A new all-you-can-eat shrimp deal worked a little too well for Red Lobster in the third quarter.
Traffic at the chain grew 4% year over year as customers gravitated to Ultimate Endless Shrimp, which allowed guests to choose two types of shrimp and have as much as they wanted for $20. The deal has historically been a limited-time offer, but Red Lobster added it to the daily menu in June as it sought to combat traffic declines by giving customers a bargain.
But the deal turned out to be too generous. Red Lobster posted an operating loss of more than $11 million in Q3, exceeding the expectations of its owner, Thai Union Group. The Thailiand-based seafood company cited Ultimate Endless Shrimp as a key factor.
“We knew the price was cheap, but the idea was to bring more traffic in the restaurants,” Thai Union CFO Ludovic Regis Henri Garnier told investors this week, according to a transcript on financial service site AlphaSense. “So we wanted to boost our traffic, and it didn't work,” at least not in terms of improving the chain's overall economic performance.
Garnier said the 670-unit chain was not expecting customers to opt for endless shrimp as often as they did. It has now raised the price to $25.
“We want to keep it on the menu,” he said. “And of course we need to be much more careful regarding what are the entry points and what is the price point we are offering for this promotion.”
Endless shrimp threw a wrench into Thai Union’s 2023 guidance for Red Lobster. It had initially been expecting the chain to lose about $17 million. But improvements in the second quarter caused it to brighten its outlook to $14 million. After the shrimp debacle, it is now expecting a $20 million loss for the year.
The situation shows the fine line restaurants are walking these days as they try to appeal to price-conscious customers while also protecting their own margins. And it is the latest lowlight for Red Lobster, which has been struggling with falling sales and rising costs. It has closed a number of locations and was working to renegotiate the rents at others.
In September, the chain promoted General Counsel Horace Dawson to CEO. It has also brought in consultants to help with operations, Garnier said.
“We are really monitoring very closely the situation in order to improve the operation and the efficiency and the marketing of Red Lobster,” he said. “And then on the flip side … we also have the support from the advisors to see, what are we doing in the mid-term and also in the long-term with the business? … So this right now is the focus we are working on.”
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