Writing a recipe for change at Olive Garden
Darden Restaurants helped put “casual dining” on the map with family-friendly chains like Olive Garden and, until the company sold it this summer, Red Lobster. But the weak economy and competition from “fast casual” chains like Chipotle have taken some of the zip out of the company. Now, an activist hedge fund that’s fighting for control of Darden’s board has offered nearly 300 pages worth of suggestions for reviving the brands — right down to the way they boil water.
For a taste of Starboard Value’s suggested fix for Darden Restaurants, check out slide number 164: Add salt. The hedge fund says Olive Garden stopped salting its pasta water to get a longer warranty on its pots, calling the decision “appalling.”
“It’s very important, because otherwise if you don’t salt the water, the pasta that you cook in it won’t have any flavor in it,” says Italian cookbook author and teacher Giuliano Hazan, who says he is not, personally, familiar with Olive Garden’s cooking.
Starboard Value has other problems with the food. Another slide complains that authentic Italian dishes like Tortellini Fizzano have been replaced by the likes of “fried lasagna bites.” The legendary “endless” breadsticks have lost their taste, the investors complain. And, they’re flowing a little too freely.
“Bread, of course, is cheap if you look at it individually,” says Ron Ruggless, Southwest Bureau Chief for Nation’s Restaurant News. Multiplied by the Olive Garden’s 840 locations, he says, “that’s a lot of dough.”
A slide from the Starboard mega-presentation showing locations of Olive Gardens across the United States.
Starboard has some meatier suggestions, like spinning off real estate into a separate company and expanding internationally. In a statement, Darden’s president Gene Lee says the company remains “open-minded” to new ideas, and that many of the strategies “are already being implemented across our company and are showing results.”
Shareholders will vote next month on who will control the board. Analysts say casual dining — once the “darling” of the restaurant business—has lost favor with customers who are choosing less expensive “fast casual” restaurants like Panera and Chipotle.
Another slide from the Starboard presentation for Darden, showing the average Yelp ratings for Olive Gardens across the United States.
“Regardless of who wins the battle, those problems don’t go away,” says Robert Derrington, restaurant analyst with Wunderlich Securities. “There’s essentially too many restaurant choices for consumers, and when they’re tight with their spending, if they want to dine out, they’ll spend where they can afford to dine.”
According to market research firm NPD Group, visits to casual dining restaurants have dropped by more than half a billion annually in the last five years, “which doesn’t seem like a lot,” says analyst Bonnie Riggs, “but it’s quite a few lost visits.”
Seven suggestions from Starboard’s presentation
Cut down breadsticks
For the last ten years, Olive Garden servers have been told to practice the ritual of placing one breadstick per guest, plus an extra one for the table. If you’ve been to an Olive Garden recently, you know that’s not the case. Starboard says waiters currently hand out breadsticks in excess, causing an enormous amount of waste. They think with fewer breadsticks on the table, waste will decrease and customers will have more room for appetizers and desserts.
Add salt
To protect their pots, Olive Garden has stopped adding salt to the water it uses to cook pasta. This has significantly “deteriorated” the quality of Olive Garden’s pasta which Starboard feels “results in a mushy, unappealing product that is well below competitors’ quality despite similar cost.”
Stop dressing the salad
The amount of waste produced from Olive Garden’s famous endless salad also concerns Starboard. They think “salads should be lightly dressed, potentially with a bottle of dressing placed on the side.”
Use cheaper containers
Darden uses containers that Starboard believes are the “Cadillacs” of the industry. To-go bags are made with high-end material. Takeout containers have their own luxurious factor by being microwavable and dishwasher safe. From a business standpoint, Starboard believes they should downgrade to at least a “Chevrolet Hatchback” of containers.
Reduce menu options
Starboard thinks the Olive Garden and Red Lobster menus have too many items on them, making the process of selecting a dish too complex. The complexity, in turn, has led to higher costs and inefficiencies.
An app…or some technology that appeals to millennials
Darden’s brands need to adapt with the times in order to grow, argues Starboard. They suggest adding an app for their brands to appeal to younger customers. In their words: “Olive Garden is the 800-pound gorilla of Italian casual dining, but is a dinosaur when it comes to using technology in branding and marketing.”
A richer alcohol selection
Starboard also thinks a change in the restaurants’ wine selection is necessary. They believe Darden should pull wine from Italy, Napa and Washington, to name a few, because after all, “wine is an integral part of the authentic Italian family dining experience.”
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