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How Red Lobster's $20 endless shrimp deal cost its owners $500 million, led to 100 restaurant closures and taken seafood chain to edge of bankruptcy
Albert Einstein said insanity is doing the same thing over and over again and expecting different results.
The bosses of Red Lobster clearly did not get the memo.
The chain is on the edge of bankruptcy - forced to close 100 restaurants in recent days - largely because of its $20 'endless shrimp' promotion.
The offer, launched last June as a permanent fixture on the menu, is almost identical to a deal in 2003 - and the problems it casued almost identical too.
Back then, it was 'endless crab'. It was great for hungry seafood lovers but a disaster for the restaurant - by the time the plug was pulled after just seven weeks Red Lobster had lost $3.3 million.
Thiraphong Chansiri, CEO of Thai Union - the majority owner of Red Lobster - in one of the company's factories in Thailand. He is one of the executives thought to be behind the endless shrimp for $20 offer
The chain started as a single restaurant in Lakeland, Florida, in 1968. It's endless shrimp started at $20 but then went up to $25 and then $27
'It wasn't the second helping on all-you-can-eat, but the third' that hurt profits, a Red Lobster executive said to analysts at the time in 2003.
This time, the deal was also wildly popular - with some customers staying for hours to see how many the could eat. One girl managed 108 in four hours.
'I set a new record at my local Red Lobster, this is my greatest achievement in life' the poster explained in her video.
More people began to take advantage of the offer than the company expected. But rather than pull the deal, bosses kept it running for six months - and the losses dawrfed the amount lost for endelss crabs 20 years earlier.
Seafood lovers devouring plates of shrimps was the key reason that Red Lobster's majority owner Thai Union lost $11 million in just three months soon after the deal began.
Ludovic Garnier, the chief financial officer, said: 'We knew the price was cheap, but the idea was to bring more traffic in the restaurants.'
'So we wanted to boost our traffic, and it didn't work.'
'For those who have been in the US recently, $20 was very cheap. And the rationale for this promotion was to say we knew the price was cheap, but the idea was to bring more traffic in the restaurants,' said CFO Ludovic Garnier in November.
'But something which was different from our expectation is the proportion of the people selecting these promotions was much higher compared to expectation,' he added.
Workers at the Thai Union Frozen food processing plant just outside Bangkok clean and prepare fresh cooked shrimps
Endless shirmp started at $20 but was too popular and cost millions of dollars
Put simply, it was too cheap. Hospitality experts are puzzled that the chain didn't see how badly it could go wrong - expecially since they were repeating a mistake.
'In the current environment, consumers are looking to find value and stretch budgets where they can,' Jim Salera, restaurant research analyst at Stephens, told the LA Times.
'At $20, it's very possible for a consumer to eat well past the very thin profit margin'.
The price went to $25 then $27, but the losses mounted. The following quarter, the company lost $12.5million. The total cost to Thai Union has been much higher - as it now has to write off $500 million as it looks to sell of Red Lobster.
Endless shrimp had been at Red Lobster for 20 years - but only offered for few weeks a year.
But Thai Union - run by Thiraphong Chansiri - made it a permanent fixture on the menu last June.
Bosses at the Bangkok-based seafood producer saw it as a way to sell thousands of tonnes of shrimp it was catching in Asia - and also drive traffic to the Red Lobster restaurants it now owned in the US, which were seeing customer numbers down. They saw it as a win-win.
'If you were a large shrimp company based in Thailand, it would be a good idea,' a former Red Lobster executive told CNN.
It wasn't profitable at the $20 price, or even when they put it up.
And it badly affected service. Restaurants had long wait times as customers stayed at tables for hours eating course after course of shrimp.
Chansiri said in November: 'We were expecting an increase of 20 percent in customer traffic, but the actual number was up to 40 percent.'
Other chains offering all-you-can-eat have managed to make it work, experts say. They point to buffet chains Golden Coral and Sizzle offering multiple portions at a flat rate and Olive Garden with its unlimited salads and bread sticks.
Eric Chiang, an economics professor at 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 majoriy owner and main supplier of Red Lobster
Three senior executives in the history of Red Lobster from left to right: Former CEO Edna Morris lost her job over an endless crab offer that went wrong in 2003. Ludovic Garnier, CFO of Thai Union Group - Red Lobster's current owners - blamed the endless shrimp promotion on losses of $11 million in thre months. Jonathan Tibus was made CEO of the struggling chain in March in a bid to save it
The price was too low, and they offered something that is typically expensive and that people love - shrimp. It can also form the backbone of a whole meal.
Customers at Olive Garden don't stock up on salad and bread sticks.
'Most people will also order the Taste of Italy,' he said of Olive Garden, 'or something that gives you 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 started as a single restaurant in Lakeland, Florida, in 1968 has around 650 locations across almost all states.
The blunder is all the more astonishing because the chain had made a similar mistake before, in 2003 with the 'endless crab' offer.
As well as the $3.3 million loss, the disaster ended in a large stock sell-off and cost the then-CEO Edna Morris her job.
This time there has been big financial losses, executives leaving and the parent company Thai Union deciding it had had enough of Red Lobster.
It had bought a 25 per cent stake in Red Lobster in 2016 for $575 million. At that point it had been one of the main suppliers to the chain.
Four years later it bought an even bigger share and became majority owner.
It was in November, at the quarterly earnings, when bosses said the endless shrimp deal had cost $11 million.
Two months later they had had enough.
The board of directors said they didn't want to pump any more money into the beleaguered chain.
They are having to write off $530 million of their investment as Red Lobster drowns in debt and not buyers can be found.
Red Lobster has shuttered dozens of locations and auctioned off their contents
Closures were announced across 21 states on Monday night - effective immediately. This map shows how they are spread across America
Shuttering the 100 restaurants - with the contents of 48 sold off at auction - bosses are hoping they can cut spending and convinve a buyer to come in to save the brand.
It was reported by the Wall Street Journal on Tuesday that Red Lobster could file for Chapter 11 bankruptcy as soon as next week. That will allow them to cut costs even more.
During a presentation to investors in February, Chansiri said how 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.