America’s largest seafood resto chain, Red Lobster is closing one in every 7 of its locations to raise cash. The company has failed to find a buyer to save it from bankruptcy, after an all-you-can-eat promotion bit back ferociously…
‘Endless Shrimp’ may have ended Red Lobster…
Red Lobster is still a household name among seafood lovers. But it may soon be commemorated only on the chain’s tombstone.
Stormy seas
You’ll recall that Red Lobster found itself on story financial seas after a major promotion last year landed it in hot water. The now-infamous Endless Shrimp deal was supposed to bring droves of diners to the restaurant’s 700 locations. But there was one flaw in the marketers’ logic. The promo had been wildly successful in previous limited-time incarnations. But someone decided to make it a permanent menu option. And that’s when money started leaking like water from a rusty bucket.
The online community lit up with tales of folks boasting about how much shrimp they were able to put away. Other diners who previously ate a reasonable amount of food on the $20 deal pushed themselves to the limit. Company officials said individual customers regularly consumed volumes of shrimp that cost the resto $40 or more wholesale. Yes, the ‘Endless’ deal was originally designed to accommodate a few huge eaters. But not as many, by far, as showed up after the craze took hold.
Simple economics
Some observers say Red Lobster should have seen the disaster coming. They argue it’s a simple matter of economics. In an era where a steak dinner that used to cost $20 to $25 now costs $40 to $50, it was reckless – even stupid – to set a permanent Shrimp Deal at $20. In happier times, not all that long ago, the deal was priced at $15, then raised to $20 as food prices began to rise. But Red Lobster never dared to dive into the deep end. To increase the price of the all-you-can-eat deal to a level it could sustain. Much less make a profit.
If it hadn’t been such a ridiculously low price, critics maintain, Endless Shrimp would never have acquired the cult following that eventually did it in.
A huge loss
Earlier this year, the chain revealed it had suffered a loss of $22 million in 2023 – almost entirely the result of the Endless Shrimp promotion running wild.
But that wasn’t the only slap in the face suffered by the brand. Its supply partner, global seafood power Thai Union, subsequently announced that Red Lobster’s, “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.” Which was as nice a way as possible of saying they were bailing out of the commercial union.
The chain quickly announced it was seeking Chapter 11 bankruptcy protect. That would give it a grace period to either reconstitute its finances or find a buyer.
An interim measure
Closing – and auctioning off for cash – 99 of its 700 locations is the latest move Red Lobster has made to try and stay afloat. It’s an interim measure designed to keep the business afloat as its leadership scrambles to find a way out of its financial hole. And make no mistake: It’s about the most desperate move a company in the restaurant sector ever made to head off ruin.
My take
This is just the latest chapter in what could become a hefty tome. And it could take considerable time for the Red Lobster Saga to reach its end. Given the tenacity of the chain’s leadership, selling off locations to raise interim cash, I wouldn’t bet against them. Red Lobster may, indeed, rise again. But given the circumstances, as a whole… I’m not betting at all, one way or the other.
Meanwhile, take a fond look back at Red Lobster with this nostalgic fan…
~ Maggie J.