Endless Shrimp was the final straw for Red Lobster. But it was just the last in a long line of problems that led the casual-dining seafood chain to close more than 100 restaurants and file for bankruptcy this spring.
That’s according to Damola Adamolekun, the chain’s new CEO, who has been tasked with restoring the brand to glory.
On a Wall Street Journal podcast last week, Adamolekun spoke frankly about the turmoil that preceded his tenure, including the all-you-can-eat shrimp promotion that cost the chain $11 million in a single quarter last year.
Adamolekun said that while the deal achieved its intended goal of boosting traffic, it was ultimately a financial, operational and reputational failure. The cost of the shrimp was greater than what restaurants were selling it for, so Red Lobster was losing money on every order—and there were a lot of orders. Kitchens were so slammed that people started quitting. Some customers tried to smuggle shrimp home in Tupperware, leading to confrontations in the dining room. And the bargain offer chipped away at the brand’s perceived quality among some consumers.
When Red Lobster filed for bankruptcy in May, it cited Endless Shrimp as one of the factors.
“Endless Shrimp will get talked about as the final nail in the coffin, and it was,” Adamolekun said. But, he said, by the time that promotion came around, Red Lobster was already struggling mightily from years of underinvestment.
“Fundamentally, restaurants require investment to continue to grow, right?” he said. “And when that investment doesn't take place, the brand can stagnate and start to decline.”
Adamolekun saw evidence of that underinvestment while secretly dining at Red Lobsters across the country before he was officially named CEO. He saw carpets that looked old and chairs that needed to be replaced. He saw restaurants that didn’t have a host or a bartender. And he saw a lack of basic technology, such as software that produces accurate quote times when there’s a wait.
“A lot of these are just decisions,” he said. “What are you willing to invest in?”
Under Adamolekun and its new owners, 544-unit Red Lobster plans to make the investments that prior management did not. The ownership group led by Fortress Investment Group has already pledged $60 million in new funding for the chain, which exited bankruptcy last month.
In the near-term, some of that capital will go toward filling gaps on the company’s executive team as well as upgrading its physical restaurants, Adamolekun said, including things like carpet and kitchen equipment.
Reducing turnover will also be a major focus. Wages need to come up in some markets, the CEO said. Red Lobster’s large menu will also be pared down to make it easier for staff to execute, with some non-core items being retired. And the chain will promote dishes that are more affordable as customers seek value.
“Olive Garden does this, right? They have really affordable pasta, and they might have some high priced items, but there's a value item that you can always get, right?” Adamolekun said. “We have that, too. We just don't talk about it enough.”
Once the chain’s restaurants and menu are right, Red Lobster will begin investing in marketing to get customers back, particularly younger ones who may be less familiar with the brand. Adamolekun said these investments will take about a year to make.
“It's on us to make this what I think can be the greatest comeback in the history of the restaurant industry,” he said.
One item that won’t be back on the menu any time soon is Endless Shrimp.
“I don't want to say anything's forever forever, but the way it was done, in an endless fashion without managing how much is being given away … it's certainly the end,” Adamolekun said.
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