The company had defaulted in September 2023 on a $275 million term loan from Fortress Investment Group.
The company exited Chapter 11 in September 2024 after being acquired by private investor group RL Holdings, reportedly led by Fortress. RL Holdings still owns Red Lobster.
The suit alleged that Thai Union had pressed Red Lobster to purchase increasing amounts of its shrimp at above-market prices and banned a competitor from supplying the restaurant chain.
Thai Union and then-interim CEO Paul Kenny “engineered and implemented” the endless-shrimp promotion over the objections of Red Lobster employees not affiliated with Thai Union, and this led to restaurants around the country being “immobilized” as they ran out of shrimp and were unable to turn over tables, the lawsuit alleged.
“When it was clear that the Everyday $20 Ultimate Endless Shrimp offering was wreaking havoc on Red Lobster and its balance sheet, Kenny doubled down. He responded by continuing the offering—and generating tens of millions of dollars more in overpriced shrimp orders for Thai Union—and ultimately left Red Lobster with a massive oversupply,” the filing read.
Red Lobster brought back the endless-shrimp promotion in April, according to its website, though it said the promotion was for a limited time and didn’t provide the cost.
Thai Union had bought a minority stake in Red Lobster in 2016, then effectively controlled the company after teaming up with another related shareholder in 2020 for a majority stake and three out of five of Red Lobster’s board seats.
It later divested its stake in May 2024, and the suit alleged that it did not contribute any capital in the Chapter 11 process.
“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.
