“Endless shrimp” and other deals can backfire on restaurants
“Endless shrimp” and other deals can backfire on restaurants
A lot of restaurant chains have been running flashy deals lately. There was Applebee’s $1 margaritas — called Dollaritas. The Olive Garden has its Never Ending Pasta Bowl special. And Red Lobster has Ultimate Endless Shrimp, which was originally $20 and is now $25.
That last one backfired. The seafood chain says it was one of the key reasons it posted an $11 million operating loss in the third quarter. So are these specials that seem too good to be true worth it for restaurants?
For some people, all-you-can-eat shrimp is simply a good deal. For others, it is a contest. Like TikTokker @ugh_madison, who recently ate 108 shrimp at Red Lobster.
“My waitress was so proud of me. I set a new record at my local Red Lobster. This is my greatest achievement in life,” she said in a TikTok.
It’s worth noting she did not order the shrimp Alfredo, ‘cuz filling up on pasta is an amateur move. And she only had water to drink. Lizzy Freier at Technomic, a food-service research and consulting company, said that’s the opposite of what the restaurant wants.
“A lot of these operators are willing to take a loss in one area just to get customers in the door, where they’re hopefully going to be spending more elsewhere on the menu,” she said.
A side of fries, a glass of wine — these add-ons add up. Unless no one orders them, and the margins on the special are shrimpy.
“Obviously there are a lot of risks to doing something like this,” Freier said.
Risks like people overconsuming alcohol with drink deals. Or diners lingering to enjoy specials, which means fewer tips for servers.
David Portalatin, a food industry adviser at Circana, said long-running deals can shift customer expectations. “You want to avoid creating this downward price spiral to the bottom,” he said.
Remember the $5 footlong? It became so synonymous with Subway that once the chain raised prices, some customers walked, said Sean Dunlop, an analyst at Morningstar.
But he said deals aren’t just about revenue. They’re also about creating buzz and loyalty. “The big thing is that you’re investing in the future,” he said.
Dunlop said most people visit the same restaurant four or five times a year. So every extra visit counts, especially now. He said restaurants have seen a decline in customers over the last year and a half, and inflation has been rough for chains like Red Lobster and Applebee’s.
“They’re not really exposed to the true luxury consumer that sort of continues to spend through the cycle,” he said.
Nor are these sit-down chains the typical choice for people who are hyperfocused on price. They might opt for fast food instead.
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