Red Lobster Is Hemorrhaging Millions Because of Endless Shrimp | WSJ What Went Wrong

Summary

Red Lobster, a pioneer in casual dining, faced significant challenges from 2023 with millions in losses and a drop to 41st in US restaurant chains. The company's endless shrimp deal, while initially boosting foot traffic, led to an $11 million operating loss in Q3 2023 due to underestimating its popularity and low pricing. Economic factors like labor shortages and rising interest rates further strained profits. In 2024, Thai Union Group announced plans to sell Red Lobster, and the company brought in restructuring expert Jonathan Tibus as CEO, hinting at possible bankruptcy.

Takeaways

• 🦞 Red Lobster was a pioneer in casual dining, offering affordable yet nicer meals than fast food.
• 📈 In the 80s and 90s, Red Lobster expanded rapidly, becoming the largest casual dining seafood chain in the US by 2000.
• 📉 By 2023, Red Lobster faced significant financial difficulties, with tens of millions in losses and a drop in sales.
• 💵 The company was sold to a private equity firm in 2014 and then to Thai Union Group in 2020, which tried to turn it around.
• 🦐 The 'endless shrimp' deal was introduced in 2004 and became a customer favorite, but it was not initially profitable.
• 📊 Seafood prices, especially shrimp, spiked in 2013, causing a significant drop in Red Lobster's revenue compared to Olive Garden.
• 🏭 The company's real estate was sold and leased back to fund the sale price, which had negative long-term consequences.
• 🌐 Economic factors like labor shortages and inflation during the pandemic increased operational costs for Red Lobster.
• 📈 The 'Ultimate endless shrimp' deal was introduced in 2023 to boost foot traffic but was priced too low, leading to significant losses.
• 📉 The promotion led to a short-term increase in foot traffic but resulted in an $11 million operating loss for the third quarter of 2023.
• 🔄 Thai Union Group announced plans to sell Red Lobster in January 2024, and in March, a new CEO was brought in to lead restructuring.

Q & A

Who founded Red Lobster and in which year was it founded?

Red Lobster was founded by Bill Darden in 1968.

Who acquired Red Lobster from Bill Darden, and what was their goal?

General Mills, the cereal brand, acquired Red Lobster from Bill Darden with the goal to expand Red Lobster's locations and menu.

What was the impact of the 'endless shrimp' deal on Red Lobster's foot traffic?

The 'endless shrimp' deal brought in 4% more foot traffic for the third quarter, which was a significant increase.

What was the financial outcome of the 'endless shrimp' deal for Red Lobster in Q3 2023?

The 'endless shrimp' deal resulted in an $11 million operating loss for Red Lobster in the third quarter of 2023.

How did broader economic factors affect Red Lobster's profitability?

Broader economic factors such as widespread labor shortages from the pandemic and higher inflation drove up the cost of labor, eating into profits. Additionally, rising interest rates increased the price of its leases.

What was the significance of the real estate leasebacks for Red Lobster?

The real estate leasebacks allowed Red Lobster to get a significant chunk of capital upfront but also exposed it to potential consequences down the line, such as fluctuating lease prices.

Who took majority ownership of Red Lobster in 2020?

A group including Red Lobster's longtime seafood supplier, Thai Union Group, took majority ownership in 2020.

What was the initial strategy of Thai Union Group when they took over Red Lobster?

Thai Union Group aimed to increase the profile of Red Lobster, attract more customers, and make it a valuable part of their company instead of just a financial drain.

What was the outcome of Red Lobster's attempt to combat losses with a new deal in June 2023?

The new deal, 'Ultimate endless shrimp', was initially successful in increasing foot traffic but ultimately led to significant losses due to its popularity and the low price point.

What was the ranking of Red Lobster among the biggest US restaurant chains in 2023?

In 2023, Red Lobster ranked 41st on the list of the biggest US restaurant chains.

What steps did Red Lobster take after the financial struggles in 2023?

In January 2024, Thai Union Group announced it would sell Red Lobster. In March, they brought on Jonathan Tibus as CEO, who has experience leading restructuring at other brands.