Explainer: What Happened To Red Lobster?

Red Lobster filed for Chapter 11 bankruptcy protection this week, giving investors an inside look at what caused the downfall of one of America’s largest seafood chains.

Not Only About the Shrimp

It might be easy to blame Red Lobster’s unlimited shrimp deal for the demise of the company, but there was more to its struggles than bad seafood economics alone.

In 2014, one-time Red Lobster-owner Darden Restaurants (DRI) sold the chain to the private equity firm Golden Gate Capital, citing declining traffic and weakening performance. Under new ownership, Red Lobster sold its real estate assets, turning the restaurants from owners to renters.

But back to the shrimp: In 2020, Golden Gate Capital then sold its stake in Red Lobster to global seafood supplier Thai Union, which became Red Lobster’s primary shrimp supplier as well. But when Red Lobster launched its $20 all-you-can-eat shrimp promotion as a permanent menu fixture in 2023, it led to steep losses for the restaurant chain because customers took advantage of it too much.

And all of that was going on against the backdrop of rising competition from fast-casual chains and the impact of the pandemic, which weighed heavily on the hospitality sector.

What’s Next?

A bankruptcy filing doesn’t necessarily mean that Red Lobster is gone forever. Its restaurants will remain open during the proceedings, and the company plans to sell its business to its lenders, when it could be revived under new leadership.

Whether you’re an active investor in company stocks, or just like following the markets more broadly, bankruptcies often pull back the curtains on what may have gone awry in a business. There are many lessons here, but one take away might be that there is such a thing as too much shrimp.

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