Red Lobster is blaming its bankruptcy on top shareholder and its ex-CEO, saying an $11M all-you-can-eat-shrimp fiasco contributed to its demise

While restaurants for the crab, lobster, and seafood brand remain open, incoming CEO Jonathan Tibus—a restructuring advisor—is picking over the decisions of his predecessor and appears to be left unimpressed.

Tibus, who is also managing director at consulting firm Alvarez & Marsal’s North America division, called out Red Lobster’s former boss Paul Kenny for marketing and operational “missteps.”

In a Chapter 11 declaration seen by Fortune, Tibus wrote: “Certain operational decisions by former management have harmed the debtors’ [Red Lobster] financial situation in recent years. Historically, the debtors’ Ultimate Endless Shrimp (“UES”) promotion was utilized as a limited-time promotion. In May 2023, however, Paul Kenny, the debtors’ former CEO, made the decision to add UES as a permanent $20 item to the menu despite significant pushback from other members of the company’s management team.”

The decision cost the Florida-based brand $11 million and also saddled the business with “burdensome supply obligations” relating to one business in particular: Thai Union, which acquired a 49% stake in the company in 2016.

Thai Union is a producer of seafood products, supplying ambient, frozen, and and chilled seafood to clients through retail channels like restaurants, and wholesalers.

Even at the time, Thai Union said it knew the business wouldn’t make much money from the promotion. During an earnings call last year, Thai Union CFO Ludovic Garnier said: “On this promotion, we don’t earn a lot of money. At $22 we don’t. The idea was to bring some traffic.” Some revisions upward of the $20 price tag to $25 stemmed some of the flow but, according to CNN, Garnier added: “We need to be much more careful regarding, what is the entry point? And what is the price point we’re offering for this promotion.”

Even hiking the prices on the popular but ill-fated promotion couldn’t bandage the wound. In January this year, Thai Union announced its intention to cut ties with Red Lobster, saying “Red Lobster’s ongoing financial requirements no longer align with our capital allocation priorities.”

In the first nine months of 2023—during the time Red Lobster’s UES offer became permanent—Thai Union recorded a share of loss from the chain worth $19 million.

Tibus seems unimpressed by Kenny’s decision tying a sinking Red Lobster deal to a seafood supplier which, conveniently, held a lot of sway in the boardroom. The UES promotion, according to Tibus, also got an “atypical” amount of promotion regarding the deal, which in turn led to “supply issues resulting in major shortages of shrimp with restaurants often going days or weeks without certain types of shrimp.”

Thai Union and Red Lobster did not immediately respond to Fortune‘s request for comment.

Fishy business

But the restructuring expert is also picking through other choices made under Kenny’s leadership in relation to an increasing dependence on Thai Union supply.

The shareholder—which had a market cap of approximately $1.9 billion at the time of writing—had an “outsized influence on the company’s shrimp purchasing,” the new CEO has alleged.

This influence was made clear through a number of decisions, Tibus claims. In 2023, for example, Kenny directed Thai Union to continue producing shrimp for Red Lobster in levels which “did not flow through the traditional supply process or bid cycle or adhere to the company’s demand projections.”

Thai Union products also began appearing more widely in Red Lobster restaurants after two breaded shrimp suppliers previously used by the chain were axed, which Tibus claimed happened “under the guise of a ‘quality review.’” The dismissal of these two suppliers led to an exclusive deal for Thai Union and higher costs for the restaurant brand.

Outside factors

While a multimillion-dollar shrimp debacle may not have helped Red Lobster’s outlook, the brand did say in its Chapter 11 filing it had liabilities between $1 billion and $10 billion—an amount too large to be laid entirely at the feet of any all-you-can-eat seafood promotion.

In its extraction from Red Lobster, Thai Union said the brand was battling aftereffects from the pandemic as well as “sustained industry headwinds, higher interest rates and rising material and labor costs.”

Indeed, the analysis Tibus and his team has produced since March paints a picture of a business drowning in problems. Among the issues he outlines in his declaration is a falling customer count, down 30% since 2019 with only a “marginal” bounce back after COVID.

On top of that is a factor blighting the industry more widely: inflation. Consumers are less likely to want to eat out at the moment, Tibus wrote, adding that this drop in customer revenue has been coupled with higher labor costs on account of increasing minimum-wage bills.

Elsewhere, the boss added, the company is spending eye-watering sums on leasing stores which aren’t making a return on investment. He wrote: “In 2023, the company spent approximately $190.5 million in lease obligations, over $64m of which relate to underperforming stores.”

This situation may have already changed. Per USA Today, 87 restaurants across 27 states on the Red Lobster website—which is not functioning at the time of writing—were shown as “temporarily closed.”