When seafood conglomerate Thai Union Group became Red
Lobster’s leading shareholder in 2020, gaining 49% control of the chain,
Red Lobster employees were assured Thai Union would not interfere in key decisions.
Thai Union will “not be involved in Red Lobster’s day-to-day
operations, including [its] supply chain standards and processes,”
according to a document titled “Seafood Supplier Talking Points” viewed
by CNN that was approved by top Thai Union and Red Lobster executives.
“We intend to maintain relationships with all current seafood suppliers,” the talking points said.
Those pledges didn’t last.
By 2022, representatives from Thai Union
in Thailand, whose $4 billion empire includes brands like Chicken of
the Sea and John West Foods, were embedded in Red Lobster’s Orlando
headquarters, serving in top roles and closely directing the largest
seafood restaurant chain in the world.
“We are much deeper involved in the management of Red
Lobster,” Thai Union finance chief Ludovic Garnier said on an analyst
call in November 2022.
Now, Red Lobster has drowned in a relentless supply of Thai Union-supplied shrimp. Red Lobster filed for Chapter 11 bankruptcy Sunday, and it plans to sell its business to its lenders. In turn, Red Lobster will receive financing to stay afloat.
Thai Union’s damaging decisions drove the pioneering chain’s
fall, according to 13 former Red Lobster executives and senior leaders
in various areas of the business as well as analysts. All but two of the
former Red Lobster employees spoke to CNN under the condition of
anonymity because of either non-disclosure agreements with Thai Union;
fear that speaking out would harm their careers; or because they don’t
want to jeopardize deferred compensation from Red Lobster.
Thai Union earlier this year blamed
the Covid-19 pandemic, as well as “sustained industry headwinds, higher
interest rates and rising material and labor costs” for Red Lobster’s
struggles.
In a statement to CNN, Thai Union said it “has a been a
supplier to Red Lobster for more than 30 years, and we intend for that
relationship to continue.” A bankruptcy process “will allow Red Lobster
to restructure its financial obligations and realize its long-term
potential in a more favorable operating environment,” the company
said. Thai Union did not respond to CNN’s questions about the specific
allegations raised in this story.
Former Red Lobster employees say that while the pandemic,
inflation and rent costs impacted Red Lobster, Thai Union’s ineptitude
was the pivotal factor in Red Lobster’s decline.
“It was miserable working there for the last year and a half
I was there,” said Les Foreman, a West Coast division vice president
who worked at Red Lobster for 20 years and was fired in 2022. “They
didn’t have any idea about running a restaurant company in the United
States.”
At Red Lobster headquarters, employees prided themselves on a
fiercely loyal culture and low turnover. Some employees had been with
the chain for 30 and 40 years.
But as Thai Union installed executives at the chain, dozens
of veteran Red Lobster leaders with deep knowledge of the brand and
restaurant industry were fired or resigned in rapid succession. Red
Lobster ended up having five CEOs in five years.
Thai Union CEO Thiraphong Chansiri visited Red Lobster’s headquarters in 2022 and toured restaurants
around the country. He brought along a feng shui consultant named Angel
to Orlando, former senior leaders at Red Lobster headquarters told CNN.
The consultant determined that executive offices in Orlando were “bad
Feng shui and no one should use them,” one former leader told CNN. The
executive offices sat empty.
Former Red Lobster employees describe a toxic and
demoralizing environment as Thai Union-appointed executives descended on
headquarters and interim CEO Paul Kenny
eventually took over the chain in 2022. Kenny, an Australian-born
former CEO of Minor Food, one of Asia’s largest casual dining and
quick-service restaurants, was part of the Thai Union-led investor group
that acquired Red Lobster.
Kenny criticized Red Lobster employees at meetings and made
derogatory comments about them, according to former Red Lobster leaders
who worked closely with Kenny. Commenting on a woman’s weight at a Red
Lobster annual conference in 2022 in Dallas as she walked across a stage
to accept an award, Kenny said, “we need to institute an exercise
program in this company,” another former Red Lobster executive told CNN.
Kenny did not respond to CNN’s requests for comment on these allegations.
Under Kenny, Red Lobster also cut two of its longtime shrimp
suppliers— and competitors to Thai Union — to purchase more shrimp from
Thai Union at higher costs, according to Red Lobster’s bankruptcy filing. Kenny’s decision came “in apparent coordination with Thai Union and under the guise of a ‘quality review,’” Red Lobster said.
These changes culminated in a $20 endless shrimp promotion in 2023 that would come back to haunt Red Lobster.
“Thai Union exercised an outsized influence on the Company’s
shrimp purchasing,” Red Lobster alleged in its bankruptcy filing. Red
Lobster said it was “investigating whether Mr. Kenny’s decision-making
process circumvented the Company’s normal supply chain and demand
planning.”
Thai Union told CNN that Red Lobster’s accusations in the
bankruptcy filing were “meritless,” and the company looks forward to a
“full representation of the facts.”
Red Lobster also slowed investments in dining room upgrades,
raised prices and cut labor under Thai Union, former executives and
operations leaders say. These decisions pushed away customers and cut
into Red Lobster’s sales. Red Lobster’s annual customer count has
dropped by 30% since 2019, Red Lobster said in its bankruptcy filing.
Red Lobster was started in 1968 by Bill Darden, an architect of the casual dining revolution
in America. General Mills quickly bought Red Lobster and in 1995 spun
the chain off into a new company, Darden Restaurants, named after its
founder.
In 2014, Darden sold Red Lobster to Golden Gate Capital,
a private equity firm, for $2.1 billion. To help fund the deal, Red
Lobster spun off its real estate. The arrangement wound up hurting Red
Lobster because it became stuck with leases it no longer could afford to
pay as the business struggled.
