Red Lobster Meets Homer Simpson: A Lesson in Pricing for All

Introduction

We Americans are known around the world for a lot of things. Our generosity. Our ingenuity and creativity. Our “can do” spirit. Our willingness to stand up for freedom. Our unique brand of football. Our guns. And yes, our gluttony.

Ask anyone from abroad what their first impressions of America are, and most often, the size of our food - and yes, the closely correlated and in many cases clearly-causated size of many Americans - makes the top three mentions. Quite often, food and food consumption is the number one thing that amazes foreigners about Americans! Yes, we Americans love our food - especially when there is lots of it and it is cheap. That is the perfect combination - even better than surf and turf!

How much do we love our food? Consider this as "Exhibit A." The Big Texan Steak Ranch in Amarillo, Texas, stands perhaps the quintessential example of America’s love of big food and big value! Since 1960, The Big Texan has become known worldwide for its One Hour Steak Challenge. If you can eat - in sixty minutes mind you - a 72-ounce top sirloin steak, plus a baked potato, shrimp cocktail, salad, and a dinner roll, then your dining experience is free! If you fail to do so, or if you have what is known in the fast-growing American phenomenon of competitive eating as a “reversal of fortune,” then your meal at the Big Texan will cost you $72 (at present, late 2023). Tens of thousands have tried to beat the house, but the vast majority of them end up paying for their meal - and the experience of trying.

Now, The Big Texan gets immeasurable publicity and notoriety out of the 1 Hour Steak Challenge. It has become the stuff of travel folklore, both in Texas and far beyond. Heck, very early in his career, this author got to see his first "real job" boss have a reversal of fortune of his very own right there in Amarillo on a business trip! The Big Texan’s eating challenge has been the subject of pop culture a number of times, even being featured on - what else - the popular Travel Channel show, Man v. Food (and yes, Adam Richman took down the steak, the potato, the shrimp cocktail, the salad, and the dinner roll in just 29 and a half minutes!).

Competitive eater James Webb recently completed the steak challenge in just 6 and a half minutes…

but his amazing time was not nearly the best ever, as the record time was - somehow - just 4 minutes and 18 seconds for 4 and a half pounds of steak, plus the trimmings!

Certainly, watching people try and eat the 72-ounce full steak dinner is endless entertainment. Heck, you can even watch a video stream (https://www.bigtexan.com/live-stream/) that the Amarillo steak house has set up and you can watch as people try and conquer their steak challenge live from the comfort of your own home! What else can one say but God Bless America?

How then should a restaurant, one or a chain of hundreds or thousands, capitalize on Americans’ love of food - and lots of it? Red Lobster, for almost two decades now, has provided a seasonal favorite promotion during their slow times in the fall and winter - endless amounts of shrimp for a set price. This year, their leadership said: “Hey, if this works well for a month or two, let’s launch it as a permanent part of our menu!” Well, as you will see, this strategy - to date - has not worked out very well for the largest seafood restaurant chain in the United States by far - at least from a financial perspective. But what if Red Lobster has just the right strategy at just the wrong price?

In this article, this strategic management professor and consultant will show that indeed, the company’s management is on the right track for serving the tastes - and appetites - of Americans right now. The article will also show you how their pricing mistake can be a valuable lesson - for your business and even for yourself!

Red Lobster and the “Golden Corralling” of America!

Red Lobster has definitely - and is wisely - leaning into what is seemingly the “Golden Corralling” of America! Applebee’s touts all-you-can-eat boneless wings. Olive Garden offers its Never Ending Pasta Bowl. Panera even offers an Unlimited Sip Club for most of its beverages - for a monthly subscription! And yes, Mexican restaurants across the country offer free chips and salsa - in many, if not most, instances.

Now, the first rule of all-you-can-eat, according to Fran Fine, the character name for the television show, “The Nanny” is simple:

“Salads are for suckers…Go directly to the shellfish!”

And yes, many Americans follow the “Homer Simpson Game Plan” of going straight for the shellfish - hard - when it comes to all-you-can-eat buffets, from the famous fancy and famous not-so-fancy ones at casinos in Las Vegas and beyond to one’s local seafood joints and yes, the Golden Corral!

So then, what could be better for a seafood lover than a seafood buffet? What if all-you-can-eat shrimp was brought to your table, to make the process of eating more and more shellfish far more efficient? Red Lobster had seen great results from using Endless Shrimp as a seasonal promotion in the past. In fact, the largest seafood restaurant chain in the world has run the Endless Shrimp promotion for the past 18 consecutive years.

