There is only one restaurant chain that comes to mind when you think of seafood and cheddar bay biscuits. The company is having a hard time staying afloat these days, though. It has closed many stores and filed for bankruptcy on May 20.
This is a big bad day for a company that, according to Statista, is still the biggest seafood restaurant chain in the US with $2.00 billion in sales. 3 billion in annual sales in 2021. But why is the once ubiquitous chain on the verge of collapse?.
Some people say it’s because of the big sales that Red Lobster has, like their Endless Shrimp deal, which cost the company about $20 million. In spite of the fact that these deals were “financially ruining Red Lobster,” as Food
The endless shrimp promotion has been a popular seasonal offer at Red Lobster for over 20 years. But when the struggling seafood chain decided to make it a permanent menu item last year, it ended up being a catastrophic mistake that cost them millions.
The Fateful Decision to Go Endless Year-Round
In summer 2021, Red Lobster’s parent company and main supplier, Thai Union, pushed for endless shrimp to become a daily menu fixture instead of a limited-time offer. Their rationale was to sell off more of the shrimp they were catching.
Red Lobster’s management actually opposed this idea, warning it would create “operational and financial issues”. But Thai Union’s appointed CEO made the call anyway, sourcing shrimp exclusively from them instead of Red Lobster’s usual 2 suppliers.
This exclusive supply deal resulted in higher costs for Red Lobster. But the bigger problem was the drastic underestimation of customer demand.
Endless Shrimp Mania Out of Control
The endless shrimp promotion has always been popular driving a typical 20% traffic increase during its limited-time runs. But making it permanent and only $20 sent demand into overdrive.
Customer traffic jumped 40%, overwhelming restaurants. People devoured plate after plate, vocally delighting in getting their money’s worth of shellfish.
One happy shrimp-eater declared on social media, “My pants are unbuttoned!”. Another posted a meme captioned “When Red Lobster says they offer Endless Shrimp but I’ve already eaten 12 servings and they ask me to leave.”
Clearly Red Lobster vastly underestimated peoples’ appetite for unlimited shrimp at such a bargain price point.
The Fallout: $20 Million in Losses
The uncontrolled surge in endless shrimp orders ended up costing Red Lobster big time.
Despite the traffic boost, Red Lobster reported a staggering $20 million in losses from the Endless Shrimp promotion.
That’s because the manic demand outstripped supply, forcing Red Lobster to pay higher market prices to urgently buy more shrimp. More customers also meant more operational costs for extra staff and food prep.
But the $20 price tag was ultimately below the break-even point, given people’s unrestrained appetite for free shrimp refills once the kitchen floodgates were opened.
Key Takeaways for Restaurants
Red Lobster’s endless shrimp fiasco holds some important lessons for restaurants:
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Carefully analyze demand before making a limited-time offer permanent. Temporary scarcity can drive excitement and overestimate sustained demand.
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Don’t rely on a single supplier for a high-volume special promotion. Diversify sources to manage risk.
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Price menu specials above break-even to account for spikes in customer demand. Don’t leave profits vulnerable to diners who overindulge.
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Monitor staffing and inventory closely when running promotions to avoid shortages or waste from demand misforecasts.
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For “endless” or all-you-can-eat offers, be ready to set reasonable limits to control food costs and prevent shortages.
Red Lobster’s mistake was lettng their ambition to sell more shrimp blind them to pragmatic operation realities. Their endless shrimp promotion achieved viral fame but sunk profits. It’s a cautionary example of how unrestrained special offers can have disastrous consequences.
Other restaurants can avoid Red Lobster’s fate by taking a measured approach: carefully testing demand, pricing above costs, and planning for spikes before rolling out aggressive unlimited dining campaigns. That restraint ensures promotions drive profits, not losses, while delighting customers.
About Red Lobster’s Downward Spiral
Red Lobster’s endless shrimp debacle in 2022 was the latest misstep in a long decline for the once-dominant casual dining chain.
Red Lobster pioneered affordable seafood dining when it was founded in 1968. Its casual atmosphere and ubiquitous fried shrimp proved enormously popular with mainstream Americans unfamiliar with ocean fare.
For decades, Red Lobster reigned supreme as seafood’s mass market ambassador, peaking at over 700 locations. But the rising tide of newer casual chains like Olive Garden and Longhorn Steakhouse eventually washed away Red Lobster’s dominance.