Two years later, Thai Union took a $575 million minority stake in Red Lobster. In 2020, Thai Union expanded that stake, leading an investor group to buy out Golden Gate Capital and acquire Red Lobster.
During the first half of 2021, Red Lobster posted an
operating profit, and Thai Union touted Red Lobster’s strength on calls
with analysts and company presentations.
“Red Lobster’s turnaround continued amid the pandemic,” Thai
Union said in a quarterly earnings presentation in August of 2021.
There was “clear improvement in Red Lobster operations.”
Red Lobster re-hired 26,000 employees from January to August
of 2021, Thai Union said in the presentation, and appointed Kelli Valade CEO.
Valade brought on a new leadership team, including a new head of
finance, chief marketing officer and chief information officer.
But Kenny, then a Red Lobster board member, soon began exercising more control.
In early 2022, Kenny began visiting Red Lobster’s
headquarters more frequently and touring restaurants, former Red Lobster
employees who worked closely with Kenny say.
At a tense board meeting in late March 2022, Kenny disagreed
with Valade that significant further investment was needed in Red
Lobster, according to a former Red Lobster leader. He chastised Red
Lobster’s management team, which included Valade’s three recently hired
executives, this person said. Within 48 hours, Valade resigned, just
eight months into her tenure. Another Red Lobster board member who had
decades of experience running casual dining restaurants in the United
States resigned a day after.
Valade was appointed Denny’s CEO two months later. She did not respond to CNN’s requests for comment.
Kenny was initially described in a press release announcing Valade’s resignation as a “liaison” between Red Lobster’s leadership and the board of directors “during this time of transition.”
But, at the direction of Thai Union, Kenny became interim CEO, according to Red Lobster’s bankruptcy filing.
In the months after Kenny took over, Valade’s leadership
team and other veteran leaders left. In July of 2022, the chief
operations officer and six vice presidents of operations overseeing
restaurants were abruptly fired shortly before Red Lobster’s annual
general manager conference.
Kenny appointed a Thai Union frozen seafood manager, Trin
Tapanya, as Red Lobster’s chief operations officer overseeing
restaurants. Tapanya had no experience running restaurants. He did not
respond to CNN’s requests for comment.
Other Thai Union representatives also became more closely
involved across Red Lobster’s supply chain, finance, operations and
strategy teams.
Under Kenny, changes to restaurant operations and menus
alienated customers and staff and hurt sales. Red Lobster started
charging for a side salad for the first time, angering some customers.
“When you spend $43.99 for a meal the salad should be part of it,” one customer said
recently on Facebook. “Texas Roadhouse does not charge extra for a side
salad. Red Lobster was my favorite place to eat, but no longer.”
The chain started leaving tails on shrimp in pasta and
eliminated sauté stations in kitchens to save on labor costs, according
to a different former Red Lobster employee.
It also squeezed Red Lobster’s waitstaff, switching from
servers covering three tables to 10 and removing a host at the entrance
during lunch hours. Thai Union said at the time it was to improve
customer service, but former Red Lobster employees say the change taxed
restaurant staff.
Overstretched restaurant staff had fewer managers and cooks
than ever, said Barry Fulghum, who started out as a dishwasher at Red
Lobster in the 1970s and worked his way up to become an operations
director, retiring last year.
“There would be times we would have one or two people
working the kitchen line,” he said. “What those cooks did on the line
was amazing given the staffing situation they were dealt.”
Meanwhile, Thai Union took a larger role in Red Lobster’s
supply chain decisions, despite pledges in 2020 that it would not
interfere.
Red Lobster had spent decades developing a wide array of
suppliers to buy at competitive prices and mitigate the risks of
becoming too reliant on any single supplier.
Thai Union blew that up.
Red Lobster employees say they were pressured by Thai Union
representatives to buy more seafood from Thai Union. Thai Union
representatives also began sitting in on meetings between Red Lobster
and seafood suppliers, said one of the former Red Lobster employees who
witnessed these conversations. Thai Union was the direct competitor of
these other seafood suppliers, and suddenly had intimate access to their
products, prices and strategy.
“Our suppliers were really upset that [Thai Union
representatives] were in those meetings with them,” this person said.
Shrimp dishes also became a larger focus of Red Lobster’s
menu under Thai Union, which was a large shrimp supplier to Red Lobster.
“Every promotion was shrimp-centric,” this person said.
Then came the endless shrimp.
Endless shrimp had been a successful limited-time promotion
at Red Lobster for nearly 20 years. But last summer, Red Lobster turned
$20 “Ultimate Endless Shrimp” into a permanent menu item instead.
Kenny had been warned by Red Lobster leaders that $20 was
too cheap to make a profit, according to a former employee who witnessed
these conversations. But Red Lobster went ahead, turning it into an
everyday offer in June 2023 and pushing the promotion heavily.
(Kenny’s decision was met with “significant pushback from
other members of the [company’s] management team,” Red Lobster also said
in its bankruptcy filing.)
“We have a very, very bold proposition for the consumers in
the US. It’s $20, so it’s really affordable,” Thai Union finance chief
Ludovic Garnier said on an earnings call in August 2023.
But the move backfired.
Customers sat at tables for long stretches of time, eating
course after course of shrimp. Service slowed and wait times grew.
Red Lobster lost $11 million following the deal, its bankruptcy filing states.
Endless shrimp was an embarrassment for Red Lobster, spoofed
on Comedy Central’s “The Daily Show” and social media. To former Red
Lobster employees, it was the latest sign Thai Union was ill-suited to
run the chain.
Thai Union announced in January it was divesting from Red Lobster
and taking a $530 million loss on its investment. A month later, Thai
Union CEO Chansiri said the company was looking to sell the chain.
Red Lobster, he said, “is done [and] over with.”