Set the rules for promotions carefully, and beware taking on unlimited liabilities.
The idea that Red Lobster (a place I have always liked, although it’s no Long John Silver’s) has run into difficulties because of a poorly thought-through, all-you-can-eat shrimp scheme is sad, symbolic, and hilarious. Sad for the thought of lost jobs, symbolic for reasons that ought to need no explaining in our age of all-you-can-spend government, and hilarious, well, for yet more reasons that need no explanation.
Bloomberg’s Matt Levine has reported the story with all-you-can-write-gusto and has some fun speculating, not altogether seriously, on what might have gone wrong, an exercise which is also a reminder of the different interests that can come into play when a company gets into trouble. If you can get behind the paywall, do take a look.
The story includes this (imagined) scenario:
Then he gets up from the table and shrimp fall out of his pockets and he walks out of the boardroom trailing shrimp everywhere, this is what corporate finance is all about.
If only, although I have stories. . . .
But there are aspects of the Red Lobster saga that reveal that the American spirit lives on.
Luke Winkie, writing in Slate:
Red Lobster officially filed for bankruptcy Monday, after a grim week that saw nearly 100 stores shut down around the country. The restaurant chain has cycled through multiple owners and leadership cabals over the past 10 years, and each of them attempted to stabilize the chain, to no avail. One of these rescue plans was the restaurant’s now-infamous Endless Shrimp promotion — in which, for $20, customers could order an unlimited supply of fried shrimp, shrimp scampi, or “street corn shrimp” to their table. The plan, as far as I can tell, was for guests to fill up on just enough shellfish to preserve Red Lobster’s profit margin. It backfired spectacularly: The restaurant’s clientele scarfed down enough shrimp to accumulate an $11 million operating loss in the fourth quarter of 2023. . . .
There was also the fact that when parties arrived at Red Lobster looking to pig out on a bargeful of shrimp, they simply wouldn’t leave. Berke’s experience serving a man who put away 16 servings over the course of two hours was actually mild compared with some of the other stories I’ve heard. Josie, 19, who also asked to be anonymous, worked at a (now-shuttered) Kansas City Red Lobster, where she watched a solo diner take down 30 orders of fried shrimp within four hours. According to the nutritional information on Red Lobster’s website, that’s something like 14,000 calories.
Thirty orders.
It’s the challenge of the thing, I reckon, at least partly. “Because it was there.” Everest, but different. Decades ago, I was with a friend, then a captain in the U.S. Army, and his wife. They had noticed that a Pizza Hut (I think) had an unlimited salad deal. The restaurant’s manager obviously thought this was a clever ploy. Look generous, without having to be generous. Who eats salad? One plate is bad enough, but two, or (have mercy) more. That’s not how my friends, no gluttons, saw it. Back and back they went for seconds, thirds, fourths. . . (I watched, sickened at the spectacle of all the greenery being repeatedly heaped on their plates) until eventually the restaurant manager cracked, quickly adding an extra proviso to the promotion. Take-up had to be in the spirit of the offer, and they had passed that point. My friends were merciful.
And then, back in the 1980s, there was a version of American Airlines’ AAirpass that didn’t work quite as planned.
American had been hit hard by the Airline Deregulation Act of 1978. They’d posted a $76m loss in 1980, and were grappling with new competition, reduced ticket prices, and a changing industry that threatened to sink them into irrelevancy. . . .
American needed cash, but interest rates were at a record-high. So, they came up with a different plan: they’d raise capital from their own customer base by selling its wealthiest customers the “ultimate travel perk” — an unlimited first-class ticket for life. The cost: $250k.
“The idea was that firms would buy this for their top performers,” Crandall tells us over the phone. “But as usual, the public is way smarter than any corporation. People immediately figured out we’d made a mistake pricing-wise.”
By 1994, American had discontinued the unlimited AAirpass — but not before 28 people got the deal of a lifetime.
Steve Rothstein, then an investment banker in Chicago, was already one of American Airlines’ top fliers when he was approached to buy the AAirpass in the early ‘80s.
“American Airlines contacted me and said that, based on the amount I traveled, the AAirpass would be a great purchase,” Rothstein tells us. “It was like a bond: instead of paying me dividends in cash, they were paying dividends in air travel. They needed cash, and they could pay me in miles.”
For a total of $383k, Rothstein purchased both the AAirpass and companion pass — and over the next 25 years, he proceeded to book more than 10k flights.
He took hundreds of trips to NYC, LA, and SF. He went to London — sometimes a dozen times per month. He flew up to Ontario just for a sandwich.
Well, why not?
Moral of the story: Set the rules for promotions carefully, and beware taking on unlimited liabilities.