Dive Brief:
- Thai Union Group plans to exit from its minority investment in Red Lobster, the company said in a Monday announcement.
- The company has been a strategic partner and minority investor in the full-service seafood chain since 2016 when it invested $575 million for a 25% stake and another 24% stake that it will be able to convert in 2026. Thai Union also led a group of investors in 2020 to buy Golden Gate Capital’s remaining equity stake in the chain.
- Thai Union said several factors led to its decision to divest, including the impact of the COVID-19 pandemic, industry headwinds, high interest rates, and growing labor and operational costs that led to a sustained negative impact of Red Lobster on Thai Union’s finances.
Dive Insight:
Prior to Thai Union’s decision to sell its stake, the company underwent a strategic review to develop financial and operational improvements at Red Lobster. Thai Union said it would review pricing strategy and adjust promotional activity, especially Red Lobster’s Ultimate Endless Shrimp offer, to try and boost margins. In January, the chain added Crispy Salt & Vinegar Shrimp to its Ultimate Endless Shrimp lineup. In June, the company made Ultimate Endless Shrimp a permanent menu item. Last year’s promotions also included Endless Lobster Fest and Crabfest.
What likely didn’t help Red Lobster’s financial situation was that the chain underwent two CEO changes and was without clear leadership for over a year. Kelli Valade resigned in April 15, 2022 after less than a year to take on the CEO role at Denny’s. Red Lobster named Horace Dawson, who previously served as the chain’s EVP and general council since 2014, as CEO in September.
During Q3 2023, Red Lobster’s cash situation and covenant were under pressure following its quarterly performance and $25 million debt repayment in August. A new term loan of nearly $3 million was provided by Thai Union to Red Lobster in October, which was meant to solve the covenant shortfall as of the end of August, according to Thai Union’s 3Q23 Analyst Meeting presentation. Thai Union also reported a loss from operations of roughly $11 million during the third quarter compared to $9.5 million in the year ago quarter, the company said in its quarterly report.
Thai Union said ownership of Red Lobster “no longer align[s] with our capital allocation priorities.” However, the board of directors ended up deciding to divest, adding that it will record a one-time, non-cash impairment of $530 million during Q4 2023.