So, in late June of this year (2023), the folks in the executive suite of Red Lobster’s parent company, Thai Union (a company with a unique, “seafood-focused” strategy, that also owns Chicken of the Sea [a leading canned and packaged tuna] and Genova [a premium tuna product] in the U.S. and a whole host of seafood brands globally), based in, you guessed it (not a trick question), Thailand, came up with what would seem like a very good and plausible strategy: If Endless Shrimp works so well as a short-term promotion in the slow seasons for Red Lobster, why not run the promotion each-and-every day?

Now, whether the company was based in Bangkok or Bangor or Boston or as it actually is in Mueang Samut Sakho, rather than Miami or Minneapolis, this is a good, sound strategy. However, Red Lobster and Thai Union have been in the news of late, and not in a good way either for those who might own shares in Thai Union and/or for those who love Red Lobster and its Endless Shrimp. This is because people did like the fact that Red Lobster made the promotion permanent, and the restaurant chain’s traffic was indeed up (+2% over the prior quarter and +4% year-over-year).

The problem was simple though: Americans were channeling their “Inner Homer” and “Inner Nanny” and eating waaaaaaaaay too much shrimp - at least at the price point that Red Lobster has had in place for the Endless Shrimp deal! As a consequence, Thai Union just announced that its Red Lobster unit lost $11 million in the last (third) quarter (2023), and why you have to ask? Simply put: Its customers were eating more shrimp than they had anticipated with their all-you-can-eat deal! And many more customers than the company’s management anticipated opted for eating Endless Shrimp than the other items that were not endless - and are higher priced - on Red Lobster’s menu!

On an earnings call with analysts, Thai Union’s Chief Financial Office, Ludovic Garnier, spelled out the downsides - and upsides - that Red Lobster experienced by offering what it now called its Ultimate Endless Shrimp℠ (and the quote is in the original English version from Mr. Garnier on the call made from the company’s headquarters in Thailand):

“The price point was $20 and you can eat as much as you want. For those who have been in the U.S. 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…But something which was different from our expectation is the proportion of the people selecting these promotions was much higher compared to expectation. What does it mean? It mean that the people coming to Red Lobster, they were really looking for a very strong value proposition And of course, we know on these promotions, we don’t earn a lot of money at $20, we don’t. Okay. So the price has been raised, first to $22, now $25. We do believe it’s a very strong promotion. So we want to keep it in the menu and of course, we need to be much more careful regarding what are the entry points and what is the price point we are offering for this promotion.”

What could not be questioned was that there was customer satisfaction - even customer joy - generated by the proposition that they could have endless plates of shrimp delivered to their tables at Red Lobster - joy that generated an incalculable amount of good publicity and goodwill for the chain and its brand! And what was not to love about spending $20, $22, or even $25 at for the chance to eat Endless Shrimp? When the promotion was made permanent in June, Red Lobster increased its shrimp offerings under it from 5 to 8 (hence, making it officially the “Ultimate Endless Shrimp℠”)...

…and customer reviews of all 8 types of shrimp were mainly positive, of course spurring some, as one does in today’s social media and viral video world, to post their reviews online:

And in addition to the reviews and the “serious” and not-so-serious news coverage of Red Lobster’s “Endless Shrimp Crisis” shown previously in this section, one could expect in 2023, 2024, 2025 that the “pro” eaters would be drawn like butter to Red Lobster to test the Endless Shrimp like Homer Simpson - and they did! Trust me when I say that there were many, many videos to choose from as people ate, and ate, and ate endless amounts of shrimp in one sitting at their local Red Lobster restaurant. Here is but a tasteful sampling, from the lady who claims to be the record-setter at her local Red Lobster…

… to a gentleman known as the “Rockstar Eater”...

…to the self-proclaimed “Buffet King ‘The Notorious B.O.B.’” as he took on Red Lobster’s Endless Shrimp!

And do notice, not a lot of Red Lobster’s famous Cheddar Bay Biscuits® or salad being eaten here - it was simply, straight shrimp, shrimp and more shrimp!

Analysis

So, in the end, Red Lobster’s management did not have a bad strategy. In fact, they had what could have been - and likely will be in the long run - a winning strategy! They just had a bad price, or rather, a bad pricing strategy. One can see this clearly, based on both the megatrends in their favor, what with America going “full gluttony,” and by the very fact that Red Lobster’s management is going to, in effect, “double down” on their present strategy, just at a higher price point! So, the company is on the right track.

Think this a unique case of a great strategy at a bad - or the wrong - price? Think again. This same phenomenon happens all the time across the world of business. Companies, even those regarded as the best in marketing, have to change their pricing strategies to make a good strategy “work.” Why doesn’t Walmart today promise to always have the lowest price? Why did Dollar Tree take the step of increasing most of its prices from a dollar to a dollar a quarter? Why are value menus, and certainly, dollar menus, disappearing from almost every major fast food chain in America, simultaneously? Why do small businesses again and again and again seem to be thriving, but then suddenly close because while they had great customer traffic and great sales, they weren’t selling at a profit?

