Why all-you-can-eat deals rarely go well for restaurants - Marketplace (2024)

There are four words that should strike terror into the hearts of restaurant owners and executives all across the United States, four words that have dealt near-fatal blows to some of the most successful and iconic restaurant chains on earth.Those four words? All you can eat.

Last month, iconic American restaurant chain Red Lobster filed for Chapter 11 bankruptcy protection. There were many issues dragging down the seafood giant, but one of them was that Red Lobster had lost $11 million on its endless shrimp deal in just three months.

Red Lobster shuttered more than 80 locations and laid off hundreds of workers, but all-you-can-eat shrimp? Still going. This is all the more stunning given that this is not the first time an all-you-can-eat-deal has put Red Lobster in financial distress.

“They put together an endless bucket of crab promotion back in 2003,” recalled restaurant consultant Aaron Allen. “The CEO was not watching the commodity markets — the price of crab shot through the roof — and she lost her job. It nearly killed them.”

All-you-can-eat deals have nearly killed a lot of restaurants, Allen said: Olive Garden lost millions on endless breadsticks; Pizza Hut lost big on its endless pizza buffet; Sizzler blamed its 1996 bankruptcy, in part, on people abusing the endless salad bar.

Apparently if you offer Americans all-they-can-eat, they will eat until you are bankrupt.

So why do restaurants keep rolling out this deadly deal?

“It’s like heroin … there’s a short high,” Allen said. “They do get a short spike from it.”

Simply put: All-you-can-eat gets butts in seats. When Red Lobster’s endless shrimp deal was made permanent last year, customer traffic jumped 40%.

Restaurants like Red Lobster, Chili’s, Olive Garden and Applebees need that business. They’ve been losing customers for years to fast-casual chains like Chipotle and Panera. All-you-can-eat is one thing that gets people in the door.

But the economics of all you can eat are tough, especially right now. Food prices are high, labor costs are up, and the Chili’s and Red Lobsters of this world have to stay affordable.

Allen said all-you-can-eat has become a kind of deal with the devil in the restaurant business. “There is a customer out there that is like a swarm of locusts,” he said. “They’ll move around to wherever the cheapest discount is. What happens is they swarm from one place to the next, and it chases off the good-paying clientele.”

Also, said Allen, Red Lobster, Olive Garden and Sizzler are table-service restaurants. They can’t save money on service staff the way a full-on buffet can.

“If you’re a restaurant trying to maintain sustainability over a long period of time, you can’t be the cheapest choice every day of the week and still be competitive,” Allen said.

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So, are we finally going to see the end of endless?

“I don’t think we’re anywhere near the end of endless,” said restaurant consultant Darren Tristano. He said in this world of $8 lattes, the all-you-can-eat deal is one moment where people feel like they’re actually getting a bargain, actually winning.

Also, all-you-can-eat has been a staple of American dining for decades, he said. People are nostalgic for it. In the cutthroat competition for restaurant customers, all-you-can-eat can give struggling restaurant chains an edge.

“’Endless’ is built into a lot of the restaurants,” he said. “My grandmother would line her purse with a plastic bag so she could bring home cold shrimp and bread pudding. She would give it to us grandkids in exchange for chores. It was her currency.”

Now, restaurants just have to find a way to stop losing all of their currency on these deals. Tristano said many are looking for ways to crack the economic code of endless.

“Very likely it will become more limited and more expensive.” Tristano points to IHOP’s $5 endless pancakes and the $1 margaritas at Applebees. Both deals lasted a just few weeks. Some restaurants are trying things like limited seating time or using tricks to get people to fill up faster, like big water glasses or filling side dishes, like potatoes, fries or (in the case of Red Lobster) Cheddar Bay biscuits.

Red Lobster has modified its endless shrimp deal as it works to emerge from bankruptcy, Tristano pointed out. It now only offers endless shrimp on Mondays. And the price has gone from $20 to $25 or $30 in some locations.