Red Lobster lost millions on its endless shrimp disaster. Shareholders say it was a ‘car crash’ designed to squeeze profits

Red Lobsters’ infamous $20 “Ultimate Endless Shrimp” promotion nearly sank the restaurant chain, now shareholders are alleging the promotion was a ploy by a former majority shareholder based in Thailand to squeeze as much benefit as possible from the eatery.

A May lawsuit filed in Orange County, Fla. by a trust representing shareholders alleged that Thai Union Group, one of the world’s largest seafood producers whose shares trade on the Stock Exchange of Thailand (SET), exploited its controlling stake, CNBC reported. 

“Thai Union doubled down on a campaign to squeeze out every drop of value that it could through uneconomic contracts that benefited Thai Union and made no economic sense for Red Lobster,” the lawsuit read.

In fact, the endless shrimp promotion at one point left the company $11 million in the red in a single quarter.

Red Lobster and Thai Union did not immediately respond to Fortune’s request for comment.

The shareholders claim they are owed millions after the chain filed for Chapter 11 bankruptcy in May 2024 and are also looking to dissolve some $32 million in transactions that Thai Union allegedly pressured the chain to enter into in 2023, Bloomberg reported. They are demanding a jury trial to determine the damages they are owed.

Red Lobster had run the endless shrimp offer as a seasonal promotion for two decades, and it consistently helped bring in customers. But the offer worked was temporary. 

Instead, the shareholders allege, Thai Union pushed to make the promotion permanent starting in 2023 and turned “a successful legacy Red Lobster strategy” into “a car crash,” CNBC reported, citing the lawsuit. 

Thai Union bought a minority stake in Red Lobster in 2016 and in 2020 led a buyout that gave it majority control. Thai Union then helped install Paul Kenny, a shareholder and experienced restaurant exec, as interim CEO in 2022.

Soon after, the shareholders allege, Kenny pushed to make the endless shrimp promotion permanent and to make Red Lobster’s controlling shareholder, Thai Union, the chain’s exclusive shrimp provider, the suit alleged.

Kenny, the suit claims, would “often remark that Red Lobster ‘owed’ it to Thai Union to purchase its products exclusively.”

After Kenny unilaterally made the endless shrimp promotion a regular offering in 2023, Red Lobster restaurants moved quickly to implement and promote it. Yet, even as customers rushed to take advantage of the promotion, this new influx of sales wasn’t enough to counteract “the losses incurred by offering premium shrimp at such a low price.” 

Kenny did not immediately respond to a request for comment through Linkedin. 

Restaurants nationwide were “immobilized” as they quickly ran out of shrimp, the lawsuit claimed. Meanwhile, the promotion shifted customers away from higher-margin items on the menu, driving down the amount of money customers spent per visit.

“When it was clear that the Everyday $20 Ultimate Endless Shrimp offering was wreaking havoc on Red Lobster and its balance sheet, Kenny doubled down. He responded by continuing the offering—and generating tens of millions of dollars more in overpriced shrimp orders for Thai Union—and ultimately left Red Lobster with a massive oversupply, according to the lawsuit.

Red Lobster raised the price of the promotion twice, from $20 to $22, then again to $25, before eventually pulling it from the menu altogether in 2024. But by then the chain had already defaulted on a $275 million term loan from Fortress Investment Group in September 2023, a sign of just how quickly its finances had deteriorated.

The endless shrimp wasn’t the only reason behind the company’s declining financial position. Other factors included the difficult macroeconomic environment and increased restaurant industry competition, former CEO and restructuring expert Jonathan Tibus wrote in a court filing when the company filed for bankruptcy. Still the endless shrimp played a role.

By the time the chain filed for bankruptcy protection in May 2024, Thai Union had divested from Red Lobster, contributing no capital to the Chapter 11 bankruptcy process.

Red Lobster emerged from bankruptcy in September 2024, but not before it shuttered about 130 locations and cut about 10% of its corporate staff.

Under new boss Damola Adamolekun, Red Lobster has worked to revitalize its menu and improve its service standards. In February, the CEO told the Wall Street Journal that sales were up 10% compared to a year prior. 

Adamolekun had once declared endless shrimp would never return “because I know how to do math.” Yet in April, Red Lobster brought it back—this time, only for a limited time.

This story was originally featured on Fortune.com