How Red Lobster’s $20 endless shrimp deal cost its owners $500 million, led to 100 restaurant closures and taken  seafood chain to edge of bankruptcy

Albert Einstein said that madness does the same thing over and over again and expects different results.

Red Lobster bosses clearly didn’t get the memo.

The chain is on the brink of bankruptcy and has had to close 100 restaurants in recent days, largely because of the $20 “endless shrimp” promotion.

The offering, which launched as a permanent part of the menu last June, is virtually identical to a 2003 deal – and the problems it brought with it are virtually identical too.

Back then it was “endless crab.” I was great for hungry seafood lovers, but a disaster for the restaurant — by the time the plug was pulled after just seven weeks, Red Lobster had lost $3.3 million.

“It wasn’t the second all-you-can-eat experience, it was the third” that hurt profits, a Red Lobster executive told analysts at the time in 2003.

This time the deal was also hugely popular, with some customers sticking around for hours to see how much they could eat. One girl achieved 108 in four hours.

“I set a new record at my local Red Lobster, this is my greatest achievement in life,” the poster explained in her video.

More people started taking advantage of the offer than the company expected. But instead of completing the deal, bosses kept the deal going for six months – and the losses dwarfed the amount lost to the endless crabs 20 years earlier.

Seafood lovers devouring plates of shrimp were the main reason Thai Union, Red Lobster’s majority shareholder, lost $11 million in just three months, shortly after the deal opened.

Ludovic Garnier, chief financial officer, said: “We knew the price was cheap, but the idea was to attract more visitors to the restaurants.”

“So we wanted to increase our traffic, but it didn’t work.”

“For those who have been to the US recently, $20 was very cheap. And the reason for this promotion was that we knew the price was cheap, but the idea was to attract more visitors to the restaurants,” CFO Ludovic Garnier said in November.

“But something that was different from our expectation is that the proportion of people who selected for these promotions was much higher than expected,” he added.

Simply put: it was too cheap. Hospitality experts are surprised that the chain did not realize how badly things could go wrong, especially because they repeated a mistake.

“In today’s environment, consumers are looking for value and are looking to stretch their budgets where they can,” said Jim Salera, restaurant research analyst at Stephens. LA times.

“For $20, it is entirely possible for a consumer to eat well beyond the very small profit margin.”

The price went to $25 and then $27, but losses mounted. The following quarter, the company lost $12.5 million. The total costs for Thai Union have been much higher, as the company now has to write down $500 million as it wants to sell Red Lobster.

Endless Shrimp had been available at Red Lobster for twenty years, but was only offered for a few weeks each year.

But Thai Union – run by Thiraphong Chansiri – made it a permanent fixture on the menu last June.

The Bangkok-based seafood producer’s bosses saw it as a way to sell the thousands of tons of shrimp it caught in Asia — and also to drive traffic to the Red Lobster restaurants it now owns in the U.S., where the number of customers decreased. They saw it as a win-win situation.

“If you were a big shrimp company in Thailand, it would be a good idea,” a former Red Lobster executive told me CNN.

It wasn’t profitable at the $20 price point, or even when they put it on the market.

And it has seriously affected the service. Restaurants had long wait times as customers sat at tables for hours and, of course, ate shrimp.

Chansiri said in November: “We expected a 20 percent increase in customer traffic, but the actual number was up to 40 percent.”

Other chains that offer all-you-can-eat have managed to make this work, experts say. They point to buffet chains Golden Coral and Sizzle, which offer multiple portions at a flat rate, and Olive Garden with its unlimited salads and breadsticks.

Eric Chiang, an economics professor at the University of Nevada, Las Vegas – and also a fan of buffets – told the LA Times that Red Lobster has made significant mistakes.

The price was too low and they offered something that is usually expensive and that people love: shrimp. It can also form the backbone of an entire meal.

Customers at Olive Garden do not stock salad and bread sticks.

“Most people also order the Taste of Italy,” he said of Olive Garden, “or something that gives you meat and pasta.”

‘[Red Lobster] didn’t have the right management company in place,” John Gordon, a restaurant analyst, said of the debacle.

The chain, which started as a single restaurant in Lakeland, Florida, in 1968, has approximately 650 locations in nearly every state.

The blunder is all the more surprising because the chain had made a similar mistake before, in 2003 with its ‘endless crab’ offering.

In addition to losing $3.3 million, the disaster ended in a major stock sell-off, which cost then-CEO Edna Morris her job.

This time there were major financial losses, managers left and the parent company Thai Union decided it had had enough of Red Lobster.

It had bought a 25 percent stake in Red Lobster in 2016 for $575 million. At that time it was one of the most important suppliers of the chain.

Four years later it bought an even larger share and became the majority shareholder.

It was in November, at the quarterly results, when the bosses said that the endless shrimp deal had cost eleven million dollars.

Two months later they had had enough.

The board of directors said they did not want to pump any more money into the beleaguered chain.

They have to write off $530 million of their investment because Red Lobster is drowning in debt and no buyers can be found.

By closing the 100 restaurants – 48 of which have had their contents sold at auction – bosses hope they can make cuts and convince a buyer to come in and save the brand.

The Wall Street Journal reported Tuesday that Red Lobster could file for Chapter 11 bankruptcy as soon as next week. This allows them to save even more costs.

During a presentation to investors in February, Chansiri said the situation had left him with a “big scar.”

“Other people stop eating beef,” he said. “I’m going to stop eating lobster.”

Red Lobster did not respond to DailyMail.com’s request for comment.