The answer is clear. Smart companies - of all sizes and across all lines of business - know that they simply can not operate “loss leaders” (wherein the enterprise effectively loses money on each sale) for an unlimited period of time. They know that there is indeed, a finite lifespan to any really good loss leader strategy. They know that, while value can work to get folks in their doors and generate some degree of customer, loyalty, in the end, you have to be offering your product or service at a price that generates a profit, of some size, for your enterprise - while at a price that the consumer is willing to pay. Business 101 teaches us that if you operate at a loss forever, you won’t simply be around forever. End of story. Full stop!

And yet, as a business consultant and observer, I see people all the time - and again and again - make the same mistakes about themselves, their careers, and their services. As pointed out in my recent article, “Are You Worth a Walmart Price…or an Airport Price?: How a water bottle’s value can teach you a lot about knowing your value — and expecting more,” we have a tendency to, almost instinctively, underprice and undershoot our true values! For myself - and for countless others, this is a difficult lesson to learn. But the same basic principle applies, in that if you underprice yourself in terms of what you have to offer and what you bring to the table )in terms of expertise and effort), in effect, you will be operating at “personal loss,” in offering yourself, your wares, and your services. Sure, you might want to offer a “loss leader” price for your consulting services or on a work-for-hire task just to get your proverbial “foot in the door” of a desired client. But do this too often - or all the time - and your personal losses will mount, and you could soon find your career/personal business on the line because of your own bad pricing strategy.

What do I, as a veteran consultant and observer (and taster) in the restaurant area see for Red Lobster’s future? In short, I see great potential. Their Endless Shrimp strategy fits our times, our wallets, and even at a raised price point, fits with Americans’ appetites - literally, our big appetites - at this time. The real downside to this strategy though is that in playing and, in effect, doubling down on the “Endless Shrimp Card,” Red Lobster really risks becoming, in the minds of consumers, a one-trick pony. They risk becoming simply “The Endless Shrimp Place.“ As such, Red Lobster’s management risks effectively cannibalizing the rest of their menu, which, by definition, in a seafood restaurant, offers much more expensive offerings, especially on the shellfish (think lobster, as in “Red Lobster!”).

Thus, at the end of the day, with the offering of Endless Shrimp being made permanent, rather than being just a seasonal promotion staple that many customers depended on - and loved, Endless Shrimp - when offered at a higher price point to balance the “personal supply/demand equation” of today’s customers who are eating more and more shrimp at a sitting, the strategy should be profitable and successful, overall, for Red Lobster. But, even while the strategy may improve traffic, generate more sales and revenue, and enhance, over the long term, the restaurant chain’s profitability, it certainly may not serve to maximize it. Thus, whether it be restaurant industry analysts, and certainly, internal and external consultants, looking at Red Lobster’s specific internal sales, traffic, and cost data, the Endless Shrimp strategy may, while being a “good” strategy, may not in fact be the “best,” most optimal strategy for the company over the long haul. So, their management team would be well advised to take a hard look at the pros and cons of the Endless Shrimp strategy going forward to evaluate whether a return to “normal time” (i.e. not all-you-can-eat) operations might be the optimal course to take for the long-term success - and brand - of Red Lobster. Heck, the chain is not called, “Pink Shrimp” for a reason, as margins are far larger selling - checks notes - lobsters in the restaurant biz!

In the meantime, I certainly suspect that reading this article might have prompted a few, or many more, of you to head down to your local Red Lobster for Endless Shrimp to “investigate” for yourselves. Some of you will certainly “go big” in terms of the number of shrimp and the number of plates of shrimp in various fried, boiled, and in pasta forms that you will consume. So… make us proud! I know for myself, I think that it would be prudent for me to do some “investigative reporting” at my local Red Lobster. I would be doing so both as a “taste test” of the eight varieties of shrimp being offered by the chain. And well, maybe at my “certain age” I will not pile up a huge tally of shrimp tails at my table, as I am desperately trying to diet. However, I am confident that I will most certainly have the chance to observe - and most likely stand in awe of - some of my fellow Americans going full Fran Fine or even Homer Simpson on plates and plates and more plates of Endless Shrimp - or rather, the “Ultimate Endless Shrimp℠.” God Bless America!

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About David Wyld

David C. Wyld is a Professor of Strategic Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, publisher, executive educator, and experienced expert witness. You can view all of his work at https://authory.com/DavidWyld. You can subscribe to his Medium article feed at: https://davidwyld.medium.com/subscribe.

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