What Killed Red Lobster? | Swimming with Sharks | 2

0:07It's March 2022, and at Red Lobster's head office in Orlando, Florida. The new boss is leading a meeting of the company's high-level executives. Her name is Kelly Vallade, and she's been CEO for just eight months. But today, there's a VIP visitor joining her and the executive team in the boardroom. His name is Paul Kenny, an Australian businessman with close-cropped white hair. He's also a key member of the Seafood Alliance, the group of investors that teamed up with seafood supplier Thai Union to buy control of Red Lobster. Kenny listens as Valade gets to business. Welcome, everyone. Today, we're delighted to have Paul Kenny here with us, all the way from Bangkok.

0:50As you know, he's been visiting some of our restaurants. And I think we're all excited to hear the thoughts he wants to share with you. Before Valade can complete the introduction, Kenny stands and glares at the Red Lobster team. All right, look, I've been up and down your country, and we need to talk about what's going on in your restaurants. what I've seen so far is a bloody shambles. The Red Lobster executives stare in shock. They know Kenny's experience. He used to run Minor Food, a company that operates hundreds of restaurants, including Burger King and Dairy Queen franchises. But his experience is in Southeast Asia, not the United States.

1:27And the Red Lobster team doesn't like the idea of some guy flying in from the other side of the world to tell them they're not doing a good job. Not that they're going to challenge him. Kenny's an emissary of the company's new owners. Valade senses her team's unease and tries to calm the waters. Well, Paul, obviously we are in a time of transition, emerging from the pandemic and adjusting to the change in leadership and ownership. No, no, no, don't give me that, claptrap. This isn't anything to do with the pandemic. I know restaurants and I'm talking about basic stuff. For example, I see you give people free side salads.

2:06One executive straightens up. Yes, we certainly do give them side salads. Our customers really appreciate it. Who the hell goes to Red Lobster to eat free salad? If they want salad, make them pay for it. You could be making five bucks on every order by doing that. Another thing, why do your servers only cover three tables? They could do double that. Easy. You could halve your labour costs that way. Well, maybe expectations of service are different in Asia. You got any evidence to back that statement up? No, it's just common. Yeah, thought so. Next thing. Why are you cutting the tails off the shrimp?

2:44That's taking up our time in the kitchen. Let the customers cut the tails off. Why should we do that for them? They're not children. Blade interjects. Paul, these are all interesting points worth discussing. But at Red Lobster, we try to foster a safe and respectful work environment. Maybe we should consider how our ideas are shared and expressed. Kenny shakes his head. Where I come from, those who deserve respect get respect. If you want respect, earn it. Up your game. The message from Red Lobster's new owners has been delivered. And it's crystal clear. Valade and her team have to deliver improvements and fast.

3:30Before the buyout, Thai Union talked about not wanting to interfere in Red Lobster's operations. But now, well, the management team knows that won't be the case. Thai Union spent and borrowed hundreds of millions of dollars buying control of the world's biggest chain of seafood restaurants. They have to make that gamble pay off. But after years of decline and damaging decisions, Red Lobster is in poor health. and just one bad move could end in disaster.

4:05So, you just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. See, when it comes to hiring, Indeed is all you need. Stop struggling to get your job posts seen on other job sites. Indeed's sponsored jobs help you stand out and hire fast. With sponsored jobs, your post jumps to the top of the page for your relevant candidates so you can reach the people you want faster. And that makes a huge difference. According to Indeed data, sponsored jobs posted directly on Indeed have 45 % more applications than non-sponsored jobs. Plus, with Indeed sponsored jobs, there aren't any monthly subscriptions, no long-term contracts.

4:54You only pay for results. How fast is Indeed? Well, in the minute I've been talking with you, 23 hires were made on Indeed, according to Indeed data worldwide. Look, there's no need to wait any longer. You can speed up your hiring right now with Indeed. And listeners of Business Wars will get a$75 sponsored job credit to get your jobs more visibility. That's at Indeed.com slash BW. Just go to Indeed.com slash BW right now and support our show by saying you heard about Indeed right here on Business Wars. That's Indeed.com slash BW. Terms and conditions apply. Hiring? Indeed is all you need. This message is brought to you by Apple Card.

5:41So you left your wallet in the car or was it at home? No need to panic. With your iPhone, you can tap to pay using Apple Card with Apple Pay and earn unlimited daily cash back when you do. Apple Card is ready when you need it. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com.

6:11From Wondery, I'm David Brown, and this is Business Rules.

6:35Remember the spring of 2024 when the news broke that Red Lobster was almost broke from all that all-you-can-eat shrimp and it went viral? Well, that storyline resonated with anyone who's ever wondered how a restaurant can afford to make such an offer. But here's something you should know about headlines if you don't know already. The real story is seldom as straightforward as it seems on the surface. Let me ask you, what really killed Red Lobster? Well, first off, know this, the lobster lives. Reports of its death were greatly exaggerated. It was more of a near-death experience. The real culprit wasn't so much folks eating too much shrimp.

