Red Lobster Bankrupt: How a Shrimp Deal Led to Financial Ruin

Red Lobster, a chain of seafood restaurants, has had to liquidate hundreds of sites and file for Chapter 11 bankruptcy due to financial difficulties; the firm’s unending shrimp deal has been blamed for part of the problem.

Red Lobster hoped that by offering an all-you-can-eat shrimp deal for $20, it would draw in more customers who would eventually become regulars and serve as a loss leader in the wake of the pandemic.

“I think the distinction between something like an Olive Garden with endless breadsticks and Red Lobster with bottomless shrimp is that shrimp is like an entree whereas breadsticks are more of a side,” Jim Salera, a research analyst at Stephens focused on restaurants and packaged food and beverages, told stated. “The goal with any type of deal like that is you bring in consumers, and then you either add incremental purchases to the ticket, whether it’s alcohol or, you know, appetizers, things like that expand the ticket.”

“So, you bring them in, and then you convert them to a more regular customer such that maybe they come in for endless shrimp one time, but then the next time they come in they get something else. Unfortunately, in the current environment, I think what you saw happen is they had the $20 all-you-can-eat shrimp – that’s a very short price point that attracts consumers,” he stated.

Red Lobster suffered more losses on the campaign as patrons chose to stick with their cheap cuisine rather than gorging themselves on shrimp.

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“You already have a small profit margin,” Salera stated. “You can very easily go beyond that when you’re attracting consumers who are just looking to have that one item or engage with that one offering and not kind of branching out across the menu.”

Speaking to investors and analysts in November 2023, Thai Union Group CFO Ludovic Garnier—whose company was a major financial backer of Red Lobster prior to announcing plans to sell its ownership in the chain earlier this year—noted that although the deal helped attract more customers, it ended up being more expensive than anticipated.

“The price point was $20, and you can eat as much as you want. For those who have been in the U.S. recently, $20 was a bit cheap. The rationale for this promotion was to say, ‘We knew the price was cheap, but the idea was to bring more traffic to the restaurants because Q3 and Q4, it’s always a season where we don’t have much traffic in our restaurants,'” Garnier stated at the time. “And it did work … there was an increase in the traffic.”

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