Sometimes promotions can work too well.
That’s the case at Red Lobster, which is 36% owned by Thai Union Group TU, +2.05% TUFBY, -2.94%, also the owner of Chicken of the Sea canned tuna business. And on a conference call this month, CFO Ludovic Garnier spelled out the damage the promotion called Ultimate Endless Shrimp did.
“The price point was $ 20 and you can eat as much as you want,” explained Garnier, according to a FactSet transcript. “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.”
And traffic did rise — by roughly 2% compared to the second quarter, and by 4% compared to last year, at a seasonally weak time of the year for the restaurant. Garnier said competitors lost market share to Red Lobster.
“But something which was different from our expectation is the proportion of the people selecting these promotion 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,” he said. “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.”
Red Lobster is forecast to lose the company 700 million Thai baht ($ 20 million) in 2023, which actually is an improvement from the 1.2 billion baht it lost the company last year.