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Chapter 11: Red Lobster Soon To Be ‘Dead Lobster’?

Red Lobster continues to tread water in stormy financial seas. The popular seafood joint reported late last year that it had lost a whopping $22 million on its Endless Shrimp promotion. Now, Red Lobster is reportedly contemplating bankruptcy…

Endless Shrimp - © 2022 Red Lobster

A precocious kid

Red Lobster has been around since 1968. And it’s traditionally had a lock on the seafood niche in the family-casual sector. Kind of like Olive Garden in the Italian niche.

Decades younger than many competitors and Fast Food joints, Red Lobster has been the precocious kid in the market, quickly growing to more than 700 locations. Things still looked rosy for the brand on the the occasion of its 50th anniversary, in 2018. But since then, a number of factors have conspired to bring it to its knees…

A ‘perfect storm’

Red Lobster has had to weather rising food prices and labour costs, like all restaurants. And it’s also been clipped by rising rents. It’s locations are largely urban, and ‘choice’, in the marketing sense. Increases have been steeper than some competitors have had to bear.

But it was the gamble the chain took on its famous ‘Endless Shrinp’ promotion that may have hammered the last nail into its coffin.

What happened?

For years, the chain ran a seasonal promo under which it offered fans ‘endless shrimp’ – all you can eat – for just $20. The special menu featured several styles of shrimp, designed to make it appeal to the widest possible audience. The motive was to boost traffic and snag some priceless publicity.

But as the profit picture became tighter last year, Red Lobster decided to take a chance and put Endless Shrimp on the permanent menu. Available any day, year-round. It was a gamble, and ultimately the company lost. Big. An unexpectedly large number of ravenous customers nearly ate them out of business. Literally.

Earlier this year, chain execs sheepishly reported they’d lost $22 million on that gamble in 2023. And business conditions, in general, were only getting worse.

What to do?

Rod Lobster’s head honchos and financial brain trust have been scrambling to find a way out of their predicament. And it appears they’ve found none that’s viable. No magic business model revamp. No ‘angel’ investor. So they’re now considering seeking Chapter 11 bankruptcy protection. That doesn’t mean they’re gone. It just gives them more time to find a way to get out of their hole.

But can they rebound?

Even after raising the price of the Endless Shrimp deal to $25 late last year, the losses continued to mount. And it appears their current backers are losing confidence.

Thai Union, the global seafood giant that has been partnering with Red Lobster to provide its seafood, recently stated, cryptically, that Red Lobster’s, “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”

My take

I think it’s a real shame that Red Lobster got itself into such a mess. There was nothing wrong with its business model, before they instituted endless ‘Endless Shrimp’. Their service and menu were widely appreciated. They had legions of regulars – especially among middle-aged and older folks.

It’s anybody’s guess how the whole kerfuffle will play out. But I’m not sanguine about Red Lobster’s chances for survival…

~ Maggie J.