Source: Olive Garden.
The battle between Olive Garden parent Darden Restaurants (DRI 0.53%) and activist investor Starboard Value LP is intensifying ahead of next month's annual shareholder meeting.
If Starboard is successful it will overtake the meandering casual dining giant's board. It took a big shot last week, offering up a 294-slide presentation detailing how it would right the wrongs at Darden. This week it was Darden's turn to respond, countering with a 24-slide presentation of its own.
All of this has provided some compelling theater to an otherwise ho-hum affair of activism, but Darden's response was too diplomatic. It didn't go for the jugular. Let's see if we can mend that. Let's squeeze a twenty fifth slide into the presentation with a letter that Darden should've included.
Dear Starboard,
What's the matter with you? Do you really think that an 8.8% stake and a Wordpress website is enough to take us down? We've tried to reason with you. You didn't like our board? We moved to shake things up by nominating eight new names for our board of a dozen independent directors, including four of your own nominees. You didn't like our leadership? Our longtime CEO is stepping down.
You think that we got hosed in selling Red Lobster in an all-cash deal for $2.1 billion. Well, where were you? We had our iconic but struggling seafood chain on the block for months. Everyone knew that we were trying to sell this thing. Where was your bid for $2.2 billion? Where was anyone's bid for a penny above Golden Gate Capital's offer?
A lot of people were surprised that we were even able to find a suitable buyer. We were going to dump this stinker -- our second largest chain but dead last in recent comps performance among our seven concepts -- on our own shareholders as a spinoff. That's how badly we wanted to get rid of this performance drag. We called it Cheddar Bay Bisque Quit when no one was looking.
We're fully aware that Olive Garden is our largest chain and that now it's the one that's dead last in recent comps performance among our six remaining concepts. That's a pretty big deal since Olive Garden now accounts for 57% of our revenue. You think you're the first to tell us that we should be salting our pasta water or that our food could taste better? Take a number and give us a Yelp review. You have recipes? Get a job as a line cook. They have plenty to share with you, too.
Olive Garden isn't in a good place. Five consecutive quarters of negative comps will do that. You argue that our wine sales -- at 8% of total sales -- is half of the industry average. Do you even know what we do here? We're a family restaurant. We're a cheap Italian restaurant. You don't come here to get your buzz on, and you sure as heck don't want to take a date here unless you're in a small town where you're down to Denny's, IHOP, or us.
That doesn't faze us. You argue that we serve too many breadsticks and that our salads are stacked too high and sauced too liberally. You may be right, but we have a wait staff working for tips, and these are the gestures that keep guests happy and tipping liberally. You say we can save $4 million to $5 million by holding back on the number of breadsticks that we dispense. We argue that we save more than that with the amazing retention tool of giving our wait staff a way to keep the customers happy.
You also have a problem with the 96 items on our menu. You compare that our casual Italian rivals with fewer items. You know what? It works for us. Our average restaurant rings up $4.4 million in annual sales. That's not too shabby. The most successful major casual dining chain in terms of average unit volume is Cheesecake Factory (CAKE 2.86%). Have you seen its menu? It's not light reading, clocking in with more than 200 menu selections.
So where does that leave us, exactly? We're not perfect. We're bragging about false waits -- the practice of making guests wait even though we have plenty of empty tables -- being at record lows. Confession time: it's easy to eliminate false waits when real guests aren't coming.
You should've come over in July. Our restaurant traffic was down 4.3% and that was after plunging 8.1% last July. In other words, our restaurants are 12% less busy than they were two years ago.
So, yes, we have problems. We have plans in place to fix them. We may not have nearly 300 slides to show you, but we've done a lot of sliding. See? We still have a sense of humor.
