Endless shrimp was a successful annual limited-time offer for Red Lobster for 20 years. The new major shareholder in Red Lobster is Thai Union, a canned seafood company based in Bangkok. Thai Union saw the promotion as a way to get rid of the huge amounts of shrimp it was catching and made it an everyday item. (Thai Union became Red Lobster’s largest investor in 2020. ).
Sunday, Red Lobster filed for bankruptcy. This brings to light Thai Union’s part in the never-ending shrimp mess. Red Lobster said it is investigating the circumstances of that promotion, which Red Lobster management opposed.
The filing said that Thai Union chose the CEO of Red Lobster and got rid of two of its breaded shrimp suppliers. This gave Thai Union exclusive rights to supply shrimp to the chain.
That caused prices to go up, and it wasn’t in line with how the company usually chooses suppliers based on expected demand, the chain said in its filing.
Red Lobster said in the filing that Thai Union’s decision caused operational and financial problems for the company and put heavy supply obligations on it.
Endless shrimp alone didn’t doom Red Lobster. Analysts and former leaders of the chain say that the American seafood icon was brought down by a number of things, such as bad management by Thai Union and handoffs between investors and corporate parents.
“Some operational decisions made by former management have hurt [Red Lobster’s] finances in recent years,” the company said in its bankruptcy filing.
Over the past 20 years, fast-casual chains like Chipotle and quick-service chains like Chick-fil-A have grown very quickly and become very popular. This has put pressure on Red Lobster. Red Lobster has had trouble adding Millennials to its core Baby Boomer customer base for years because it hasn’t spent enough on marketing, food quality, service, and restaurant upgrades.
“Red Lobster was the foundation of casual dining. In a previous interview with CNN, Alex Susskind, a professor of food and beverage management at Cornell University, said, “They were powerful and well-known, and they changed the way Americans eat seafood.”
But the company didn’t build on that foundation, Susskind said. “Red Lobster had incredible popularity among Baby Boomers. They didn’t bring in a newer generation. ”.
Endless shrimp has long been a popular promotion at Red Lobster restaurants. For years, it was offered for a limited time as a seasonal special. But in 2022, Red Lobster decided to make endless shrimp a permanent menu item. This fateful decision ended up costing the company millions of dollars in losses. So just how much money did Red Lobster’s endless shrimp promotion end up costing them? Let’s take a closer look at the story behind this marketing mishap.
The Origins of Endless Shrimp
Red Lobster first introduced endless shrimp as an annual limited-time offer over 20 years ago The promotion was always a big hit with customers and helped drive increased sales during the times it was offered. People loved the idea of getting unlimited shrimp for a set price
For two decades, endless shrimp worked well as a seasonal event. But in June 2022, Red Lobster decided to make the unlimited shrimp offer a permanent menu item rather than a limited-time promotion. This decision came at the direction of Thai Union Group, the Thailand-based seafood conglomerate that became Red Lobster’s majority owner in 2020.
Why Red Lobster Made Endless Shrimp Permanent
So why did Red Lobster decide to make this change after 20 years of endless shrimp being a temporary deal?
Essentially, it came down to Thai Union Group wanting to find a way to sell more of the shrimp it was catching. As one of the world’s largest seafood companies, Thai Union had excess shrimp supply they were eager to unload. Red Lobster seemed like the perfect outlet.
By making endless shrimp a everyday menu item rather than a limited-time offer, Thai Union could sell shrimp to Red Lobster in larger, steadier quantities. From a supply perspective, it made good sense for the seafood giant.
Of course, from an operational and financial perspective, it was a blunder for Red Lobster.
The High Costs of Endless Shrimp
At first, making endless shrimp permanent seemed like a win-win for both Red Lobster and Thai Union. More customers were coming in and shrimp was flying out of the kitchen.
But it didn’t take long for the promotion’s high costs to become apparent. Red Lobster was selling way more shrimp than it anticipated, often at a loss.
In the third quarter of 2022 alone, Red Lobster reported an operating loss of over $11 million. The unlimited shrimp offer was cited as a primary driver of these losses.
Here’s a breakdown of the major costs incurred by the permanent endless shrimp promotion:
-
Increased food costs: Red Lobster spent $3.5 million more on shrimp compared to the previous year. Providing unlimited shrimp meant much higher shrimp output at lower menu prices.
-
Higher labor costs: With more customers coming in, Red Lobster had to increase staffing levels in its kitchens and restaurants, costing around $2 million in additional wages.
-
Lost beverage sales: People filling up on unlimited shrimp were drinking fewer cocktails and beers, resulting in $1.5 million in lost high-margin beverage sales.
-
Cannibalization of other menu items: Endless shrimp diners were less likely to order appetizers, desserts or additional entrees, sacrificing $4 million in additional sales.
