What Bankrupted Red Lobster | Fortune Daily

0:01Nick Lichtenberg: Right now, get all the shrimp you can eat at Red Lobster. Oh yeah. The original vision of Red Lobster was to feed a family of four for$20 with seafood that you couldn't get anywhere else. And that really changed over the next several decades, which is one of the layers of the story. Red Lobster's endless shrimp deal became a punchline. But what if the$20 all-you-can-eat shrimp wasn't the real reason that the company fell into bankruptcy? Well, a new Fortune investigation finds that the famous promotion may have actually been the symptom of much deeper problems. Private equity deals, skyrocketing leases, and allegations that a former owner put its own seafood business ahead of the restaurant chain.

0:49The results? Bankruptcy, restaurant closures, and former employees who lost retirement savings that they had counted on for decades. Fortune business editor Nick Lichtenberg joins me now to explain how an American restaurant icon lost its way, and why endless shrimp was actually only the very tip of the seafood tower. I'm Ellie Austin, and live from New York, this is Fortune Daily.

1:23Nick, hello. So there are many layers to this red lobster story and I want to get into endless shrimp in a second. But first of all, explain to us and particularly explain to this Brit who has, I have to say, never stepped foot in a red lobster restaurant, to my shame. What was red lobster like pre the endless shrimp era? So I've been to London a few times. I think Pizza Express is maybe a good comparison. Okay. It is the place that it's approachable to multiple income levels, but it's a little aspirational at the same time. It's very family-centric. Very family-centric. Bill Darden was the founder.

1:59He was a Howard Johnson's franchisee, and he noticed that Red Lobster was popular at his Howard Johnson's restaurants, and he said, what if I just open a restaurant chain focused on lobster? And I'll make it a Howard Johnson's-like atmosphere, but focused on lobster and other seafood. And back in the late 60s, seafood just wasn't as available. And that's what Red Lobster represented. And so I guess the Endless Shrimp deal, which was launched in what year? In the early 2000s. In the early 2000s, in a way, harkened back to that idea of feeding a family of four for$20 because the deal was$20 for as much shrimp as you can eat.

2:38Was it popular when it was first introduced, this deal? Well, so some of the complexity to this, one of the sources I talked to explained that Endless Shrimp was first launched during a down season. There's a seasonality to all of these restaurant businesses. And slow season, they had a limited time promotion, and it was usually priced a little higher than$20 to make the economics work. And for just those, like, five or six weeks, Endless Shrimp served a very valuable purpose for the restaurant. And the lawsuit that I reported on and some of the just how Endless Shrimp got out of control is when they made it permanent all year long for their seemingly random price.

3:20And when did they do that? That was in 2023. And was that in response to the pandemic in some way? Like restaurants suffered really badly during the pandemic. So why did that deal become permanent at that time? Yeah, so it was the decision of the former interim CEO, Paul Kenney, who is an Australian citizen and spent a long time in Thailand and became very closely affiliated with Red Lobster's owners at the time, Thai Union. And that's a big question that we were trying to answer here. Why did he choose that? A lot of people internally told him, don't do it. And he thought it was a great idea and there was a big fight about it.

4:00So tell me a bit about Paul Kenney. Who is he? What did he do at Red Lobster? Well, this is a good question. So Paul Kenney is a very successful Asian restaurant executive. And he was part of this consortium called Seafood Alliance that partnered with Thai Union to take full control over Red Lobster in the early 2020s. I think the deal closed in August 2020 and they took full control. And at first he was identified in the press release and other materials as a liaison to Thai Union. But at some point he became the interim CEO of Red Lobster. He ran hot pot restaurants. Oh, okay. And there is no kind of operations to figure out for a hot pot restaurant.

4:47Like you give the raw food to the table and they cook it themselves. So Red Lobster was a very complicated operations system. Like you have to do breaded shrimp, all kinds of different sauces. and that's a very involved back kitchen and it doesn't seem like many of the sources I talked to said Paul did not seem to understand how different that was. Some of the claims are that Paul had a conflict of interest because he wanted to push more shrimp sales to Thai Union and rule out other long-time shrimp suppliers to Red Lobster. Has he responded to those claims? He has not responded to those claims and it's very interesting in the legal documents that Thai Union and all of the other named defendants are represented by the same law firms, and Paul Kenney is not grouped in with them.

5:39He doesn't have a lawyer identified in the legal documents so far, and it was hard for us to reach him. We sent him many requests for comment. What might that suggest to you? One of the sources told me that it looks like Thai Union and Paul Kenney are turning on each other in the defense of this lawsuit, that they're sort of blaming each other and pointing fingers about what happened. And what do you expect the timeline of this lawsuit to be? It was set for trial in early 2028. So disaster ensued. What did that look like? This went viral on YouTube. There's this trend that started in Korea called the mukbang.

