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Fast Food

Investor: Olive Garden gives out too many breadsticks

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Grand Forks Herald columnist Marilyn Hagerty's earnest assessment swiftly became an Internet sensation, drawing comments both sincere and sarcastic from food bloggers.

Olive Garden is hurting itself by piling on too many breadsticks, according to an investor that's disputing how the restaurant chain is run.

In a nearly 300-page critique, the hedge fund Starboard Value says Olive Garden restaurants lack training and discipline and that servers bring too many breadsticks to tables at a time. That leads to waste - and cold breadsticks, Starboard says.

The investor notes that the official policy is to provide one breadstick per customer, plus an extra for the table. But Starboard says servers bring more than that, leading to breadsticks that often go uneaten or grow stale. And to be clear, Starboard 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 document was released Thursday and lays out how Olive Garden's parent company, Darden Restaurants Inc., could improve its performance. It's part of Starboard's push to take control of Darden's board of directors, which has come under fire for falling sales at Olive Garden. 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 under way. It said it will review Starboard's plan, but noted that "we believe many of the brand and cost optimization 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But Starboard also criticized Darden's management of Olive Garden, including its "outdated" advertising strategy, which it said focuses too heavily on TV commercials.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 a restaurant analyst that said it looked as though it was written 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 and its liberal use of salad dressing, which it said drives up costs. To reduce labor costs, Starboard said Olive Garden should use an outside supplier for its soup bases, rather than cooking them from scratch. It also noted Olive Garden gets only 8 percent of its sales from alcohol, while other Italian restaurant chains get more than twice that.

Jonathan Maze, editor of Restaurant Finance Monitor, said such criticisms are how activist investors try to win seats on corporate boards to gain influence on its decisions.

"They're like 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.

Darden did find success with one promotion recently, however, when it offered 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 this week sold out in less than an hour.

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.

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