Many seafood lovers and patrons of Red Lobster were shocked when the popular seafood chain was revealed to have gone bankrupt. Reports claim the business filed for bankruptcy on May 19th, 2023, leading many to speculate on what may have led to it. 

Some suspected their endless shrimp menu item, but Senator Elizabeth Warren thinks greed might have had something to do with it. 

In a tweet she shared via X/formerly Twitter, Senator Elizabeth Warren suggested that the financial collapse of Red Lobster had more to do with private equity greed than the all-you-can-eat shrimp campaign they launched. She even shared what she believes is the formula that private equity firms use.

It involves taking over a company and stealing all the profit before saddling it with debt and then leaving the communities, workers, and customers holding the proverbial bag. 

Thai Union has been a major shareholder in Red Lobster since 2020, and reports claim it contributed significantly to the company’s financial woes by lobbying for the $20 endless shrimp promotion to boost profit turn-in from shrimp sales.

It worked out well for them, but not so much for Red Lobster. The company lost a whopping $11 million, which was like the final nail in its coffin, leaving them little choice but to file for bankruptcy. 

When the endless shrimp campaign was initially proposed, the Red Lobster company’s management was against it, having foreseen what it could potentially do to the business.

Unfortunately, the Thai Union’s influence won over their objections, and the promotion was approved. The tussle between the management and the union was brief, but it revealed tension between both parties, adding to the instability. 

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Another factor contributing to Red Lobster’s financial woes was the Thai Union’s monopoly on its supply chains.

The union eliminated two of Red Lobster’s breaded shrimp suppliers, leading to heightened costs, among other issues. As such, it was only a matter of time before the company buckled under the strain. 

According to the bankruptcy filing, the Thai Union took strategic steps that ultimately created significant operational and financial hazards.

For example, the union subjected Red Lobster to supply obligations it could not keep up with, straining operations. This, as well as financial mismanagement, eventually caused the company to file for bankruptcy. 

In the past two decades, the fast food industry has seen considerable change stemming from a shift in consumer habits. Restaurants like Chipotle and Chick-fil-A have managed to stay ahead of the curve thanks to their ingenious tactics, but while they have continued to thrive, Red Lobster has fallen behind.

This is mainly because the seafood chain has been having trouble attracting younger customers because it lacks modern marketing and restaurant upgrades. 

Another factor that made Red Lobster’s situation worse was its failure to invest in crucial areas. They spared no funding for improving various business sectors, including marketing, food quality, restaurant upgrades, and service enhancements, meaning they could hardly keep up in the competitive food market. 

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The company was created in 1968 and has since become popular among seafood lovers. It raised industry standards with its national seafood distribution system, but problems arose as more competition arrived and internal clashes started happening.

By 1985, Red Lobster had restaurants in many parts of the nation and was raking in about $834 million in sales. It was a great time for the company but did not stay on top for long. 

Another food company, Olive Garden, created by General Mills in 1982, was right behind them, and it did not take long before it overtook Red Lobster. As the competition persevered, Red Lobster struggled to stay ahead but failed in the face of operational missteps. 

According to the bankruptcy filing, the company was also weakened financially because it had too many changes in leadership.

Such frequent changes, coupled with the many mistakes new administrations made while at the helm, further destabilized the company, ultimately tipping the scales towards bankruptcy.

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What happened to Red Lobster highlights the damage private equity decisions can wrought. There is little doubt that the money they lost to the endless shrimp campaign played a role, but even more significant factors that led to bankruptcy included operational mismanagement and private equity influence.

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