Red Lobster’s collapse could be the beginning of the end for fast-casual dining (2024)

Red Lobster’s collapse signals the end of the “martini lunch,” as consumers ditch fast-casual dining for quicker or luxury options, an industry expert warned

It was recently announced the troubled seafood restaurant chain will be closing at least 48 of its roughly 650 branches across the US.

Rumors of bankruptcy filings have come following financial damage done by a $20 “endless shrimp” promotion that proved unexpectedly popular with customers, and reportedly cost Red Lobster millions of dollars last year.

Dennis Gemberling, founder and principal of hospitality industry consultancy group, Perry Group International, said a greater shift in consumer behavior – opting for more “grab and go” food, or full dinner experiences, is pushing out the middle-ground -or fast-casual resteraunts such as Red Lobster.

“The fact of the matter is full-service restaurants… [are] becoming more of a specialty operation to go to for the after-work crowd, or on holidays and that type of thing,” Mr Gemberling told The Independent.

“I mean, you look at anybody under 30. When they’re trying to impress their their significant other or their parent... they go out to a sit down restaurant, but otherwise they’re just looking to just hang out, graze wherever... or get delivery.”

He continued: “I hate to say it, but hospitality is… I call it the demise of hospitality where everybody wants Grab and Go delivery, or, you know, something that’s akin to a buffet but suddenly you can just walk in and walk out.

“The whole market… is starting to dwindle. Gone are the days of the Martini lunch.”

He added that, at the other end of the scale, fine dining establishments had begun to do away with lunch operations, in favor of capitalizing on evening meal experiences.

Mr Gemberling highlighted that, in the case of Red Lobster, the chain faced the dual challenge of high costs on seafood, as well as the costs associated with service-style labor. He also noted recent hikes to minimum wages for fast-food workers in the state of California.

The law signed by Democratic Governor Gavin Newsom last September and enacted in April, has made it mandatory for fast food chains to pay their employees at least $20 per hour.

“The seafood is definitely a culprit when it comes to food costs and operational costs,” Mr Gemberling said. “But the other elephant in the room is labor. And that’s really what’s driving a lot of these chains to consolidate.

“Particularly for casual full-service restaurants where you know they depend on a service staff they depend on a higher labor ratio per customer than, say a fast food operation does.

“If the concept requires more labor, the concept is potentially going to be more vulnerable.”

In 2023, Red Lobster was further knocked off balance by its $20 endless shrimp offer that became much more popular with customers than anticipated.

The all-you-can-eat menu option was previously a time-limited promotional offer. But when the company made it permanent, patrons ended up eating far more shrimp than the restaurant could afford, while taking up tables and lengthening wait times for new arrivals.

"We were expecting an increase of 20 percent in customer traffic, but the actual number was up to 40 percent," said Thiraphong Chansiri, the chief executive of Red Lobster’s parent company Thai Union, last November.

Other restaurants are known for similar promotions, including Olive Garden’s unlimited breadsticks deal. However, Mr Gemberling told The Independent that such gimmicks on their own were unlikely to cause the demise of such restaurants, though he described them as a “two-edged sword.”

“I don’t know if that single, one event, certainly that drove their food costs [up],” he said. “Certainly that drove their market share… but the problem is when it’s costing you more than you’re gaining. It’s a two-edged sword.”

He added: "It’s been a combination of consolidation and cannibalization [in the industry]. You know, a lot of these restaurants that go into these markets, they basically cannibalize each other and that’s sometimes that’s their model.”

The closure of at least 48 Red Lobster restaurants was announced on Monday by a restaurant liquidation company.

Neal Sherman, the chief executive of TAGeX Brands, said on LinkedIn that it was assisting with the rapid closure of Red Lobsters in 21 US states. All of the equipment from the restaurants will now be sold.

The closures included five branches in California and Florida, four in Colorado and Maryland, three in Georgia, New York, Texas and Virginia, and many others across the country.

The Independent has contacted Red Lobster for comment on the restaurant closures.