Red Lobster’s Endless Crab Disaster

Red Lobster is an American restaurant chain. Founded in Florida in 1968, Red Lobster is, as the name suggests, primarily a seafood restaurant, although it also serves other dishes. The chain has been successful and expanded (using the franchise model) to the extent that today it has over 700 locations, mostly in the USA and Canada, but there are also branches in Mexico, Japan and the Middle East.

A Red Lobster restaurant in Yonkers, New York.

In 2003 Red Lobster offered an Endless Crab all-you-can-eat special which cost the chain millions of dollars and is today seem as a textbook example of a badly thought out promotion which ends up costing the company money. The incident also highlighted how issues in the supply chain and wholesale price of seafood can impact on seafood retailers, and also led to questions being asked about the impact which all-you-can-eat seafood special offers have on wild stocks.

In the summer of 2003 Red Lobster announced its Endless Crab special offer at the 679 restaurants it had at the time. Endless Crab was meant entirely literally – customers could order many plates of the popular snow crab dish as they wanted for the set price of $22.99. The company would make a profit if a customer ordered only one or two plates, but fell into loss-making territory once a third plate was ordered. Red lobster’s problems began when Endless Crab proved wildly popular (hardly surprising as crab was one of the chains most popular dishes) and the vast majority of customers ordered way more than three plates of crab.

Snow Crab Fishing
Commercial fishing for snow crab is highly regulated and must observe strict quotas.

To make matters worse the promotion had inexplicably been scheduled at a time when snow crab quotas were relatively low and wholesale prices were correspondingly high, with the newspaper USA today reporting that wholesale prices were an already expensive $4 a pound when the offer started and increased as it continued. A further issue was that crab legs are difficult and time consuming to eat, with customers having to crack open the shells to get the meat inside. This led to customers spending much longer than usual inside Red Lobster restaurants while they ordered loss-making plate after loss-making plate of crab, and prevented other customers from taking tables at peak times and ordering the restaurant’s usual profit-making dishes.

With the tightly regulated US and Canadian crabbing industry unable to increase catches to supply the demand and bring down the wholesale price of snow crab Red Lobster had to take action to try to turn the situation round. Franchise owners were given permission to increase the price from $22.99, but when this failed to stop losses the Endless Crab campaign was itself ended three months after it began. In that time the company had lost $3.3 million dollars and the debacle was blamed for triggering a sell-off of shared in Red Lobsters then parent company Darden Restaurants, which saw its own share price fall by twelve per cent. The blame for the failed promotion fell onto the chain’s president Edna Morris. She had joined Red Lobster from a popular steakhouse chain two years earlier, any many claimed that she failed to understand that the type of all-you-can-eat offers which are successful with large and filling steak and meat dishes would not work with smaller and higher value seafood such as crab.

Red Lobster Meal
A crab meal at a Red Lobster restaurant.

While Endless Crab was a disaster for Red Lobster its underlined how seafood, being wild caught rather than farmed, is much more unpredictable in its availability and also, therefore in its price. Had snow crab quotas been at the same level as they were a few years previously the wholesale cost of snow crab would have been much lower, and Endless Crab may well have turned out to be a success. However, with crab quotas being low the wholesale price of snow crab was high and only going to rise, and Red Lobster were powerless to do anything about this. There are also issues regarding the responsibility of offering customers a limitless amount of a wild-caught animal which was (as it still is) being fished under strict quotas in order to preserve stocks for future generations. Indeed, other seafood retailers and restaurants in the US and Canada criticised Red Lobster for using so much of the available and inherently limited snow crab quota to supply customers with Endless Crab and pushing the wholesale price higher for the rest of the market.

Happily Red Lobster – as the biggest single seafood purchaser in the USA – now has a good reputation for the sustainability of the seafood it sells. They are committed “to serve only Traceable, Sustainable and Responsibly-sourced seafood” and in 2018 partnered with the Monterey Bay Aquarium Seafood Watch ® programme with current Red Lobster CEO Kim Lopdrup stating that they would “drive positive change in the industry and lead the way in sustainable and responsible seafood sourcing.”

The Endless Crab fiasco, however, lives long in the memory. It is often featured in top ten lists of the worst business and marketing decisions ever made and is used as an example of how a poorly through promotion can backfire on a company. Clearly the legal issues encountered by the Sea Captain and his Frying Dutchman restaurant in an episode of the Simpsons (which aired more than a decade before the Endless Crab promotion) should have acted as a warning to Red Lobster, who have yet to repeat any special offer involving unlimited crab.