Olive Garden investor: Back off on the breadsticks

NEW YORK -- Maybe there is such a thing as too many breadsticks.

In a nearly 300-page treatise on what's wrong with Olive Garden and its management, investor Starboard Value suggests the Italian restaurant chain is being reckless with its unlimited breadsticks. The hedge fund notes the chain's official policy is to bring out one breadstick per customer at a time, plus an extra for the table.

But Starboard says servers bring out more than that, leading to waste - and cold breadsticks. Starboard notes that it isn't pushing for an end to unlimited breadsticks, just more control in how they're doled out.

"Darden management readily admits that after sitting just 7 minutes, the breadsticks deteriorate in quality," Starboard said in its presentation.

The incredibly detailed document was released Thursday and lays out how Olive Garden could improve its performance. It's part of Starboard's push to take control of the board of the chain's parent company, Darden Restaurants Inc.

The company, based in Orlando, Florida, has come under fire for failing to fix declining sales at its flagship chain. In the latest quarter, Olive Garden's sales fell 1.3 percent at established locations as fewer diners visited.

Darden said in a statement that its "Olive Garden Brand Renaissance" is already underway. It said it will review Starboard's plan, but noted that many of the strategies "are already being implemented across our company and are showing results."

Part of Olive Garden's troubles stem from the growing popularity of places like Chipotle, where people feel they can get food comparable to a sit-down restaurant for less money.

But Starboard also criticized Darden's management of Olive Garden, including its "outdated" advertising strategy, which it said focuses too heavily on TV commercials. It also took issue with the chain's new logo, quoting a tweet by restaurant analyst Howard Penney that said it looked like "a second-grader's cursive practice."

Among Starboard's other complaints were Olive Garden's failure to salt the water used to boil its pasta, noting that "If you were to google 'how to cook pasta,' the first step of Pasta 101 is to salt the water."

It also criticized Olive Garden's liberal use of salad dressing, offerings such as fried lasagna and the Italiano Burger that aren't "authentic Italian" and even the length of the asparagus it serves. Rather than making its soups from scratch, Starboard said Olive Garden should save money and improve consistency by using an outside supplier for the bases.

Starboard also noted Olive Garden gets only 8 percent of its sales from alcohol, while other Italian restaurant chains get more than twice that.

As for Olive Garden's popular breadsticks, Starboard said quality seems to have declined and compared them to hot dog buns.

In an earnings conference call Friday morning, Darden President Gene Lee noted that the company worked on fixing its breadsticks last month, such as how long they're cooked and how many are served. Lee said the chain's next focus will be pasta.

Jonathan Maze, editor of Restaurant Finance Monitor, compared such criticisms by activist investors to election campaigns.

"The activist is going to use what it can find to convince shareholders. The company is like the incumbent that has to defend what it's doing," Maze said.

Still, Maze noted that level of detail in Starboard's report was extraordinary. He said that's likely because Starboard is getting input from its slate of board nominees, which includes Brad Blum, a former president of Olive Garden.

Despite the criticisms, Darden can point to at least one recent success: its promotion offering customers the chance to pay $100 for seven weeks of unlimited pasta. The stunt gained widespread media coverage and the 1,000 pasta passes made available online sold out in less than an hour this week.

The company's annual meeting is scheduled for Oct. 10, when shareholders will get to vote on who gets control of the board of directors.