On Sunday, Red Lobster filed for bankruptcy. The popular seafood chain had already faced difficulties for years, but according to reports, their Endless Shrimp promotion finally sank them.
The promotion, which offered customers unlimited shrimp for a fixed price, was initially intended to attract more customers and increase sales. However, it inadvertently led to an $11 million operating loss in the fourth quarter of 2023. This loss was a result of underestimating the demand for the promotion, which led to customers consuming far more shrimp than was financially sustainable for the company.
The bankruptcy filing suggests that a deal they made with the shrimp supplier, Thai Union, played a major role in Red Lobster’s downfall. Under a CEO appointed at the direction of Thai Union, Red Lobster eliminated two of its breaded shrimp suppliers, leaving Thai Union with an exclusive deal to provide shrimp for the chain, the filing said.
That led to higher costs, and it did not comply with the company’s typical decision-making process for picking suppliers based on projected demand, according to the chain’s filing.
What’s more, the promotion affected the average check size and, consequently, the tips that servers could earn, leading to dissatisfaction among the staff. Beyond the promotion itself, Red Lobster’s financial struggles were compounded by a series of poor strategic decisions, including the divestment of its real estate holdings, which resulted in burdensome lease agreements. These leases added significant overhead costs that the revenue from the endless shrimp promotion and other sales could not offset.
“Certain operational decisions by former management have harmed [Red Lobster’s] financial situation in recent years,” Red Lobster said in its bankruptcy filing.
However, the endless shrimps promotion was not the sole factor. Inflation, changing market dynamics, and consumer preferences also played a role in the chain’s decline. Fast-casual and quick-service competitors eroded Red Lobster’s market share, and the company struggled to attract younger diners. Successive ownership changes and varying corporate strategies failed to stabilize the brand, and cost-reduction strategies implemented by the largest shareholder, Thai Union Group, were criticized for being short-sighted and ultimately detrimental to sales.
As for many businesses, the COVID-19 pandemic and its aftermath also played an important role in the downturn as it lead to increased material and labor costs, as well as higher interest rates, all of which contributed to the financial turmoil.
As a result, Red Lobster filed for Chapter 11 bankruptcy protection, seeking to reject unexpired leases and avoid further debt accumulation from rent. The endless shrimp promotion was emblematic of the broader challenges faced by Red Lobster, highlighting the risks of aggressive marketing strategies that do not account for long-term financial sustainability.
