$30 prawn meal deal that destroyed iconic chain
For over 50 years, generations have dined at this chain – until one disastrous $17 million decision over some prawns sent it bankrupt.
It’s the $30 all-you-can-eat prawn meal deal that has sent an iconic chain, which had more than 700 branches, 58,000 staff and 64 million customers annually, to the wall.
The owners of US restaurant chain Red Lobster have admitted that its “Ultimate Endless Shrimp” menu item led to hole of more than $17 million in its bottom line.
Seafood lovers across America were distraught this week as it was announced Red Lobster had filed for Chapter 11 bankruptcy protection just days after it announced it was shuttering almost 100 stores. The company attempting a desperate survival bid to avoid shutting completely.
“It’s kind of trash, but it’s also delicious,” Brit Swider, 35, from North Carolina, told the Wall Street Journal she said of her Red Lobster craving.
“This isn’t how I usually treat my body,”
Founded in 1968 in Florida, Red Lobster expanded across the US and Canada with restaurants even popping up in Japan, Thailand and Ecuador.
Customers would settle into a space that resembled a fishing hut crossed with an RSL – wooden beams and booths – and then chow down on lemon spritzer snow crab legs, Maine lobster tails lathered in butter, creamy shrimp Alfredo pasta or crunchy garlic shrimp scampi.
No meal was complete without the famous Cheddar Bay biscuits – warm, flaky, savoury scones that were to Red Lobster what cheese toast was to the now deceased Sizzler.
Extraordinary amounts of seafood funnelled their way through Red Lobster. It alone accounted for 20 per cent of all the lobster tails in North America and 16 per cent of rock lobster sold worldwide.
Lobster fails
It won over generations of Americans – until it didn’t, said Alex Susskind, a professor of food management at Cornell University in New York.
“Red Lobster was the foundation of casual dining. They had a position of power and prominence and revolutionised how American consumers eat seafood,” he told CNN.
“Red Lobster had incredible popularity among Baby Boomers. (But) they didn’t bring in a newer generation.”
The flagship store is just south of Times Square in New York City, where you can scoff on seafood and then buy a branded Red Lobster T-shirt to brag about it.
Outside the branch is all neon lights and excitement as tourists stream by.
But inside the restaurant, you can tell something is off. It’s fusty and old fashioned. A drab suburban diner at the centre of the world. The chain has been starved of investment to do up branches.
The firm’s bankruptcy filing has shown customer numbers are down by 30 per cent since 2019.
In 2014, Red Lobster was sold to private equity firm Golden Gate Capital.
Then, from 2016, its biggest seafood supplier, Thailand’s Thai Union Group, started shelling out for morsels of Red Lobster when it bought 25 per cent of the company for $871 million. In 2020, it and other investors, bought the chain outright.
A shrimp horror story
But a disastrous decision under the new management will forever be remembered for the key role it played in Red Lobster’s downfall.
Last summer, it wowed customers with its endless shrimp deal where for $30 ($US20) diners could have as many prawns as they wanted.
Jumbo coconut, garlic scampi, crispy dragon, Alfredo or just plain grilled – all the prawns were up for grabs, all the time.
The chain tried something similar in 2003 with an “endless crab” promotion. In just three weeks, the company lost $5 million.
“It wasn’t the second helping on all-you-can-eat, but the third” that smashed profits, a Red Lobster executive said at the time told analysts, reported the Washington Post.
Red Lobster had done prawn promotions before. But, in 2023, management managed to make the problem even worse. Endless shrimp wasn’t a one-off promotion but a permanent menu item.
For Thai Union, which farmed prawns all year round, it was boon to have Red Lobster ready to take its stock by the bucket load.
But for Red Lobster, it was a nightmare.
Customers rushed into stores but were spending far less. On social media, people filmed challenges trying to see just how many shrimps they could swallow in one sitting.
As Americans guzzled down on endless shrimp, they stayed at tables longer. And the $20 promotion occurred just as wholesale prawn prices began to shoot up making the deal even better for the customers and even worse for Red Lobster.
‘Misstep’
In its bankruptcy filing this week, Red Lobster said endless shrimp had cost the chain millions of dollars it could ill afford to lose.
Making the shrimp promotion permanent was a “misstep” of a previous CEO, it stated, that was done “despite significant push back from other members of the company’s management team”.
“This decision created both operational and financial issues costing Red Lobster $11 million ($A16.65 million) and saddling it with burdensome supply obligations, particularly with Thai Union.
“The Debtors (Red Lobster management) are currently investigating the circumstances around these decisions.”
This year, Red Lobster quietly upped the price of Ultimate Endless Shrimp to $25 and made it a Monday-only special – the quietest day of the week – and even then not on public holidays.
But a preponderance of prawns was not the only problem.
Thai Union’s ‘outsized influence’
The bankruptcy filing alleged Thai Union had an “outsized influence” on seafood purchasing. “Under the guise of a ‘quality review,’” it stated, two of the company’s shrimp suppliers were ditched “leaving Thai Union with an exclusive deal that led to higher costs to Red Lobster”.
“The Debtors are exploring the impact of the control Thai Union exerted … and whether actions taken … were appropriate and consistent with applicable duties and obligations to Red Lobster.”
Like all chains, it also had to cope with rising staff costs and cost of living concerns which has seen people dial back on discretionary spending. High leasing cost shave also drained its limited cash.
Michael Kaufman, a former restaurant chain executive, told the Washington Post, endless prawns were “the straw that broke the camel’s back”.
Last year, Red Lobster stopped paying some vendors as cash became tight. In January, Thai Union said it would sell off its 49 per cent stake in Red Lobster due to its “prolonged negative financial contributions”.
Red Lobster’s management is insistent it can remain a restaurant staple and will exit bankruptcy. In a statement, it said it had received $150 million ($US100m) in financing from its lenders to help it weather the storm.
“This restructuring is the best path forward for Red Lobster,” said chief executive Jonathan Tibus.
“It allows us to address several financial and operational challenges and emerge stronger and refocused on our growth.”
It plans to close underperforming locations and then sell itself as a going concern.
If Red Lobster does get new owners, they may do well to avoid an all-you-can-eat promotion to get bums on seats.