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All-you-can-eat was too much

Red Lobster's chief is ousted after a crab promotion loses money. The parent company says that wasn't the reason.

By BENITA D. NEWTON
Published September 26, 2003

The television commercials for the nation's biggest chain of seafood restaurants invited diners to "Red Lobster's Endless Crab: a celebration of all the hot, steaming snow crab legs you can eat."

What managers of the 645-restaurant chain never expected was customers so ravenous for crab that they ate up the profits.

Darden Restaurants of Orlando said Wednesday that it has replaced the president of Red Lobster, its biggest chain. The move came after management vastly underestimated how many Alaskan crab legs customers would consume during the promotion that ran from July 21 through Sept. 7.

"It wasn't the second helping, it was the third one that hurt," company chairman Joe R. Lee said in a conference call with analysts.

"Yeah, and maybe the fourth," added Dick Rivera, Darden's chief operating officer. Rivera has taken over as president of Red Lobster.

Former president Edna Morris, 51, who oversaw the crabfest, has left "to pursue other interests," the company said. But Darden spokesman Jim DeSimone maintained the failed promotion wasn't the reason. "A person's career is not made or broken on a seven-week promotion," he said.

For some customers enticed by the Endless Crab deal, plowing through piles of crab at Red Lobster seemed to be a contest for bragging rights. A personal diary on the Web boasts of a party of five that "put away 18 pounds of the stuff." Another tells of a group at a birthday celebration that had "THIRTY!! refills of crab legs."

At the same time the chain was pinched by rising wholesale prices.

Spokesman DeSimone said new quotas in U.S. waters and a smaller than expected Canadian harvest helped fuel the price increase.

Many of the chain's locations reportedly started out by charging about $20 for an entree of all-you-can-eat crab and side dishes. When profits started slipping, managers raised the price by as much as $5, depending on the market, but it wasn't enough.

Frank Chivas, who owns several Tampa Bay area seafood restaurants, including the Salt Rock Grill in Indian Rocks Beach, said most people can eat about 2.25 pounds of crab. With wholesale prices close to $5 a pound, a higher consumption rate would have easily made the promotion unprofitable for Red Lobster, which has about 15 bay area locations.

"Crab would need to be about $3.25 a pound to comfortably pull off an all-you-can-eat promotion," Chivas said.

Bay area restaurant owners say offering unlimited portions of pricey foods can be a dangerous proposition but can still produce a profit.

At Rock Waters Grill in Tarpon Springs, the Sunday brunch features snow crab, smoked salmon, prime rib and caviar for $14.95. Owner Eric Arneson has been satisfied enough with the results to start a new lunch buffet at the 4-year-old restaurant in November, but he said all-you-can-eat is a risk.

"Some people do take advantage of it," Arneson said. "You expect some people that don't eat that much to compensate for those who overstuff themselves. There's no way to control it; you just hope to even it out so you can make a profit on it."

And of course, people will always gravitate toward the most expensive items, like crab, which costs Rock Waters $4.57 a pound right now.

"It goes pretty quickly," Arneson said. "We constantly have to keep filling up items like crab and caviar."

Tom Dong, manager of King Buffet in St. Petersburg, eases the profit margin on his restaurant's smorgasbord by charging $4 more for customers who want unlimited crab with their dinner buffet.

"Most customers are pretty polite and they only take one or two plates, so we're still making money," Dong said. "But we still receive very low profits."

The bay area had its own all-you-can-eat crab fiasco in 2001. Pasco County resident Bob Middleton made national headlines when he refused to pay an extra $10 after consuming what employees at the China Dragon buffet thought was far more than his fair share of snow crab legs.

Darden blamed Red Lobster's performance for an overall decline in profit in the first fiscal quarter, which ended Aug. 24. The company said it earned $68.6-million, or 40 cents a share, on sales of $1.26-billion, compared to $71.9-million, or 40 cents a share, in the same period last year on sales of $1.17-billion. The company's stock closed at $18.75, down $2.62, the biggest drop in seven months.

- Times staff writer Scott Barancik contributed to this report, which used information from the Associated Press. Benita Newton can be reached at bnewton@sptimes.com or 727 893-8318.

[Last modified September 26, 2003, 01:49:38]


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