Greed, gluttony and the crackup of Red Lobster
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Greed, gluttony and the crackup of Red Lobster

Dramatic fall of American restaurant chain blamed on mismanagement by seafood giant Thai Union

A Red Lobster in Orem, Utah, where managers were told to “get that shrimp out as fast as you can”, a former employee recalled. Missed opportunities, a $1.5 billion real estate deal, all-you-can-eat shrimp and the global pandemic sank the United States’ largest seafood chain. (Niki Chan Wylie/The New York Times)
A Red Lobster in Orem, Utah, where managers were told to “get that shrimp out as fast as you can”, a former employee recalled. Missed opportunities, a $1.5 billion real estate deal, all-you-can-eat shrimp and the global pandemic sank the United States’ largest seafood chain. (Niki Chan Wylie/The New York Times)

In June of last year, Red Lobster announced that Ultimate Endless Shrimp — as much as you can scarf down for just $20 — would become an “all day, every day” fixture of the menu.

Game on, said America.

Diners swarmed the Thai-owned chain’s nearly 700 restaurants, ordering round after round of Parrot Isle Jumbo Coconut Shrimp (breaded, sweet and fried), Walt’s Favorite (breaded and fried), Garlic Shrimp Scampi (shrimp in a pool of butter and garlic sauce), Shrimp Linguini Alfredo (shrimp on a pile of pasta with garlic sauce) and Grilled Shrimp Skewers (self-explanatory). The first round came with two sides: coleslaw, french fries, mashed potatoes, baked potato or rice.

It was a giddy, raucous display of gluttony. TikTokers sank into upholstered booths and declared their goals — “Hi, my name is Onalee and I’m going to eat 65 shrimp tonight” — or posted videos of shrimp-gobbling marathons. “Only eat at Red Lobster for an entire day?” said a grinning mattpeterson__fan-764. “Challenge accepted!”

Among employees, news that Endless Shrimp would, in fact, never end was greeted with dread. As an occasional special over the years, it was always a frantic ordeal. Cooks and servers could barely keep up. Bargain hunters griped about the pace of refills. Cops were summoned to handle diners enraged that they couldn’t get takeaway bags.

It was a struggle under the best of conditions, and, last year, Red Lobster was wobbling. Shunned by young diners and crowded by cheaper rivals, the chain would later report that its customer count had plunged 30% since 2019.

The slide was a devastating, slow-motion calamity for a brand that over the decades had introduced millions of Americans to seafood along with such nautical-themed desserts as Brownie Overboard. It had been a beloved special-occasion venue for middle-class diners, less expensive than white-tablecloth restaurants, classier than fast-food joints.

New management had arrived in 2020 and tried to revive the chain with the corporate version of heart paddles. Thai Union Plc, the listed seafood giant based in Samut Sakhon, Thailand, administered the shocks in the form of stern lectures, surprise inspections and cost-cutting measures that strained the staff to its breaking point.

Now, by unveiling perpetual Endless Shrimp, Thai Union wanted Red Lobster employees to work even harder.

“When they dumped this on us in June, we’d already been squeezed to the bone,” said Malcom Clarke, then a service manager at the Red Lobster in Orem, Utah. “We got emails from corporate saying: ‘This is a free-for-all. Get that shrimp out as fast as you can.’”

By January, Thai Union was done. Citing mounting losses, Thiraphong Chansiri, Thai Union’s CEO, announced that the company was cutting all ties to Red Lobster, like a parent disowning a child. In a statement for this article, Thai Union said that it had little choice after exploring “all avenues to resolve Red Lobster’s onerous financial obligations” and investing hundreds of millions of dollars in the chain “during the most adverse market conditions in the company’s history.”

Those conditions included unforeseeable disasters, like Covid. But long before the pandemic began, Red Lobster was a company in decline. That never-ending $20 special was merely the final kick in the gut. For roughly a decade, the chain has endured goofs, pratfalls and neglect at the hands of a series of corporate parents. Too often, they behaved like one of those shrimp fiends, thinking mostly about how much profit could be scraped from the plates. (Story continues below)

(Illustration: Lisa Sheehan, The New York Times)

(Illustration: Lisa Sheehan, The New York Times)

Modest beginnings

The first Red Lobster opened in Lakeland, Florida, in 1968, the brainchild of Bill Darden, a restaurant prodigy who had opened a 25-seat luncheonette in his native Georgia at the age of 19. The goal of Red Lobster Inns, as the chain was originally called, was to bring seafood to landlocked areas at affordable prices. To keep checks low, there were no placemats and no bread. There was no lobster, either, at least at first, because it was too pricey.

In 1970, General Mills, wanting to expand beyond Cheerios and Betty Crocker, bought the company. By 1983, there were 350 Red Lobsters in 36 states. It was the largest table-service dining chain in the country.

“We didn’t envision this kind of success,” Darden said that year, as the company expanded into Japan, worried it had reached a saturation point in the United States.

General Mills added Olive Garden to its portfolio and in 1995 created Darden Restaurants as a stand-alone corporation traded on the New York Stock Exchange. (Darden died the year before; the name was a tribute.) In the ensuing years, the glow faded from Red Lobster. Prices rose as China discovered a taste for lobster in the 2010s, and shipping, labor and factory costs kept climbing. All this made the chain a little too expensive for its core audience. Instead of updating the look of restaurants and upgrading equipment, Darden siphoned off money to its faster-growing brands, like LongHorn Steakhouse and the Capital Grille.

There was pride but dwindling profits. Nudged by activist investors, Darden sold Red Lobster in 2014 to Golden Gate Capital, a private equity firm in San Francisco, for $2.1 billion. The deal led to what one former Red Lobster executive described as “the original sin.” Golden Gate sold the real estate under 500 restaurants for $1.5 billion.

