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Resto Realities: Red Lobster Lost $20M On ‘Endless Shrimp’

It seems impossible to me that a resto chain lost $20 million bucks on an all-you-can-eat (AYCE) promotion and still be in business. But I guess Red Lobster is big enough to withstand the hit. All they’re doing is raising the price…

Endless Shrimp - © 2022 Red LobsterWho would have thought delightful little cuties like
these could lose a resto chain $20 million?

The history…

“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Thai Union CFO Ludovic Regis Henri Garnier told investors this week. “So we wanted to boost our traffic, and it didn’t work,” at least not in terms of improving the chain’s overall economic performance. (Thai Union is the holding company that owns RL.)

It turned out that the promotion was so successful, the company lost $20 million over just a few months.But the AYCE shrimp deal is so iconic now, that the chain felt the couldn’t kill it off. So they just raised the price from $20 to $25 per person. And carried on…

“We want to keep it on the menu,” Garnier said. “Of course we need to be much more careful regarding what [is] the entry point [price point at which diners will go for the deal] and what is the price point we are offering for this promotion.”

A horrific tale…

The numbers tell a horrific (accounting) tale. RL wanted to boost customer numbers. Overal, traffic increased by 4 percent year-over-year, up to this past September. But more customers gravitated to the Endless Shrimp option than expected. As I see it, it was silly mistake for the RL honchos to make.

After all, we live in an age when a sit-down steak dinner can cost $40 or more. Even chain ‘family’ restos charge an average of $25 for a small (8oz.) steak and fixings. Given the comparison, seafood fans would naturally opt for the AYCE shrimp deal. If they’re dining out, they see it as a max-value proposition.

So with a massive shift to Endless Shrimp, RL had to make good, albeit at a monumental loss.

Why it all went south…

For many years previous to 2023, RL has floated an AYCE shrimp promo. A limited time, summer deal. But this year, they decided it was so popular, they would move it onto the permanent menu. Losses over a month or two would be minimal. But over a fiscal quarter or longer… Well, they’ve added up to $20 million.

Again… It seems an obvious that the RL leadership should have realized they were in for a financial shellacking.

A teachable moment…

Restaurant Business observes: “The situation shows the fine line restaurants are walking these days as they try to appeal to price-conscious customers while also protecting their own margins.

“And it is the latest lowlight for Red Lobster, which has been struggling with falling sales and rising costs. It has closed a number of locations and was working to renegotiate the rents at others.”

My take

I can see how the high-ups at RL must have thought the promo was a great success. This was – and still is – a time when other chain sit-downs are losing traffic. Some for the second or third year in a row. But I think they must have been looking at the traffic numbers in isolation from the revenues. How else would they commit such a mega-oversight?

You know, it almost sounds like the RL folks are afraid customers will fly away from their restos as avidly as they flocked to them, if they try to discontinue the Endless Shrimp deal, now…

Anyway… The much-loved Endless Shrimp promo continues. On the permanent menu. The price: (US)$25 / (C)$28.99.

~ Maggie J.