Olive Garden has seen better days. Same-store sales have been in a tailspin for over two years as the company's unlimited salad and breadsticks offer resonates with fewer and fewer customers.
That has investors mad, and none more so than Starboard Value, which owns 8.8% of Darden Restaurants (NYSE:DRI), Olive Garden's parent company. The investment group recently submitted a nearly 300-slide presentation on the company, and what it believes needs to be done to resurrect Olive Garden.
Starboard has more than just four ideas about enhancing shareholder value, but the rubber really hits the road -- for investors and consumers -- with its suggestions to improve customer experience at the restaurant.
Here are the four most salient changes to note.
Ease off on the breadsticks
According to Starboard, Olive Garden's lax discipline regarding breadsticks is hurting both customer experience and profitability. Ten years ago, servers were told to put down five breadsticks at a table with four customers. If the customers wanted more, they simply had to ask.
Today, servers, "will bring an excess of breadsticks significantly outnumbering the number of guests." The breadsticks become unappetizing after just seven minutes on the table, and lots of food is wasted.
What's more, the influx of breadsticks hurts the company's bottom line. Ten years ago, "with fewer breadsticks on the table, guests inherently consumed less [free breadsticks] and ordered more appetizers and desserts."
Get the alcohol flowing
The average Olive Garden gets 8% of its revenue from sales of alcoholic beverages. That's less than half of what its Italian-restaurant peers bring in -- a dramatic drop-off when you consider that alcohol is one of the highest-margin products any restaurant can offer.
Starboard firmly believes that by highlighting the types of microbrews Olive Garden's target demographic likes, and offering ideal wine pairings, alcohol sales can pick up. This can be accomplished by "[training] wait staff to focus on upselling alcohol offerings."
The menu is too complicated and inauthentic
According to Starboard, Olive Garden made its name by offering dishes that were uniquely Italian, like pork filettino, lobster spaghetti, and tortellini fizzano. These days, it seems, the chain has lost its Italian roots.
The haphazard way menus have been designed is hurting not only the company's brand, but the operational excellence that helps any restaurant become successful and profitable. Starboard, by going to several locations to test the results, saw that the same dishes were prepared in wildly different ways -- which made it hard for customers to know what they were going to get.
Starboard says that, "Darden's strategy is simply to add menu items rather than working hard to develop a reasonably sized menu and guest experience that satisfies customers" (bolding in original). Beyond creating an unpredictable food experience, the complex menu increases wait time and requires more staff on hand than necessary -- which reduces profitability.
Along with breadsticks, free salad has been a mainstay at the Olive Garden since its hayday in the 1990s. But the execution of this simple plan has eroded to the point where it is highly counterproductive, according to Starboard.
In the past, salads were lightly dressed, with a bottle of dressing at each table if customers wanted more. Today, "Salads are overfilled and regularly dressed with more than the recommended amount of dressing (3-4 times in some restaurants), leading to added cost and unhappy customers." A result of poor training, servers are actually disincentivized from following through on the original intent of the free salad, as providing an overloaded salad cuts down on the number of trips back to the table that they need to make.
Unsurprisingly, this leads to a high level of food waste and customers who are already quite full by the time it comes to order the food that actually brings in money for Olive Garden.
Brian Stoffel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.