The Red Lobster Boat is Taking on Water – Again

endless shrimp

Last year’s Endless Shrimp promotion, a $20 deal for all-you-can-eat shrimp, was offered in an effort to increase foot traffic and sales. But in a time of rising supply and labor costs, plus turbulent global supply chains (not to mention customers looking for a cheap meal amid rising inflation), the seafood restaurant chain may have hooked a bigger fish than it could reel in.

After a rough rebound from the Great Recession, a sell-off by its original owners, Darden Restaurants, and a few more changes in ownership, Red Lobster ended up with the Thai Union Group in 2022. Initially, business boomed thanks to investments in off-premise dining and the post-pandemic return of diners to dining rooms, but Red Lobster went on to lose $33 million in 2022, largely due to a decrease in foot traffic.

Enter the Endless Shrimp. Expanding in 2023 from Mondays only to every day, the deal was intended to increase in-store traffic. Yet, the deal also resulted in cost overruns, resignations, and another impending change of corporate owners. Even after increasing the promotion’s price from $20 to $25, Red Lobster still ended the year $22 million in the red, leading Thai Union to explore a sale and their CEO to be replaced with an expert in navigating restaurant chains through bankruptcy.

On Tuesday, Red Lobster was reported to be considering a Chapter 11 bankruptcy filing, as it looks to restructure debt. The chain is considering a possible Chapter 11 filing to shed long-term contracts and renegotiate a swath of leases, Bloomberg reported.

In retrospect, there were myriad reasons why the infamous Endless Shrimp promotion backfired, including a turbulent global supply chain, escalating seafood prices, and an economic climate that encouraged more diners to take advantage of value dining, as noted in a recent article by Restaurant Business. But the main inspiration behind the promotion was relatively simple, really: short-term profit seeking.

“A lot of legacy brands are under pressure from private equity to show rapid results,” said Joseph Szala, VP of Digital Experience at Rapturous by 3Owl. “It’s a myopic, short-term focus that often has high spikes, with long drop offs.”

The key is a long-term vision and the willingness to let it grow naturally, Szala explained, adding:

“These [legacy] brands can be rejuvenated and resurrected with capital and patience. Long-term strategies across all facets of the organization must be made in unison.”

Red Lobster’s issue could’ve been averted with a smaller offering, or one with built-in limiting thresholds. Per Thibaud Denolle, CEO of ACRELEC America: “The loss could have been mitigated if the chain had chosen fewer days when the promo was available.”

What private equity demands now, they lose in far greater numbers later.

“This promotion backfired because its price point was too low, likely due to wanting large, fast results,” Denolle said.

Finally, planning your entrance – and your exit – is crucial to ensure promotions like Endless Shrimp become net gains for a business.

The Endless Shrimp ordeal “underscores the need for restaurants to strike a balance between enticing consumer deals and ensuring they can sustainably fulfill them,” said Aaron Anderson, CEO of Axxeum Partners. Also important is knowing how you’ll end the offer, Anderson noted.

“Having thought out exit strategies is crucial for businesses running promotions.”

Red Lobster’s all-you-can-eat snow crab offering in 2003 ended up costing the brand $3.3 million and led to the firing of their CEO at the time, Edna Morris. That issue sounds rather familiar to the chain’s recent issue: the deal was wildly popular with consumers at a time when the price of snow crab was rising.

Having thought out exit strategies is crucial for businesses running promotions, lest you drown.

The Food Institute Podcast

From lattes to chicken sandwiches to desserts, it seems every restaurant is hopping on the limited-time offer (LTO) craze to drive traffic and check growth. But is this really having the desired effect? Datassential vice president of sales Megan Lynberg discusses the historical data on LTOs, popular LTO items, and other strategies companies are using to inspire growth.