Red Lobster’s stagnant menu and dated decor failed to attract younger generations. Newer rivals outpaced Red Lobster in menu innovation, service, and value.
Parent company Darden sold Red Lobster in 2014 to invest more in its other brands. Red Lobster’s real estate sale-leaseback deal saddled it with exorbitant rents it struggled to afford.
Thai Union took over Red Lobster in 2020, aiming to boost shrimp orders. But their misguided endless shrimp promotion only pushed the declining brand closer to the brink of bankruptcy.
Red Lobster Clings to Relevance Through Value Deals
Now a faded shadow of its former glory, Red Lobster has resorted to gimmicky value promotions to try and stay relevant.
Dollar shrimp deals, shrimp tacos, and “seafood street fare” represent Red Lobster’s desperate appeals to budget-conscious diners. But poor reviews suggest lowering prices has led to lower food and service quality.
While still profitable, Red Lobster sits well past its prime – an outdated, struggling chain languishing in the middle of the pack.
To seasoned restaurant analysts, Red Lobster committing so heavily to a risky endless shrimp offer reflects the stodgy chain’s blindness to sea changes in the casual dining industry that left them behind.
Only time will tell whether this woefully miscalculated promotion is just a financial hiccup or the final nail in the coffin for Red Lobster’s decline into irrelevance. But the $20 million lesson about the perils of unlimited dining offers will surely not be forgotten soon.
What went wrong at Red Lobster?
Elements of the problem can be traced to the various deals the company has offered. The Endless Shrimp promotion, which allowed people to eat unlimited shrimp for $20, was simply “too popular, and Red Lobster was unprepared for its customers insatiable lust for discounted shellfish,” said CNN. As a result, the company lost millions.
The deal between Red Lobster and this customer has caused the company to lose money before. The company ran an “Endless Lobster” campaign in 2003. Like with the shrimp, CNN said that Red Lobster “misjudged just how many seafood lovers would pour into restaurants around the United States.” And just like in 2024, the company ended up losing millions in a matter of weeks.
But these types of deals alone “didnt doom Red Lobster — they were just two missteps in a long spiral for a chain that was once an industry pioneer,” said CNN. Red Lobsters “earnings transcripts, company filings and sales data … [shows] how leadership problems, strategic missteps and a difficult economy combined to hobble the iconic chain,” said Restaurant Business magazine. This includes the influence of Thai Union, a seafood company which serves as Red Lobsters main shareholder. Thai Union “forced huge cost reductions, including many that were penny-wise and pound-foolish because they hurt sales,” a former Red Lobster executive said to CNN.
Most likely, though, the Endless Shrimp deal was the last straw for the restaurant chain. “Rather than speeding up the brand’s momentum, the discount moved the chain backwards,” said Restaurant Business. The promotion brought in 4% more customers in the third quarter of 202023 alone, but the company lost more than $11 million because of it. ” But there is also the last remaining piece of the puzzle for Red Lobster: Wall Street.
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Red Lobster Is Hemorrhaging Millions Because of Endless Shrimp | WSJ What Went Wrong
Why did Red Lobster scrap the $20 endless shrimp deal?
Red Lobster did not immediately respond to ABC News’ request for additional comment. Red Lobster and Thai Union Group have scrapped the $20 endless shrimp deal, raising the price to $25, after the seafood supplier reported more than $11 million in losses.
Why did Red Lobster lose $11 million?
Red Lobster said that its “Ultimate Endless Shrimp” deal which allows customers to pay $20 for all-you-can-eat shrimp is partly to blame for its $11 million loss in the third quarter. Christopher Sadowski Each meal comes with a side and warm Cheddar Bay Biscuits. Red Lobster traditionally has made the deal available on a limited time offer.
How much did endless shrimp cost Red Lobster?
It cost Red Lobster $11 million in a single quarter. Kenny and Co. not only underestimated how much we could eat, but how long we would take to do it. Once the Endless Shrimp order was placed, folks lingered at their tables to maximize their ROI. Wait times got longer, frustrating staff and customers alike.
Does Red Lobster have an ‘irresistible’ all-you-can-eat shrimp deal?
Justin Sullivan/Getty Images Red Lobster’s “irresistible” all-you-can-eat shrimp promotion has indeed proved hard to resist. The Ultimate Endless Shrimp deal has been so popular that it helped cause a drop in third-quarter profit for the restaurant chain, which had to raise the price to $25 from $20.