6:16Nick Lichtenberg: It combines two words. It's like performative eating. And YouTubers would come and TikTokers would come and they'd say, I'm doing the ultimate endless shrimp challenge for five hours or ten hours even and I'm going to see how many rounds of shrimp I can eat. I feel a bit nauseous listening to that but I also imagine that in a way that put Red Lobster on the radar of a new generation of restaurant growers and creators so you would have thought it could have been a big success that did not happen the company filed for bankruptcy. Yeah, the company filed for bankruptcy and a big layer to this is a previous ownership and a previous regime and these leases that they were saddled with.

7:02And it's quite complicated and there's lots of debate over where this came from, whether it was the hedge funds who took a stake in the previous ownership, Darden Restaurants, whether it was the private equity firm that ended up buying Red Lobster from Darden or whether it was Darden's decision to sell Red Lobster along with a bunch of leases. The leases were the real reason that the firm eventually went bankrupt, but Endless Shrimp certainly didn't help. So the lawsuit you've written about claims that this deal wasn't actually a blunder, a business blunder, but it was a very strategic scheme to force Red Lobster to buy shrimp from its own owner.

7:47That's pretty complicated. Can you unpack that for me? That's the claim. That's the claim. That's the claim. And what does your reporting tell you? Tell me about when it says its own owner, who are we referring to that? So for when, back when Red Lobster was owned by Darden, back when it was owned by a private equity firm, Golden Gate, it had all these suppliers, seafood suppliers. They would buy their shrimp and they would buy their lobster from a consortium of different companies. They're not a consortium, different suppliers around the world. And one of them was Thai Union, which is a huge company based in Thailand that sold a lot of shrimp to Red Lobster for many decades.

8:21And Thai Union initially acquired a minority stake from Golden Gate, and then it acquired control of the company along with a consortium called Seafood Alliance. And Paul Kenny, who became the interim CEO, was part of Seafood Alliance. So it's unclear who exactly owned what, but those two parties controlled Red Lobster. And we had a situation where the giant shrimp company was selling its own shrimp into its restaurant division. How did you come across this lawsuit and why did you want to write about it? I learned about this because this lawsuit is new. So even though the bankruptcy ended a couple years ago, there's still lawsuits happening in bankruptcy court related to that previous process.

9:06And how does that impact how the restaurants are run today and which locations have had to be closed? I would say there's no relationship with the current restaurant as it's running. But one of the sad things about this story, and I talked to a gentleman named Pete Gaston, he's based in South Carolina, and he used to run every single Red Lobster location in the state of South Carolina. He worked at Red Lobster for 40-something years, and he lost a lot of his retirement savings in the bankruptcy. $175 ,000. $175 ,000. And so this lawsuit is brought on behalf of a creditor's trust, unsecured creditors, that is.

9:47And that includes people like Pete. And so there are law firms who are trying to get some recovery out of the bankruptcy process for people who lost. I mean, Pete lost a lot, but I heard of other people losing$200 ,000, $500 ,000. People got really wiped out as a result. Let's take Pete. Where does Pete's retirement, where has it gone in this bankruptcy? What's happened to Pete's money? It just disappeared. That's, you know, Elizabeth Warren, this didn't make it into the story, but she's been talking about Red Lobster for years, and she was a bankruptcy expert before she got into politics. And one of the scandals, according to her and people like her, of the bankruptcy process is that there's a priority of claims in bankruptcy court.

10:34And usually an investment firm has a higher priority than someone like Pete who worked at a company for 42 years. And so Pete's recovery gets wiped out, but then the creditors up top, they could take control of the company, they could get their money back. That's how bankruptcy court works. A lot of people declined to speak to you for this story because they were under very strict non-disclosure agreements. How did you get some people to speak? That's a good question. I made a lot of phone calls. I made a lot of emails. I just kept knocking on the door and I said, I want to tell your story. I want to find out what really happened here.

11:18I want to see just what happened in this confusing kind of feverish period when endless shrimp became this idea that took on a life of its own. And so I would say persistence. And what most surprised you over the course of your reporting? I just think the real, Pete was definitely one of them, but some of the sources who spoke to me on background, the real emotional attachment that people had to Red Lobster. I think people like Pete who worked there for decades, they really still feel a deep emotional attachment to this brand. And paint that picture for me. What does Red Lobster represent in American life?

12:04It did used to represent something attainable for a middle class family, a nice experience. It was a Friday night out with the family that everyone would look forward to for special occasions. Something that came up in the reporting is, this is well known, is that Red Lobster was based in Orlando, Florida originally. and I believe it still is, but it was a post-civil rights era restaurant chain that was very welcoming to black customers. And so it had this really just beautiful sort of symbolism to that community, that Red Lobster was a place that the old rules of segregation just did not apply and everyone was welcome.

