Red Lobster introduced a $20 all-you-can-eat shrimp promotion that backfired.
Execs said the chain underestimated the response to the "very cheap" deal, which led to losses.
Diners are facing sticker shock at restaurants and are seeking value, a Red Lobster exec said.
Americans are hungry for cheap deals. Red Lobster learned that the hard way.
In its latest quarter, profits tanked due to an overwhelming response to the chain's $20 Ultimate Endless Shrimp deal.
Too many people took advantage of the low-margin offer, and it was "one of the key reasons for the losses we generated in Q3 2023," Ludovic Garnier, the global chief financial officer of the chain's owner, Thai Union Group, told investors during its November earnings call.
The chain rolled out the $20 all-you-can-eat shrimp promotion to increase the number of visits to its restaurant. Red Lobster had previously offered the long-standing promotion once a week. The chain tweaked it this year by offering the promotion every day.
Its generosity backfired because the chain underestimated the number of diners hunting for dining deals amid a spate of rising menu prices.
They anticipated the promotion would give them a 20% boost in traffic. Instead, they got a 40% boost.
Though inflation is slowing, menu prices remain on the uptick, according to new federal data released in November. The Bureau of Labor Statistics reported that restaurant prices, or food away from home, increased by 5.4% in October year-over-year. Fast-food prices are rising even more, up by 6.2% over the past 12 months.
Garnier said the promotion "clearly shows" that US diners are looking for value.
"For those who have been in the US recently, $20 was very cheap," he said.
Ultimately, $20 for endless shrimp was too cheap for Red Lobster.
"We don't earn a lot of money at $20," Garnier said.
That hurt the company's bottom line. "It did not deliver what we were expecting."
But instead of scrapping the new promotion, the chain gradually raised its price from $20 to $22. It's now at $25.
"We do believe it's a very strong promotion," Garnier said. "It's one of the iconic promotions for Red Lobster. So we want to keep it on the menu."
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