The Fall of Red Lobster
Published By
Mike Sorrentino
Published On
May 2024
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"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 tracks the restaurant industry. "At $20, it's very possible for a consumer to eat well past the very thin profit margin."
The Red Lobster chain has closed many restaurants recently, will there be more to come? Guest counts are down 30% from 2019 and the chain has lost over $75 million in 2023. Could this have been avoided?
The chain was founded by Bill Darden in 1968, who wanted to make seafood restaurants more accessible and affordable for families. With Darden at the helm Red Lobster was built into an iconic chain. However, in the 2000’s the chain had trouble keeping up with competitors. In 2014 Darden Restaurants sold Red Lobster to a private equity firm. Later Thai Union Group, a large seafood supplier acquired the chain.
There are many reasons why the chain is in its current predicament, but two major incidents really stick out. In 2003, Red Lobster ran an “Endless Crab” promotion resulting in Red Lobster losing $3.3 million in seven weeks. Talk about your all time backfires! Then fast forward to last summer when Red Lobster started its “Ultimate Endless Shrimp” promotion for $20. If you don’t learn from your past you are doomed to repeat it, a lesson that should have been heeded by the chain. To add insult to injury in their infinite wisdom, Red Lobster turned the endless shrimp into a permanent item on the menu, instead of a traditional limited-time offer. For the first nine months of 2023, Thai Union Group reported a $19 million loss from Red Lobster.
“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Ludovic Garnier, the chief financial officer of Thai Union Group, said in an earnings call with investors. Garnier said the deal did work, and restaurant traffic increased. But more guests opted for the $20 deal than Red Lobster expected, and “we don't earn a lot of money at $20,” he said. The chain planned for the second helping but did not think people would have 3+. “We were expecting an increase of 20% in customer traffic, but the actual number was up to 40%,” Thai Union CEO Thiraphong Chansiri said in November.
I think there are few really good takeaways. First is to learn from your mistakes, Red Lobster’s unlimited crab promotion in the early 2000s should have been enough, but that lesson was not learned leading to the decision to go with the unlimited shrimp promotion. I get it, sales are struggling, you look for a silver bullet and getting people in the door seems like the quickest best solution. However, when you merit volume over value it can get out of control rather quickly. For 20 years the endling shrimp in limited time only was successfully executed, but once you put it on the menu full time it loses its shine. McDonalds uses the McRib in that fashion with great success. At the end of the day the old ways are best! Provide great value though amazing food and outstanding service and sales will follow!