The investor, Starboard Value, is not suggesting Olive Garden ditch the free bread and salad. It just says that the restaurants execute the policy poorly. But that critique was part of a broader attack by Starboard on everything from the non-Italian options on Olive Garden’s menu to the chain’s policy of not using salt in the pasta water. And it comes as Darden struggles to turn around the casual dining chain.
Darden reported Friday that sales at Olive Garden restaurants open at least a year had dipped 1.3 percent in the most recent quarter. The company’s stock, which has fallen more than 10 percent this year, took another stumble Friday, dropping another 2 percent in afternoon trading.
Starboard wants to clean house on Darden’s board of directors, and it has nominated 12 new faces for the 12-person board. Darden has offered up four of its own nominees to refresh the board, citing concerns about destabilization if there were a complete overhaul. Shareholders will vote on the composition of the new board next month.
In the meantime, Starboard, which owns about eight percent of Darden’s shares, has taken aim at Olive Garden’s bread sticks. In an extensive presentation outlining a turnaround strategy for Darden, Starboard says that servers often bring too many breadsticks to the table. They’re supposed to bring one breadstick per guest, plus one extra, but they’ve found servers are frequently piling on more. They’re also only supposed to bring more breadsticks to the table if customers ask for them.
That has added up to 675 million to 700 million breadsticks a year, an average of three per customer, says Starboard. Since most customers do not eat three breadsticks, Starboard believes the company could save up to $5 million just by being more strategic about its unlimited breadstick offering.
The Starboard presentation is a top-to-bottom assessment of a restaurant chain in trouble.
Olive Garden is the largest and most recognizable brand in Darden’s fleet of restaurants, which includes chains such as Longhorn Steakhouse, Capital Grille and Bahama Breeze. (The company sold Red Lobster to a private-equity firm earlier this year.) Darden responded to Starboard’s plan with a statement that outlined the progress the company believes it has already made with its “brand renaissance plan” for an Olive Garden comeback.
“We remain open-minded toward all ideas that support long-term value creation for our shareholders and improve the dining experience for our guests,” said Gene Lee, Darden’s president and chief operating officer, in the statement. “While we will carefully and thoughtfully review Starboard’s plan, which has been promised by Starboard for some time, upon initial review, we believe many of the brand and cost optimization strategies are already being implemented across our company and are showing results.”
The company has revamped Olive Garden’s online ordering capabilities to better compete for take-out diners, piloted restaurant remodels, rethought its menu and is considering adding tablet computers to tables for easy ordering. Tests of the tablet strategy showed an increase in add-on item sales and faster table turnaround.
“I do think that they’re moving in the right direction, in general,” said Lynne Collier, an analyst for Sterne Agee who covers the restaurant industry.
Still, Starboard’s presentation did not mince words about how much it believes Darden has lost its way. It calls out the company for deteriorated food quality and “mushy, unappealing” pasta.
“Shockingly, Olive Garden no longer salts the water it uses to boil the pasta, merely to get a longer warranty on its pots,” the presentation says. “This appalling decision shows just how little regard management has for delivering a quality experience to guests.”
And while Starboard says Olive Garden’s breadsticks once “revolutionized the casual dining industry,” it argues their quality has deteriorated.
“The lower quality refined flour breadsticks served today are filled with more air and have less flavor (similar to hot dog buns.)”
Starboard’s evaluation includes plenty of other suggestions about the food, including trimming its long menu, getting rid of non-traditional Italian fare such as hamburgers and tapas, and simply preparing dishes more consistently across restaurants.
Dennis Lombardi, executive vice president of foodservice strategies at retail consultancy WD Partners, said re-focusing the menu is likely to be an effective way of boosting the business.
“I think they could do well to stay in a traditional Italian mode menu,” Lombardi said. “But I think what they can do is, within that category, continue to look at healthier options, lighter portions, things of that nature.”
The investor also notes that alcoholic beverages make up only eight percent of Olive Garden’s total restaurant sales, a lower share than seen at competitors such as Maggiano’s, Romano’s Macaroni Grill or Cheesecake Factory. Starboard suggests that launching a happy hour promotion and offering better training for servers about wine might be ways to help improve alcohol sales.
Even the end of the meal was critiqued: Starboard complained about Olive Garden’s fancy to-go containers, arguing that customers don’t need a dishwasher-safe carton.