"For the seafood lover in you..."

I just read that the casual dining seafood restaurant chain Red Lobster filed for Chapter 11 bankruptcy on May 19, 2024.  Last week, in preparation for that filing, they closed nearly 100 restaurants in at least 27 states.  One has to wonder if Red Lobster will go the way of so many other retail stores and restaurants that I remember growing up.  While there were many factors cited for the bankruptcy filings, one of the leading root causes was a disastrous "endless shrimp" promotion (a "$20 all-you-can-eat shrimp deal") that apparently resulted in $11 million in losses. 

Following the closure of several restaurants earlier this week, CEO Jonathan Tibus said, "This restructuring is the best path forward for Red Lobster.  It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth."  A company spokesperson stated that they would continue to operate its over 600 restaurants (551 restaurants in the U.S., 27 restaurants in Canada, and 27 restaurants in other international locations) through the bankruptcy proceedings, which will be focused on simplifying operations, closing low-performing locations, and pursuing a sale.  

As you probably guessed, the "endless shrimp" promotion isn't the sole reason for today's bankruptcy filing.  Industry experts say that today's news is the culmination of over two decades poor management in the face of increasing competition from faster, cheaper restaurant chains such as Chipotle and Panera.  For example, the company apparently tried to lower prices as a way to compete with other chains by offering an "endless crab" promotion in 2003, but the company lost millions as the price of crab rose.  I guess the company didn't learn, as they tried a similar strategy with the same disastrous results with the "endless shrimp" promotion.  While they increased the number of people dining in their restaurants, more people opted for the all-you-can-eat promotion.  Unfortunately, the restaurant doesn't make enough of a profit margin on shrimp when the costs are factored in.  Aaron Allen, founder of the restaurant consulting firm Aaron Allen & Associates said, "The fact that they would have this kind of corporate amnesia is a fascinating case study in corporate food service."

Red Lobster achieved better success in the mid-2000's when they tried to reposition themselves as a more upscale restaurant by raising prices and renovating restaurants.  Unfortunately, they continued to struggle with rising lease and labor costs, as well as changing consumer tastes.  Since 2019, they've experienced a 30% decline in annual guest counts.  Allen suspects that Red Lobster will decrease the number of restaurants by about one-third to one-half as part of the bankruptcy proceedings.  And he suspects that "Most likely whoever buys it is not going to want to fix up Red Lobster."

The lessons here are (1) remember the lessons of the past, as history generally repeats (i.e. if a promotion failed miserably in the past, it will probably fail again in the future) and (2) it's hard to dig out of a 20 year hole, so don't try to do that using a gimmick like an all-you-can-eat promotion.  Organizations should always strive for operational efficiency (preferably using High Reliability Organization principles!).  bIt's sad to see another well-known company go under, but it's hard to argue that it's the right move when the company has been struggling for so long under what Allen describes as "a slow-moving train wreck that has been in motion for 20 years."