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How Red Lobster’s Endless Shrimp Offer Sank the Company

Daniel Kim Views  

Red Lobster, the largest seafood restaurant chain in the U.S., has filed for bankruptcy protection. The $20 endless shrimp, a permanent menu item offered to attract customers, was pointed out as the cause of massive losses.

According to CNN, Red Lobster filed for bankruptcy protection under Chapter 11 of the Federal Bankruptcy Act in the Florida Bankruptcy Court on the 19th. The company’s assets and liabilities were listed as $1 billion and $10 billion, respectively.

Chapter 11 bankruptcy is distinguished from Chapter 7, which regulates the liquidation of companies with no chance of recovery. Chapter 11 allows a company to restructure under the supervision of a bankruptcy court. Earlier on the 13th, Red Lobster decided to close 93 underperforming stores.

Red Lobster decided to file for bankruptcy protection, citing several contributing factors. The seafood chain pointed to management challenges resulting from the insufficient return of customers post-COVID-19 pandemic, escalating costs, and the burden of rising interest rates. The company also reported a significant customer decline of approximately 30% since 2019. According to the bankruptcy petition, Red Lobster’s assets and liabilities are estimated to be between $1 billion and $10 billion. A notable factor in the company’s financial difficulties was the decision to expand its Unlimited Shrimp Refill promotion from a Monday-only event to a continuous offering last year, which resulted in millions of dollars in losses.

The company initially decided to offer the Ultimate Endless Shrimp menu, where you could eat as much shrimp as you wanted for just $20, in May of last year. It was initially offered only on Mondays and other special events, but Red Lobster, wishing to attract more customers, changed it to a regular menu to increase sales. However, some customers began to compete on social media to see how much shrimp they could eat at once, causing the demand to explode and become a disaster for the company. Red Lobster initiated this event hoping customers would be lured in to get an interest in other menus, but customers only sought unlimited shrimp. Eventually, the company admitted their miscalculation and raised the price of this menu to $25, but the damage was severe.

Red Lobster stated, “As dining out has decreased due to inflationary pressures and labor costs have risen, it has put a strain on the company’s finances.” They added, “The rent, which accounts for the largest part of the expenditure, was set high.”Launched in 1968, Red Lobster gained popularity as a relatively affordable seafood restaurant. It’s also famous for being mentioned in the lyrics of Formation, a song by American pop star Beyoncé. At one point, it flourished, reaching 24th in sales ranking in the U.S., but it struggled due to a decrease in customers as low-income consumers reduced their spending.

Daniel Kim
content@viewusglobal.com

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