Olivegarden

Source: Olive Garden.

Olive Garden is running low on bread, so one agitated activist is suggesting that it scale back on its unlimited breadsticks.

Starboard Value LP, an activist investor with an 8.8% stake in Olive Garden parent Darden Restaurants (NYSE:DRI), has had enough. It's putting up a full slate of board members that it wants fellow investors to vote into power next month. It also offered up a 294-slide presentation on Thursday night, detailing how it would fix the struggling casual-dining chain that has posted five consecutive quarters of negative comparable restaurant sales.

If Darden listens, Starboard believes that its suggestions could eventually cause the stock to more than double. 

Many of the suggestions are operational, and seemingly petty.

  • Starboard thinks Olive Garden is placing too much of its signature Italian dressing on its salad and filling the bowls too high.
  • With 96 items on the menu, Olive Garden has one of the more complicated menus in casual dining. Darden's LongHorn and recently sold Red Lobster also have more menu items than their more successful rivals. Simplification increases efficiency and limits customer confusion.
  • Olive Garden should salt its boiling water to improve the quality of its pasta, a practice that Starboard claims the chain stopped doing to protect its pots.

However, the suggestion that seems to be generating the most attention is a call to start scaling back on the breadsticks. Starboard isn't suggesting that Olive Garden do away with its popular "unlimited breadsticks" perk. It's merely circling back to the chain's earlier policy of serving breadsticks equal to one more than the number of people at a table. A family of five, for example, would get a basket of six breadsticks.

Starboard's field studies reveal that Olive Garden servers are offering up more than that, and that the excessive breadsticks create unnecessary food waste. It also claims management has said that breadsticks cool quickly, leading to deteriorating quality within seven minutes of sitting on the table. 

It's easy to see why servers are dishing out generous servings of salad and breadsticks. They don't want to have to keep making repeat trips to top off salad bowls and breadstick baskets. They also work for tips, and providing ample servings of these items is likely to lead to a more favorable customer reaction than skimpy offerings would. 

Olive Garden goes through 675 million to 700 million breadsticks a year, and that breaks down to an average of three pieces per customer. Starboard doesn't think the average patron eats that many.

At the end of the day, the breadstick issue isn't going to rock the income statement. Starboard thinks its suggestions would result in only $4 million to $5 million in annual savings. However, you don't fill up a 294-slide presentation that makes David Einhorn look like an underachiever without picking out the tiny details of an operation. 

It's not just the pasta that's boiling
Starboard's lengthy critique aside -- and it has even gone as far as to bring on renowned chefs to begin working on new potential dishes -- Olive Garden is in a funk. 

Darden posted quarterly results on Friday, and while sales from continuing operations inched nearly 5% higher to $1.6 billion, that was solely the handiwork of LongHorn and Darden's smaller concepts that are growing in popularity. Olive Garden itself is a mess, and that's problematic since it continues to account for 57% of the revenue mix. 

Olive Garden suffered a 1.3% dip in comps, and traffic trends have been even worse. Comparable restaurant traffic at Olive Garden fell 0.9% in June, 4.3% in July, and 2.3% in August. 

These are problems that can't be solved by salting boiling water or lightening up on salad dressing. If Olive Garden breadsticks aren't being consumed because they're getting cold too fast, the smarter solution would be to upgrade the baskets to models with ceramic warming stones. This isn't rocket science. 

You can't blame Starboard for trying. There are plenty of suggestions in its presentation worth heeding. However, if it really wants to improve the perceived quality of Olive Garden to get its 8.8% stake in Darden appreciating, the first step is probably not to tell the world how bad Olive Garden is these days.

Rick Munarriz and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.