7:16This is a whodunit, and we're out to solve it. In the last episode, Red Lobster's problems deepened as the 2008 recession drove people towards new fast casual chains like Chipotle, and the private equity firm Golden Gate Capital bought Red Lobster and sold off its real estate holdings. That's a move that left Red Lobster paying higher and higher rents for places that they used to own. Well, now Golden Gate has sold the seafood chain to an investor group led by Thai Union, one of the world's biggest seafood suppliers. But will this fragile alliance of seafood supplier and buyer put wind in Red Lobster's sails or sink it for good?

7:59This is Episode 2, Swimming with Sharks.

8:09Let's rewind to July 2021. Red Lobster names Kelly Vallade its new CEO. She used to run another casual dining titan, Chili's Grill and Bar. Red Lobster is in a state of transition. The previous CEO, Kim Lopthrop, has just left after 14 years in charge, and a group of investors led by Bangkok-based Thai Union has just taken control of the business. Valade hoped to assemble a crack team of expert executives who could figure out a fresh direction for the brand and guide the business through the final wave of those COVID shutdowns. But Valade's time at the chain is brief, just eight months in all.

8:47After that bruising encounter in April 2022 with Thai Union's Australian ally Paul Kenny, she quits to go run Denny's instead. So, as the hunt for her replacement begins, Kenny steps up to become Red Lobster's interim CEO. His arrival ushers in an era of turmoil at the very top as newcomers and old-timers come and go. And it takes Red Lobster 17 months to find a permanent replacement for Belayde. And in the meantime, Kenny makes his presence felt. First, he initiates a major cost-cutting drive. At the front of the house, servers go from looking after three tables to as many as ten. Yeah, that saves money on labor, and when you run a chain of more than 600 restaurants, those savings can really add up.

9:35But it does take a toll on the quality of service. He also oversees a move to take Red Lobster seafood into the freezers of grocery stores. Now, Red Lobster's Cheddar Bay Biscuit mix had been on sale for years in supermarkets, but now he wants to build on that success with packs of coconut shrimp bites and Cheddar Bay biscuit-crusted cod. Yes, this is the same Red Lobster that 15 years earlier remodeled hundreds of restaurants to remind customers that its fish is fresh, not frozen. But hey, times change. And Red Lobster's thinking here is this. It's now owned by Thai Union, and Thai Union owns Chicken of the Sea Frozen Foods.

10:15So it makes sense to do a crossover that marries chicken-of-the-seas expertise in frozen seafood with Red Lobster's brand recognition. It's a bit like the fashion brand Supreme doing a crossover with the sneaker brand Vans, except in this case, the cool factor comes from the product being in the freezer aisle. The hope here is that this is going to be a win-win for both sides. Thai Union wins because it gets to sell more fish. Red Lobster gets a new source of income. But there's a bigger agenda at work here, too. See, the thinking is in this era of lockdowns and food delivery apps that customers are increasingly looking for a restaurant experience at home.

10:56And this has been a big deal for other chain restaurants that have harnessed their brands to sell retail products. But there's another more pressing factor. The spike in inflation that's followed the pandemic. Rising prices aren't just causing people to cut back on eating out. It's also causing them to cut back at home by buying more frozen food. So Red Lobster's out to tap into those trends, right? But back at the restaurants. Inflation's hurting not just customers, but the bottom line too. It's pushing up the cost of ingredients, fuel, labor. Red Lobster doesn't have much of a choice but to pass on some of those extra costs to customers.

11:35And that, in turn, causes even more customers to stay away. This is a classic downward spiral that would threaten any restaurant and Red Lobster's extra exposed. Its prices are at the upper end of the scale for a casual dining chain. And since it offers table service, it can't get overhead down to the levels that you see in fast casual chains with canteen-like counter service. So, Red Lobster reaches for its best defense against inflation. It's a strategy it's been using to get people through its doors for years. limited time promotions. Think the annual Crab Fest, the Summer Fest menus, or the endless shrimp promotion that it's run every fall.

12:19But while all this is going on, Kenny's also getting hands-on in Red Lobster's purchasing decisions. He orders a quality review of Red Lobster's seafood suppliers. And guess what that review concludes? Red Lobster should buy more food from Thai Union. So, now Red Lobster's buying more and more of its ingredients from the very company that controls it. That's good news for Thai Union because Red Lobster buys a lot of seafood. But this interference in the restaurant's purchasing spreads a lot of ugly talk throughout its leadership ranks. While the chain's trying to adapt, rumors are starting to fly that Thai Union is wondering if buying Red Lobster was a massive mistake.