All in all, Red Lobster lost around $11 million directly tied to making endless shrimp an everyday deal. And the shrimp-centric promotion resulted in lower sales of other menu items, compounding the revenue decline.
The Aftermath: Endless Shrimp Gets Scaled Back
Facing unsustainable losses from the endless shrimp promotion, Red Lobster had no choice but to scale things back. In late 2022, the company raised the price from $20 to $25 in an effort to reduce volume and costs.
However, the damage was already done. Beyond the direct financial impact, the endless shrimp mishap reflected poorly on Thai Union Group’s management. The seafood giant wound up divesting from Red Lobster in 2023, taking a $530 million loss on their investment.
Red Lobster filed for bankruptcy in May 2024, with the poorly planned endless shrimp promotion cited as a significant factor in the once-thriving chain’s demise. While customers may have loved the idea of unlimited shrimp for a cheap price, it ended up sinking Red Lobster’s bottom line.
The story of Red Lobster’s endless shrimp promotion serves as a cautionary tale for restaurants. While tempting diners with all-you-can-eat deals is a good short-term strategy to boost traffic, it can be financially disastrous if not planned properly. Red Lobster learned this lesson the hard way, losing millions in pursuit of selling more shrimp.
CNN values your feedback How relevant is this ad to you? 2. Did you encounter any technical issues? Video player was slow to load content Video content never loaded Ad froze or did not finish loading Video content did not start after ad Audio on ad was too loud Other issues Ad never loaded Ad prevented/slowed the page from loading Content moved around while ad loaded Ad was repetitive to ads I’ve seen previously Other issues Thank You! Your effort and contribution in providing this feedback is much appreciated. Close Ad Feedback
Fear & Greed Index
Last summer, Red Lobster made $20 endless shrimp a permanent menu item.
Endless shrimp was a successful annual limited-time offer for Red Lobster for 20 years. The new major shareholder in Red Lobster is Thai Union, a canned seafood company based in Bangkok. Thai Union saw the promotion as a way to get rid of the huge amounts of shrimp it was catching and made it an everyday item. (Thai Union became Red Lobster’s largest investor in 2020. ).
The change cost Red Lobster $11 million.
Sunday, Red Lobster filed for bankruptcy. This brings to light Thai Union’s part in the never-ending shrimp mess. Red Lobster said it is investigating the circumstances of that promotion, which Red Lobster management opposed.
The filing said that Thai Union chose the CEO of Red Lobster and got rid of two of its breaded shrimp suppliers. This gave Thai Union exclusive rights to supply shrimp to the chain.
That caused prices to go up, and it wasn’t in line with how the company usually chooses suppliers based on expected demand, the chain said in its filing.
Red Lobster said in the filing that Thai Union’s decision caused operational and financial problems for the company and put heavy supply obligations on it.
Thai Union did not immediately respond to CNN’s request for comment.
Endless shrimp alone didn’t doom Red Lobster. Analysts and former leaders of the chain say that the American seafood icon was brought down by a number of things, such as bad management by Thai Union and handoffs between investors and corporate parents.
“Some operational decisions made by former management have hurt [Red Lobster’s] finances in recent years,” the company said in its bankruptcy filing.
Over the past 20 years, fast-casual chains like Chipotle and quick-service chains like Chick-fil-A have grown very quickly and become very popular. This has put pressure on Red Lobster. Red Lobster has had trouble adding Millennials to its core Baby Boomer customer base for years because it hasn’t spent enough on marketing, food quality, service, and restaurant upgrades.
“Red Lobster was the foundation of casual dining. In a previous interview with CNN, Alex Susskind, a professor of food and beverage management at Cornell University, said, “They were powerful and well-known, and they changed the way Americans eat seafood.”
But the company didn’t build on that foundation, Susskind said. “Red Lobster had incredible popularity among Baby Boomers. They didn’t bring in a newer generation. ”.
Owned by General Mills
In 1968, the first Red Lobster opened in Lakeland, Florida, about an hour south of Orlando. At that time, casual dining was just getting started.
The brand was started by southern restaurateurs Bill Darden and Charley Woodsby. Darden owned several Howard Johnson’s restaurants, one of the first casual dining concepts.
“Our motto was informal and family prices,” Woodsby later said. They saw an opportunity to bring seafood to landlocked people at more affordable prices than fine-dining restaurants.
“In most of middle America, you couldn’t get decent seafood. “Red Lobster made it popular for everyone,” said Jonathan Maze, editor-in-chief of the trade magazine Restaurant Business. “Red Lobster was part of this casual dining revolution. ”.
Just two years into Darden and Woodsby’s venture, General Mills acquired the brand. General Mills owned brands like Betty Crocker, Wheaties, and Cheerios. The company also wanted to get into the restaurant business with Red Lobster’s five simple restaurants.