The transaction, called a sale-leaseback, netted a quick and immense windfall for Golden Gate and its shareholders. It produced something else for Red Lobster managers: a new expense called rent.

To industry observers, the deal was an outrage.

“These clowns basically ransacked Red Lobster,” said Phil Kafarakis, president of the International Foodservice Manufacturers Association, which represents food companies that sell to restaurants. “Golden Gate — they’re finance guys. They were just making a quick buck off a wounded animal. And it was a shame because it was a great brand in a very difficult category.”

Golden Gate declined to comment. In theory, cash from sale-leasebacks can be poured into a business that badly needs it. And Golden Gate bankrolled upgrades, former employees say, including a Kitchen of the Future project that included new saute stations and software to streamline orders.

Red Lobster’s leases were a tightening noose. They stipulated 2% annual increases, which slowly ballooned into as much as 50% of revenue in some locations.

By 2020, Golden Gate was apparently done with the chain. That year, it found a buyer.

Before Red Lobster, Thai Union had never owned a restaurant. In 2016, Thai Union purchased a minority stake in the chain from Golden Gate for $575 million. Four years later, Golden Gate sold its remaining equity interest to Thai Union, Red Lobster management, and a consortium of investors called Seafood Alliance. Thai Union ended up the largest stakeholder, with 49% of the company.

The timing was disastrous. The pandemic had devastated the restaurant industry, and Red Lobster, already weak, was hit harder than most chains. Its older-than-average customers took longer to return to in-house dining, and because seafood doesn’t travel well the chain had little takeout infrastructure.

At corporate headquarters in Orlando, Florida, Thai Union’s brass also made a memorable impression. Thiraphong, the CEO, had recruited Paul Kenny, a grey-haired Australian who had spent years in overseeing the restaurant business of Bangkok-based Minor Group including its flagship Pizza Company, to serve as the liaison to Thai Union. He arrived with plenty of good ideas: He wanted energy in the room, servers that smiled and customers eager to return.

But former employees — who requested anonymity because they expect to fight with Red Lobster’s new management over money — say he had a caustic style. He belittled front-line employees and C-suiters alike. Red Lobster’s CEO, Kelli Valade, a much-admired industry veteran, left in April 2022, a mere eight months after she had started. Kenny took over.

Now fully in charge, Kenny and Thiraphong started dropping by Red Lobster locations around the country.

The preparation never sufficed. No kitchen was clean enough. No waiter was prompt enough. The cooking was routinely savaged. Employees were occasionally left in tears.

In 2022, days before the start of the company’s General Manager Conference, an annual meeting that had long been an uplifting event, all six senior vice-presidents of operations at Red Lobster were fired, along with the chief operating officer. When 700 managers and executives showed up in a hotel conference room in Dallas, they braced for a scolding.

When Thiraphong took the stage, they got it.

Thiraphong included a note of doom: If the chain didn’t vastly improve, it wouldn’t be around in a year.

‘Scare culture’

“There was a scare culture at Red Lobster after that conference,” said Steven Varsava, a manager at the Murray, Utah, location. “I noticed a change in my director. He went from a cool guy to totally stressed.”

Desperate to increase traffic and sales, Kenny and his colleagues tried a new product. They rolled out Cheddar Bay Shrimp. When that dish failed to catch on, it was Hail Mary time.

Ultimate Endless Shrimp had long been an annual promotion, timed for the back-to-school period in September, when restaurant numbers dip. The rest of the year, it was a Monday-only offering. Now, it would be as permanent as the plastic bibs. The company announced on June 26, 2023, that Endless Shrimp was “here to stay!”

Former employees have a theory about why Endless Shrimp endured: Thai Union had decided that Red Lobster was a goner. And if Red Lobster could not be saved, Thai Union wanted to sell as much seafood as possible to the chain while it still could. (The company declined to comment on this point.)

True or not, in April of last year, Red Lobster cancelled its contracts with two competing suppliers of breaded shrimp, according to a Red Lobster bankruptcy filing.

It did so “under the guise” of a quality review, the filing stated, and “in apparent coordination with Thai Union”.  This left “Thai Union with an exclusive deal that led to higher costs to Red Lobster”.

By September of last year, Red Lobster had begun its death spiral. The company stopped paying many of its vendors.

Dropping Red Lobster, the Thai Union spokesperson wrote in the email, was the company’s only choice. “Despite an unprecedented global pandemic, higher interest rates, rising material and labour costs, an increased competitive environment, and rigid and unfavourable lease obligations, Thai Union continued to support the business and explored all avenues to resolve Red Lobster’s onerous financial obligations,” the spokesperson wrote.

When Red Lobster filed for bankruptcy in May, it closed 140 restaurants — 544 have remained open — and stated that the chain was $1 billion in debt, having posted a $76 million net loss in 2023. Thousands of employees paid a more personal price. Many learned they were jobless when they showed up to find their restaurants had closed for good.

Today, Red Lobster is about to get a new owner. Fortress Investment Group in Manhattan, an investment management firm, made the only offer to acquire the chain as it languished in a bankruptcy court in Florida. On Thursday, the judge overseeing the case approved the deal. The price, $375 million, is a dizzying discount from the company’s $2.1 billion valuation 10 years ago.

Thiraphong, for his part, would like to move on. During an earnings call in February, analysts peppered him with questions about the highest-profile misfire in Thai Union’s history.

“Red Lobster is done and over,” he said emphatically, through a translator. He seemed to want an end not just to Red Lobster-related questions, but to Red Lobster-related thoughts.

“Other people stop eating beef,” he said with a pained grin. “I’m going to stop eating lobster.”

This article originally appeared in The New York Times

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