13:04The restaurant chain lost almost$10 million in the final quarter of 2022 thanks to a perfect storm of inflation and COVID. But there's no post-pandemic recovery in sight. And menu additions like cheddar-based shrimp haven't really excited the customers. So, the boss at Thai Union, Tirupong Chanseri, has decided enough is enough. Chancery isn't the kind of guy who keeps bad businesses going out of sentimentality. When his seafood factories fail to deliver profit, they get shut. There's no guarantee he won't dump Red Lobster either. But he knows that if he can fix Red Lobster, this could be a double win.

13:47Not only will the restaurant chain start to grow again, but as it does, it'll start buying more seafood from Thai Union. What Thai Union really wants is something that's going to turbocharge seafood sales at Red Lobster. And so, this is it, folks. The moment when the idea of offering endless shrimp all the time comes into play. Yeah, it's a Hail Mary, that's for sure. But it's one that's seriously going to backfire.

14:21Ready or not? Yep, the holidays are coming, and I'll be honest, I love having friends and family over, but I don't love realizing at the last minute that my serving pieces look like they've been through one too many dinner parties, or that the guest room is more college dorm chic than holiday cozy. Know what I mean? Well, that's where Wayfair comes in. We just ordered some new serving plates, a new wreath for the door, a set of crisp new sheets, and suddenly the house feels just about guest ready. Even better, it didn't feel like a chore. It felt fun. But I've been here before, I'll be honest.

14:54My secret? The Wayfair app. What I love most is how Wayfair has literally everything you need. That's no exaggeration. I was surprised to find high quality cookware that's perfect for hosting those big family dinners. And let me tell you something, Delivery was a breeze, free and fast, even for the larger items. Whether you're looking to spruce up your kids' rooms with festive touches or need new bedding for the guest room, Wayfair's got you covered. From Christmas trees and wreaths to inflatables for the yard, they're truly a one-stop shop for holiday prep. And the best part? There's something for every style and every budget.

15:31I can't wait to tackle more of my holiday home goals with Wayfair. It just makes getting ready for the season so much easier, leaving more time to enjoy with the family. That's what it's all about. Get organized, refreshed, and ready for the holidays for way less. Head to Wayfair.com right now to shop all things home. That's W-A-Y-F-A-I-R dot com. Wayfair. Every style. Every home. When planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters.

16:12It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits, or retirement income solutions, when your future is on the line, you want history on your side. And believe me, Pacific Life has been there, always there through changing times, always focused on your needs. Ready to secure your tomorrow? Ask a financial professional how Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Company, Omaha, Nebraska, and in New York, Pacific Life & Annuity, Phoenix, Arizona.

16:49Because with Pacific Life, you're not just planning for the future, you're partnering with trusted experience.

17:07It's June 2023, and America is reeling from the impact of inflation. Across the country, households are finding the cost of just about everything higher and cutting back on treats like eating out. But on the nation's TVs, Red Lobster's new ad campaign is offering some welcome relief to cash-strapped families. For years, Red Lobster has used a range of limited-time offers to drive customer demand and interest at different times of the year. Well, now it's going further, offering all the shrimp you can eat for under$25 all the time, every day, 365 days a year. And that sends America into a seafood frenzy.

17:47The promotion is absurdly popular. Red Lobster forecasts customer traffic would rise something like 20%, but it actually goes up 40%. Red Lobster outlets soon have lines around the block. For the first time in years, people are actually hyped about Red Lobster. But there's a problem. Red Lobster's been cost-cutting, and what gets cut really matters. In Red Lobster's case, we're talking about a cutback in the number of servers, and that has a direct impact on the customer experience. Customers who leave unimpressed rarely come back. So, while the idea of absurdly cheap shrimp gets many lapsed customers back through the door, once they do get inside, the effect of these cutbacks become alarmingly apparent.

18:36The service is now stretched thin. Servers used to cover just three tables. Now they're juggling ten. And anyone who's worked in a restaurant knows that's a recipe for overwork and stress. all of which undermines the vibe that kept loyal customers returning time after time. But for Red Lobster's finance team, this isn't really the problem. The real problem is how much shrimp the customers are eating. And that's because the customers don't see never-ending shrimp as just a good deal. They see it as a challenge. The promotion is too popular. People are now heading to Red Lobster to try to out-eat each other.

19:13Videos of people eating all the shrimp they can physically put down in one sitting spreads rapidly across social media. The Red Lobster Shrimp Challenge becomes a meme, with people wolfing down dozens, sometimes hundreds of shrimp. Some sit in Red Lobster restaurants for hours at a time to get maximum shellfish consumption. I'm Katie, and I think that I can eat 15 to 20 shrimp. I'm Alex. I'm going to say I think I can eat 20 shrimp. I'm Jasper, and I know that I could eat like 30 to 50 shrimp. I ate endless shrimp at Red Lobster all day in North Olmstead, Ohio. Questionable decision, but here are the results.

