New Chapter 11 bankruptcy news exposes restaurant chain's problem
The popular casual dining change had one clear problem that led to its downfall.
When a chain like Red Lobster, TGI Fridays, or On the Border fails, you have to wonder where the chain went wrong. All three offer food with broad appeal, good value, and a pleasant atmosphere.
In addition, all three chains sell alcohol, which should prop up their bottom lines. Yet all of these seemingly popular chains filed for Chapter 11 bankruptcy protection. It's not obvious what happened in each case.
Related: Popular breakfast chain franchise files for Chapter 11 bankruptcy
Red Lobster got a lot of publicity for its all-you-can-eat shrimp promotion, which lost $11 million dollars. That was the classic attempt to sell $20 bills for $19 and make it up in volume.
In theory, the AYCE shrimp promotion was designed to be a loss leader that covered its costs with drinks, desserts, and other members of the party ordering other things. The problem is that when you offer cheap, AYCE shrimp, people tend to order that, eat until they can no longer stuff food in their face, and spend no other money.
Red Lobster did not file Chapter 11 bankruptcy because of the losses due to the shrimp promotion. That was more a symptom of the bad decisions management was making.
