Thai Union is fighting back against accusations from Red Lobster CEO Jonathan Tibus that its mismanagement led to the company’s Chapter 11 bankruptcy filing on 20 May.
In court documents, Red Lobster revealed it has initiated an investigation of Thai Union’s involvement in the failure of its Ultimate Endless Shrimp promotion, as well as its “undue influence” on shrimp purchasing.
Thai Union invested millions into the chain in 2016 and then was part of a consortium that acquired it outright in 2020, aiming to find synergies on supply and marketing.
That relationship has since soured, with Tibus saying Thai Union exerted “outsized influence on the company’s shrimp purchasing,” including guiding former Red Lobster CEO Paul Kenny toward Thai Union to continue producing shrimp for Red Lobster that “did not flow through the traditional supply process or bid cycle or adhere to the company’s demand projections.”
“In apparent coordination with Thai Union and under the guise of a ‘quality review,’ Kenny made a series of decisions that eliminated two of the company’s breaded shrimp suppliers, leaving Thai Union with an exclusive deal that led to higher costs for Red Lobster,” Tibus said.
In a statement issued to SeafoodSource, Thai Union disputed that account.
“We are aware of the meritless allegations in the bankruptcy court pleadings and look forward to a full representation of the facts,”
However, Thai Union is still owed an unknown amount of back payments from Red Lobster. Thai Union Group, Thai Union North America, and Thai Union Seafood Co. are all named as creditors in Red Lobster’s bankruptcy filing.
Performance Food Group and Gordon Food Service are among the largest of Red Lobster’s more than 100,000 creditors. Richmond, Virginia, U.S.A.-based Performance Food Group is owed around USD 24.4 million (EUR 22.5 million), while Toronto, Ontario, Canada-based Gordon Foodservice Canada is owed USD 1.2 million (EUR 1.1 million).
The chain's other major creditors include Rubin Postaer and Associates, The Wasserstrom Company, DoorDash, the law firm Baker & Hostetler, Pepsi Co., and Proctor & Gamble Distribution.
Other seafood industry creditors include Ocean Beauty, Ocean Seafood Depot, Red Chamber Co., Lukes Lobster ME LLC, Seafood Nutrition Partnership, Star Lobster Seafood Market, Blue Star Foods, Devi Fisheries, The Fish Guys, ID Seafood LLC, and Pacific Fresh Fish Ltd.
In court documents, Tibus acknowledged Red Lobster’s problems are multi-fold and stem back several years. In 2020, it was revealed that Red Lobster was behind on paying several leases and needed to refinance loans. Red Lobster’s sales plummeted USD 76 million (EUR 70 million) in its 2023 fiscal year, Tibus acknowledged in the bankruptcy filing, and its customer count has dropped 30 percent since 2019.
The chain was seeing year-over-year visit declines through much of 2022 and the first half of 2023, according to Placer.ai Analytical Research Head R.J. Hottovy. When the company brought back the Ultimate Endless Shrimp promotion in the summer of 2023, it helped to drive strong year-over-year visits, he said.
“But, as Red Lobster's parent company, Thai Union, discussed in its third-quarter 2023 update, it also negatively impacted the chain's profitability,” Hottovy said.
Additionally, Red Lobster has regularly made late payments to vendors for at least the past six months, according to Creditsafe Head of Brand and Spokesperson Ragini Bhalla, citing Creditsafe data.
In October 2023, nearly 60 percent of Red Lobster’s bills were paid late, with the majority (37.5 percent) paid 31 to 60 days late. Its performance improved in December 2023, with 80.5 percent of the company’s bills paid on time, but that didn’t last long.
“The company’s on-time payments dropped drastically in the next two months – with just 3.35 percent of its bills paid on time in January 2024 and 18.66 percent of its bills paid on time in February 2024. It’s especially worrying that 62.9 percent of its bills were paid late (61 to 90 days) in February 2024,” Bhalla told SeafoodSource.
By March 2024, Red Lobster was paying its suppliers late by an average of 57 days, according to Creditsafe.
“Just imagine how that could affect the restaurant chain’s suppliers. If they have net-60 or net-90 payment terms, it could be well over four months before they see their first invoice paid by Red Lobster,” Bhalla said. “It’s also worrying that the company’s days beyond term has been so volatile and spiked drastically multiple times. This shows the company may not have done the necessary cash flow forecasting to protect itself from potential losses, revenue declines, and challenging market conditions."
Red Lobster paid 76 percent of its bills on time in April 2024, but “it wasn’t enough to right the ship,” Bhalla said.
Red Lobster has faced myriad operating challenges due to the current economic situation and its impact on the restaurant industry, Darren Tristano, CEO of food industry research and consultancy FoodserviceResults, told SeafoodSource in 2022.