19:50In 10 hours, I had 200 pieces of shrimp for only$25. I absolutely love shrimp, so I'm going to eat a lot of shrimp in this video. A ton of shrimp. As the craze grows, so do the volumes of shrimp being consumed. Individual customers are munching their way through hundreds of dollars worth of shrimp, and they're just paying$25 or less for the privilege. And they're occupying tables for hours on end. My waitress was so proud of me, I set a new record at my local red lobster. This is my greatest achievement in life. $27, that's one quarter per shrimp. So proud of myself. Best day of my entire life.

20:26I just eat more shrimp and I eat shrimp and then more shrimp and more shrimp and now I'm paying the price because my belly hurts and I'm ready for a nap. Wish me luck. I hope I don't die. Tell me what you think about it down in the comments. Just like the endless crab catastrophe of 2003, this is a recipe for financial disaster. In the third quarter of 2023, Red Lobster loses$11 million, on top of a huge annual loss of$76 million. And the lion's share of the blame falls on that endless shrimp disaster. For the chain's restaurant teams, there's another problem. Their thinned-out crews don't have the capacity to deal with the rush of new customers.

21:06It's also a bad deal for the servers, who are having to deal with meager tips from customers who eat entire meals, but spend less than$30. It's hard to try and hustle the people out the door to clear the decks for bigger spenders when you've got 10 tables to serve. So yeah, Red Lobster restaurants struggled to do the one thing they needed to do the most. Convert the folks who came for Endless Shrimp into regular Red Lobster customers. But this is more than a misguided promotion. This isn't Endless Crab Part 2, because Thai Unions accused of engineering the Endless Shrimp fiasco for its own benefit.

21:43The chain's management accused Thai Union of this when Red Lobster entered Chapter 11. More on that in just a bit, but the claim is essentially this. Red Lobster's interim CEO, Paul Kenney, interfered with Red Lobster's purchasing decisions on behalf of Thai Union, And that led to Thai Union becoming the sole supplier of breaded shrimp to the restaurants, pushing Red Lobster into buying more shrimp than it could really sell. Well, now Red Lobster has to get rid of all that Thai Union shrimp it bought. So Kenny orders the chain to make endless shrimp a permanent fixture. Red Lobster's management team objected to this loss-making move, but they were overruled.

22:21He also ordered the restaurants to heavily promote the offer in-store. So in short, the argument goes, Thai Union force-fed Red Lobster with shrimp to increase its own sales to the point where the chain choked. Now, Thai Union denies these claims. They call them meritless. But there's another possible explanation for why Red Lobster gambled on endless shrimp. It's debt. When Thai Union and its co-investors bought Red Lobster, it was already in debt to the tune of hundreds of millions of dollars, and the chain desperately needed cash to keep up with the repayments. So to get cash quick, it made Endless Shrimp a permanent offer in a desperate bid to drive up customer traffic and get some money in its bank accounts and fast.

23:04But what's undeniable amid these dueling arguments is that with Red Lobster's eateries bleeding money, this situation cannot go on. By the start of 2024, Red Lobster is hurtling towards disaster. The year opens with Thai Union announcing it's had enough of the chain's losses, and it'll sell it for no gain. Thai Union CEO Tirupong Chanseri even tells reporters he's so fed up with the struggling restaurant chain, he's never going to eat lobster again. Then, in March 2024, with the crisis deepening, Red Lobster appoints Jonathan Tybus as its new CEO. Tybus is the chain's fifth chief executive since Thai Union's consortium bought control of the business.

23:50Now, Tybus is an expert in guiding restaurant chains through bankruptcy. He was the man who took Quiznos and Kona Grill through the insolvency process. But when Tybus turns up at your door, it's a sign that the game's just about up. Speculation about Red Lobster's future goes into overdrive. Bankruptcy looks more and more likely. Across America, Red Lobster employees keep showing up for work and serving endless shrimp in the hope of a last-minute rescue. But with every plate of shrimp served, Red Lobster's edging closer and closer to going under. For years, Red Lobster's tried to hold back the tide.

24:28But now, the final blow is coming. And for the world's largest chain of seafood restaurants, this blow could threaten to end it all.

24:44You hear it all the time on Business Wars. the battles between brands, the bold moves, the breakthroughs. But behind every winning business, there's something less talked about. Great IT. That's where Manage Engine comes in. Manage Engine offers a comprehensive suite of AI-powered IT management solutions that give you complete control over your IT operations. Your employees can collaborate securely. Your IT admins can easily monitor and manage devices. and you get full visibility of your data hygiene. ManageEngine also integrates well with most popular IT software programs out there. So, if you're a growing business or an organization looking for enterprise-grade IT management and cybersecurity solutions, visit ManageEngine.com to take control of your IT.