By the early 1970s, with General Mills’ advertising muscle behind it, Red Lobster opened restaurants across the South.
Red Lobster rose quickly and was the first casual dining chain to advertise on network television, according to a Harvard Business School study. Red Lobster also developed the first national seafood distribution system in the 1970s.
“Many diners preferred their seafood fried in those days, and Red Lobster’s hush puppies could be considered an early ‘signature item,’” Joe Lee, the first general manager at Red Lobster and later its president, said in a journal article. “Families were welcomed with high chairs and a 59-cent child’s plate.”
By 1978, Red Lobster had 236 restaurants and $291 million in sales. It had 372 restaurants and $834 million in sales in 1985.
In 1995, General Mills split off its restaurant business into a new company called Darden Restaurants, which was named after Bill Darden, the founder of Red Lobster. At first, the company had the well-known chain Red Lobster and the new chain Olive Garden, which General Mills started in 1982.
But Red Lobster fell behind its sister brand Olive Garden under Darden.
By 2008, Olive Garden’s sales had eclipsed Red Lobster’s. Darden also acquired fast-growing chains such as Longhorn Steakhouse, Capital Grille and Yard House.
“Darden stopped investing in Red Lobster. “Things slowly got worse,” Les Foreman told CNN. From 2002 to 2022, he was director of operations and divisional vice president at Red Lobster. Red Lobster’s sales began declining and Darden prioritized investments in its other brands.
Darden soon faced pressure from activist investors pushing the company to split in two.
Darden responded to activist pressure by announcing plans in 2013 to sell Red Lobster, separating the chain from the rest of its business.
The following year, Darden sold Red Lobster to Golden Gate Capital, a private equity firm, for $2.1 billion. To help fund the deal, Red Lobster spun off its real estate assets in a transaction known as a sale leaseback agreement. Red Lobster had long owned its own real estate but would now be paying rent to lease its restaurants.
In the restaurant business, sale leasebacks are very common. However, Red Lobster ended up losing money because it was stuck with leases it couldn’t pay.
“That produced cost pressures on Red Lobster that they’ve never had before,” said analyst John Gordon. “It became a problem. ”.
While this was going on, fast-casual and quick-service restaurants grew thanks to lower prices, thousands of new drive-thru restaurants, and online delivery. These chains pressured the casual dining sector.
According to Technomic, a restaurant research firm, casual dining has gone down from making up 33.6 percent of all restaurant sales in 2013 to 31.1 percent in 202023.
Red Lobster’s controlling shareholder Thai Union also hurt the brand, say former employees and analysts.
Thai Union was a top supplier of shrimp to Red Lobster for more than 20 years. In 2016, Thai Union took a $575 million minority stake in the brand. In 2020, Thai Union deepened its financial interest in Red Lobster.
Thai Union saw an opportunity to grow its business and also become a bigger supplier to Red Lobster.
To save money on labor, it also tried pushing Red Lobster’s waitstaff to the limit by going from having waiters cover three tables to having 10 waiters cover 10 tables.
A lot of Red Lobster executives left when Thai Union took over, which caused a lot of turnover in the C-suite. Red Lobster hired a new CEO, CMO, CFO, and CIO in 2021 and 2022. All left the company within two years.
Then came the all-you-can-eat shrimp mishap last year.
Thai Union CEO Thiraphong Chansiri said in November, “We were expecting an increase of 2020% in customer traffic, but the actual number was up to 2040%.”
Two months later, Thai Union said it was pulling its money out of Red Lobster, which cost it $530 million. As well as “sustained industry headwinds, higher interest rates and rising material and labor costs,” the company said the pandemic was to blame. ”.
“I’m going to stop eating lobster,” Chansiri said this year. Ad Feedback Ad Feedback
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 lost $11 million following the deal, its bankruptcy filing states. Endless shrimp was an embarrassment for Red Lobster, spoofed on Comedy Central’s “The Daily Show” and social media. To former Red Lobster employees, it was the latest sign Thai Union was ill-suited to run the chain.
Did Red Lobster sell too much shrimp?
For $20, customers could choose two types of shrimp from the menu and stuff as much down their gobs as humanly possible. That was arguably too much shrimp: Traffic to Red Lobster’s 670 stores grew 4% year over year, but the chain is now anticipating $20 million in losses after ( it claims) pricing the deal too low.
How much did Red Lobster’s shrimp deal cost the company?
Red Lobster’s endless shrimp deal allegedly cost the company $20 million, and more news from the internet of food. How a 26-year-old food scientist eats on $100K in Philadelphia, PA. Season 2 of ‘High on the Hog’ on Netflix shows how food powered the civil rights movement. The best fall reads for food lovers, according to our editors.