Who killed Red Lobster?

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Rob Armstrong (0:30)

Thank you for Pushkin.

The unimaginables happened. Red Lobster has gone bankrupt. Today on the show, who threw the casual dining seafood chain into the boiling water? And why?

This is Unhedged, the markets and finance podcast from the FT and Pushkin. I am Rob Armstrong. Joining me today is the master of the unlimited shrimp offering, Sujeet Indap, the FT's Wall Street editor. Sujeet, what is your record for shrimps eaten in one sitting?

Sujeet Indap (1:17)

A dozen would be more than enough, I think.

Rob Armstrong (1:19)

Oh, jeez, that's nothing. A dozen, it's like embarrassing to even admit that. That's like not even a proper shrimp cocktail.

In any case, I'm glad you're on the show. What happened here?

Sujeet Indap (1:30)

Yeah, so this has been boiling or brewing for a few months now. There's been stories about distress at Red Lobster and news articles that focused really on this all-you-can-eat shrimp promotion that they had implemented a couple of years ago called Endless Shrimp.

Rob Armstrong (1:50)

Was it literally people eating too much shrimp that drove this business into Chapter 11? I mean, that's kind of hilarious, if true.

Sujeet Indap (2:00)

Yeah, it didn't help. I mean, if you read the court documents that have come out, there's some math on that. They said the endless shrimp promotion cost them like $11 million.

There's a whole dispute around the long-time owner of Red Lobster, which is a Thai fishing company called Thai Union, which happened to be its largest supplier of shrimp. So not only did they own the company, they were providing the shrimp, and was there some kind of mischief around stuffing the channel with shrimp? There was shrimp, so the owner, which whose equity was impaired, was actually making money off of just being a vendor. There's some dispute about that.

Rob Armstrong (2:36)

But let's go back to the beginning, which I guess Red Lobster used to be part of Darden, which is a big chain.

Sujeet Indap (2:43)

That's right. So Red Lobster now is an independent company, but its problems can be traced back a decade ago when it was part of this restaurant conglomerate called Darden, which is best known for Olive Garden, but it happened to own Red Lobster and a few other banners as well, yes.

Rob Armstrong (3:02)

Of course, we can't mention Olive Garden without mentioning free breadsticks. I mean, you were talking about unlimited shrimp.

Darden and Olive Garden, they gave you all the salad and all the breadsticks you can eat. A promotion I took advantage of when I was a hungry young man on college road trips, I would stop and abuse the breadsticks at Olive Garden.

Sujeet Indap (3:21)

Yeah, absolutely. They have that meal where it's like unlimited breadsticks, salad and soup.

And so yeah, they were all part of the same company 10 years ago. And to your point, there was what is now a legendary or iconic proxy fight between the Darden Incumbent Management and board, and then this well-known activist hedge fund called Starboard Value, which famously goes to companies, buys up some stock and tries to make big changes in the company's operations. And so this became a famous moment in Wall Street history because Starboard, which is a bunch of Wall Street guys, had very specific operating, as well as financial, suggestions for the company. And they had released this now famous PowerPoint deck, almost 300 pages long, where in addition to their ideas about spinning off subsidiaries and real estate, they had real suggestions on how Olive Garden should be working the kitchen and how much salt they should be putting into the pasta that they're boiling, how they should be presenting breadsticks.

Rob Armstrong (4:30)

I remember this, and it seems to me they weren't salting the water at all. And as an Italian on my mother's side, you know, this makes my blood boil, to say nothing of the water they're boiling.

Sujeet Indap (4:41)

Yeah, the blood and the water is boiling, yes.

And so yeah, there was, apparently they were not putting any salt, which is some kind of huge faux pas, I'll take your words on that. Apparently there's some issues around how the salt damages the actual steel containers.