Restaurant operators cringe when they see so much as a single negative review posted anonymously on Yelp or TripAdvisor. So it must have been especially painful for Darden Restaurant executives to read “Transforming Darden Restaurants,” a scathing 296-page assessment of the company issued by Starboard Value, the hedge fund that owns more than $500 million worth of Darden stock. Among other vividly rendered complaints: Olive Garden’s food is lousy.
Starboard went negative because it’s locked in a battle for control of Darden. It’s calling for a new board of directors, a new strategic plan and drastic changes in how the company is run. Current Darden leaders have countered with a 24-page document that argues management is already making most of the operational changes Starboard wants. The dispute should be resolved by Oct. 10, the date of Darden’s annual shareholder meeting.
In the meantime, who wants to dine at a restaurant whose primary owner disses the food? Here are some of the complaints Starboard has about Olive Garden, some of them seemingly written by a mean-spirited reviewer on Yelp.
Starboard begins by noting that “Olive Garden’s food quality has deteriorated while competitors’ has improved.” Then it moves on to specifics.
One area of concern: the chain’s pasta, which Starboard says is poorly handled and generally overcooked. The result: “a mushy, unappealing product that is well below competitors’ quality despite similar cost.” Worse, “the sauce is simply ladled in a heap on top of the pasta, rather than integrated into the dish. Heat does not evenly spread throughout the pasta, creating inconsistent temperatures among bites.”
Starboard claims a key flaw in the chain’s pasta preparation method is that Olive Garden doesn’t salt the water in which it cooks its pasta because it gets a longer warranty on its pots.
Another trouble spot: Olive Garden’s signature breadsticks. The chain’s “famous all-you-can-eat breadsticks, which revolutionized the casual dining industry, have lost their quality taste.” They are now “similar to hot dog buns.”
Together with Olive Garden’s “endless” salad, breadsticks are also seen as a major contributor to food waste. Starboard”s fix: “strictly follow the one breadstick plus one for the table guidelines.” Darden’s rebuttal: “Olive Garden’s salad and breadsticks have been an icon of brand equity since 1982. They convey Italian generosity.”
Authenticity is another issue. “Now Olive Garden serves dishes that are astonishingly far from authentic Italian culture, such as burgers & fries, Spanish tapas, heavy cream sauces, more fried foods, stuffed cheeses, soggy pasta, and bland tomato sauce,” Starboard says. “‘Buy one entrée, take one home’ and other recent promotions appear to be inconsistent with Italian culture—not to mention the extreme portion size is inconsistent with authentic Italian values and creates enormous waste.”
These complaints revolve around matters of opinion and taste. But it’s hard to argue with the visual documentation Starboard provides of what it calls Olive Garden’s failure to execute some dishes at the unit level. Multiple Instagram-style photographs in its report contrast gruesome images of meals served in actual Olive Garden restaurants with slickly styled food shots of the same dishes taken from the Olive Garden website. Ouch.
Starboard may not have all the answers to Olive Garden’s woes. Its turnaround scenario proclaims that “Italian authenticity and fresh ingredients will be the driving force behind our culinary decision making” when it gains control. Sounds good, but the plan also declares that “(t)o improve quality and consistency and reduce costs, it is appropriate to outsource some items to a high quality producer who will be able to manufacture recipes and distribute the product (e.g., a perfect “quality up, cost down” opportunity is with the soups). Then, the culinary teams can finish with the addition of a final ingredient or a garnish.” More power to Starboard if they can figure out how an unshakable commitment to authenticity and freshness would manifest itself an outsourcing situation.
Which side will gain control of Darden? Starboard needs a majority of shareholders to vote in favor of its proposal. Financial institutions and mutual funds—just 534 companies in all—own 83 percent of all Darden shares, so that’s who the two sides are trying to sway. The most recent move: Darden sent its investors a letter on Sept 18 reiterating its arguments and pointing out flaws in Starboard’s proposal.
Both Starboard’s “Transforming Darden Restaurants” presentation and Darden’s rebuttal are compelling reads for other restaurant operators. Together they provide a rare look at the inner workings of the industry’s largest multiconcept chain. Make the most of them.