Albert Einstein said that insanity is doing the same thing over and over again and expecting different results.
Red Lobster bosses clearly didn’t get the memo.
The chain is on the brink of bankruptcy, forced to close 100 restaurants in recent days, largely due to its $20 “endless shrimp” promotion.
The offering, launched last June as a permanent menu item, is nearly identical to a 2003 deal, and the problems it caused are nearly identical, too.
Back then, it was “endless crab.” It was great for hungry seafood lovers, but a disaster for the restaurant: When it was pulled offline, after just seven weeks, Red Lobster had lost $3.3 million.
Thiraphong Chansiri, CEO of Thai Union, majority owner of Red Lobster, at one of the company’s factories in Thailand. He is one of the executives believed to be behind the endless supply of $20 shrimp.
The chain started as a single restaurant in Lakeland, Florida, in 1968. Its endless shrimp started at $20 but later rose to $25 and then $27.
“It wasn’t the second serving of all-you-can-eat, but the third” that hurt profits, a Red Lobster executive told analysts at the time, in 2003.
This time, the offer was also very popular: some customers stayed for hours to see how many they could eat. One girl achieved 108 in four hours.
“I set a new record at my local Red Lobster, this is the greatest achievement of my life,” the poster explains in his video.
More people began to take advantage of the offer than the company expected. But rather than cancel the deal, the bosses kept it going for six months, and the losses dwarfed the amount lost to endless crabs 20 years earlier.
Seafood lovers devouring shrimp platters was the key reason Red Lobster’s majority owner, Thai Union, lost $11 million in just three months, shortly after the deal began.
Ludovic Garnier, chief financial officer, said: “We knew the price was cheap, but the idea was to attract more traffic to the restaurants.”
“So we wanted to increase our traffic and it didn’t work.”
‘For those who have been to the United States recently, $20 was very cheap. And the reason for this promotion was to say that we knew the price was cheap, but the idea was to attract more traffic to the restaurants,” CFO Ludovic Garnier said in November.
“But something that differs from our expectations is that the proportion of people who selected these promotions was much higher compared to expectations,” he added.
Workers at the Thai Union frozen food processing plant on the outskirts of Bangkok clean and prepare fresh cooked shrimp
The endless shrimp started at $20 but were too popular and cost millions of dollars.
Simply put, it was too cheap. Hospitality experts are baffled that the chain didn’t see how badly it could go wrong, especially since they were repeating a mistake.
“In the current environment, consumers are looking to find value and stretch budgets as far as possible,” said Jim Salera, restaurant research analyst at Stephens, at Los Angeles Times.
“At $20, a consumer is likely to eat well beyond the slim profit margin.”
The price rose to $25 and then $27, but losses increased. The following quarter, the company lost $12.5 million. The total cost for Thai Union has been much higher, as it now has to write off $500 million to sell Red Lobster.
Endless Shrimp has been at Red Lobster for 20 years, but it’s only offered for a few weeks a year.
But Thai Union, run by Thiraphong Chansiri, made it a permanent menu item last June.
Bosses at the Bangkok-based seafood producer saw it as a way to sell thousands of tonnes of shrimp it caught in Asia and also drive traffic to the Red Lobster restaurants it now owned in the US, which They were seeing the number of customers decrease. They saw it as a win-win situation.
“If you were a big shrimp company based in Thailand, it would be a good idea,” said a former Red Lobster executive. cnn.
It wasn’t profitable at the $20 price point, not even when they launched it.
And it seriously affected the service. Restaurants had long wait times as customers stayed at tables for hours eating plate after plate of shrimp.
Chansiri said in November: “We expected a 20 percent increase in customer traffic, but the actual figure was up to 40 percent.”
Other all-you-can-eat chains have made it work, experts say. They point to buffet chains Golden Coral and Sizzle that offer multiple servings 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 made key mistakes.
Inside a Thai Union factory. The company is the majority owner and main supplier of Red Lobster.
The price was too low and they offered something that is normally expensive and that people love: shrimp. It can also form the backbone of a complete meal.
Olive Garden customers don’t stock up on salad or breadsticks.
“Most people will also order the Taste of Italy,” he said of Olive Garden, “or something that gives them meat and pasta.”
“(Red Lobster) didn’t have the right management company in place,” John Gordon, a restaurant industry analyst, said of the debacle.
The chain, which began as a single restaurant in Lakeland, Florida, in 1968, has about 650 locations in nearly every state.
The mistake is even more surprising because the chain had made a similar mistake before, in 2003, with the “endless crab” offer.
In addition to the $3.3 million loss, the disaster ended in a huge stock sale and cost then-CEO Edna Morris her job.
This time there have been huge financial losses, executives left and the parent company, Thai Union, decided it had had enough of Red Lobster.
He had bought a 25 percent stake in Red Lobster in 2016 for $575 million. At that time it had been one of the chain’s main suppliers.
Four years later he bought an even larger stake and became the majority owner.
It was in November, in quarterly earnings, when the bosses said the never-ending shrimp business had cost $11 million.
Two months later they had had enough.
The board of directors said they did not want to pump more money into the beleaguered chain.
They are having to write off $530 million of their investment while Red Lobster is drowning in debt and no buyers can be found.
Red Lobster has closed dozens of stores and auctioned their contents
Closings were announced Monday night in 21 states, effective immediately. This map shows how they are distributed throughout America.
By closing all 100 restaurants (with the contents of 48 of them sold at auction), bosses hope they can cut spending and convince a buyer to come and save the brand.
The Wall Street Journal reported Tuesday that Red Lobster could file for Chapter 11 bankruptcy next week. That will allow them to reduce costs even further.
During an investor presentation 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 has not responded to DailyMail.com’s request for comment.