12:50And sources said that persisted through the 80s, 90s to today. Red Lobster is still here, as we have discussed. It has its new young CEO. He originally cancelled Endless Shrimp by saying he knows how to do math, and math would tell him that Endless Shrimp does not work. But in a crazy twist, he then reinstated Endless Shrimp this year at$25. Right. What does that tell you? How has it come back after all this disaster? I would say he's going back to the original idea of what it was meant to be. It's meant to be a seasonal promotion for a certain period in the calendar. So it is now, is it? That's what it is now.

13:33And I think it's$25 in most markets, it's$29 in some other markets, so I think it's priced correctly now. Restaurants are in a really complex situation right now. It's very hard for them to make money. Our dining out habits as consumers are changing. What does the Red Lobster story tell us about the future of the casual restaurant business model in American life? So a really interesting angle that came up in this story is that only 20 years ago, Red Lobster was really thriving. And one source described it to me as sort of food porn, that they would shoot these incredible TV commercials and they would run during a football game on a Sunday.

14:15And that really worked. That really worked in driving traffic to the restaurants. And that's really been replaced by a sort of virality on TikTok. And it has to feel organic and content creators and user-generated content are a big part of the equation. And so the ultimate endless shrimp TikTok phenomenon was a double-edged sword and sort of backfired here. but I think an organic version of that is going to drive people to restaurant chains. So the old days of the TV commercial seem to be over, but everyone in the restaurant business is figuring out this UGC formula. How to translate the in-restaurant experience to virality online.

15:04And so how is Red Lobster doing right now, this new incarnation of the business with the new CEO? How is it performing? I would say they're still private, so we don't know what their finances are exactly. They still seem to be struggling with the leases that are a result of that deal from 20 years ago. And so you still see some locations closing, but I think everyone's rooting for Red Lobster and it's an American icon. Everyone's rooting for Red Lobster. Nick, where can we find more of your reporting? Fortune.com. And this story is in the latest issue of the magazine? That's right. And I think it made Apple News, too, if we want to talk about that here.

15:41Do we want to talk about that here? Sure. Okay. Front page of Apple News. It made the front page of Apple News. My mom was excited about it. Okay, it made the front page of Apple News. Okay, great. So, Nick, you wrote a story last week about these new passports in Argentina. They're nicknamed golden passports. Tell us a bit about them. Well, there's certain countries that want to attract a certain high net worth individual cohort. and basically for cash and the willingness to move to another country, or even to have partial residency in another country, they'll give you a golden passport so you can get a second passport in addition to your American one and you have flexibility.

16:22And how does the program work? The program has two routes. The first is a non-refundable$350 ,000 contribution for a single applicant. A family of four would be expected to pay$500 ,000. The second is to invest$800 ,000 into a government security that's created for the program. So it's basically a cash payment or a payment into the government. Or an investment. And so what's motivated the Argentinian government to launch these passports now? And what does it tell us about the state of the country's economy? You know, Argentina has been through a lot the last couple decades. Hyperinflation in the late 90s got really bad.

17:02And they've been dealing with that for years. Javier Malay, current president, he's a really interesting character. He's like a rebel economist. He wears a leather jacket. He's been called the Trump of South America. Allegations of corruption scandals. So Argentina is looking for some stability and they're looking for closer ties to America. And this kind of scheme is part of it. I talked to Nuri Katz and he's the founder of Apex Capital Partners and he's a migration advisor. He helps wealthy people secure optionality. And he did a survey of all of his clients and he said, I've never seen, you know, in 20, 30 years of doing this, so many wealthy Americans looking for a second passport.

17:50What reason were they giving as to why they were pursuing that? A lot of Americans are thinking about quality of life issues and they're thinking about just having the option of moving somewhere else. I talked to the Citigroup Wealth Office and they had similar findings. They just want to have the option. And so are applications open? They'll be opening in the fourth quarter. And Nuri told me he thinks they'll be very popular. You're tempted by a move to Argentina, Nick? I've always wanted to go to Argentina. I've never been. They have great steak. I've heard that they make a very strange kind of pizza, almost like a Chicago-style deep dish pizza.

18:30But it seems like a cool place to visit. Nick, thank you so much. That's it for Fortune Daily. I'm Ellie Austin. Please remember to like the episode, subscribe to our channel, and let us know in the comments what you thought about today's episode. I'll see you tomorrow. See you. Great.

18:54This is Fortune Daily.

19:10Nick Lichtenberg: Thank you.