Red Lobster promised customers an endless supply of $20 shrimp, a bet the struggling restaurant chain hoped would help it out of the pandemic crisis.
But the Americans and their appetites had other plans.
The beloved but embattled casual-dining mainstay abruptly closed dozens of locations this week, raising speculation that the chain is headed toward bankruptcy.
Although its dire financial situation is not the result of a single misstep, executives at the company that owns a large stake in the chain, as well as industry experts, said miscalculations about the popularity of free-range shrimp special accelerated the company's downward spiral.
The closures, including at least five locations in California, were announced in a LinkedIn post Monday by Neal Sherman, CEO of a liquidation company called TAGeX Brands, which is auctioning off surplus restaurant equipment from shuttered locations.
Red Lobster representatives did not respond to a request for comment on the closures, which were listed on its website as temporary, or whether it planned to file for bankruptcy.
But company executives have been vocal about the wrong bet on shrimp and how they misjudged how hungry Americans would be for a deal on the crustaceans.
In an effort to boost foot traffic and alleviate the sales slump that has hit the restaurant industry during the pandemic, Red Lobster executives decided last year to relaunch a popular marketing strategy from years past to attract customers: for 20 dollars they could eat as many shrimp as they wanted.
Eager to strike a deal during an era of persistently high inflation, many consumers eagerly accepted the offer as a challenge. The people took Tik Tok brag about how many pink bites they could eat in one sitting: one woman boasted he had consumed 108 shrimp over the course of a 4-hour meal.
“In the current environment, consumers are looking to find value and stretch budgets where they can,” said Jim Salera, a research analyst at Stephens who follows the restaurant industry. “At $20, a consumer is likely to eat well beyond the slim profit margin.”
During a presentation Commenting on last year's third-quarter sales, Ludovic Garnier, chief financial officer of Thai Union Group, a seafood conglomerate that has been Red Lobster's largest shareholder since 2020, cited the never-ending shrimp deal as a key reason for the that the chain had an operating loss. about $11 million during that period.
“The price was $20,” Garnier said.
The pause.
“Twenty dollars,” he repeated with a hint of regret in his voice. “And you can eat as much as you want.”
Although the promotion increased traffic by a few percentage points, Garnier said, the number of people who took advantage of the all-you-can-eat deal far exceeded the company's projections. In response, they adjusted the price to $22 and then to $25.
All-you-can-eat deals can be effective marketing strategies to draw people into the competitive world of casual dining: Applebee's offers $1 margaritas called Dollarita, buffet chains like Golden Corral and Sizzler promise plenty at a price. flat rate. and Olive Garden, one of Red Lobster's main competitors, has long lured customers with unlimited salads and breadsticks.
But Red Lobster made some crucial mistakes with the shrimp business, said Eric Chiang, an economics professor at the University of Nevada, Las Vegas, and self-proclaimed buffet aficionado.
The company not only started with a low price, but also offered a prized and expensive menu item that can serve as a complete meal; He noted that not many Olive Garden customers are going to stock up on just breadsticks and salad.
“Most people will also order the Taste of Italy,” he said, “or something that provides meat and pasta.”
Chiang said the most effective loss leaders, a term for products that are not profitable but attract enough new customers or lead to the sale of enough other items to make the deal worthwhile, use cheap ingredients. A good example is 7-Eleven's Free Slurpee Day, he said, as the company gives away about 15 cents worth of ice and syrup to customers who then pay to fill up their gas tanks.
Consumers are especially drawn to all-you-can-eat deals and buffets during tough economic times, Chiang said.
“This is an inflation story,” he said. “All you can eat for $15? That gives customers a sense of control. As if they weren't ripping us off, they weren't charging us five cents for each dessert.”
It turns out that Red Lobster has been in trouble for a while.
In 2003, the chain, which at the time was owned by Darden Restaurants, the company that owns Olive Garden, offered an equally disastrous disaster All-you-eat crab special for about $23.
So many people came back for seconds, thirds and even fourths, executives said at the time, that it squeezed profit margins. Shortly thereafter, the then president of the company resigned.
In 2014, after a period of disappointing sales and less foot traffic, Darden sold red lobster to San Francisco private equity firm Golden Gate Capital for more than $2 billion, a stake that was eventually acquired by Thai Union.
Despite the turmoil, the company, which until this week touted about 700 locations, remained a brand so beloved that it earned a reference in Beyoncé's song “Formation,” in which she describes post-coital trips to Red Lobster.
After the song's release, the the company said saw a 33% increase in sales, but that shine was short-lived and had faded long before the ill-fated shrimp business recovered last year.
“You have to be pretty close to the edge for a promotion to push you over the edge,” said Sara Senatore, a senior analyst at Bank of America who follows the restaurant industry.
In January, Thai Union Group, citing a combination of financial difficulties it attributed to the pandemic, high labor and material costs and the oft-cited buzzword of “Headwinds” of the industry – Announced plans to divest its stake at the company, which was founded in 1968 in Lakeland, Florida. This week's closures affected at least five California locations (Redding, Rohnert Park, Sacramento, San Diego and Torrance), according to the company's website in liquidation, which posted images of available items, including a lobster tank , seats, refrigerators and a coffee maker.
During an investor presentation in February, Thiraphong Chansiri, CEO of Thai Union, expressed frustration with the situation surrounding Red Lobster, saying it had left him with a “big scar.”
“Other people stop eating beef,” he said. “I'm going to stop eating lobster.”
