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First Financial, Now Food Engineering: This Is How A Hedge Fund Will Change The Olive Garden Menu

They came, they complained about the breadsticks and water temperature, and they won.

We are talking, of course, about value investing hedge fund Starboard Value, which a month after unveiling its 294-page proposal to boost shareholder value at Darden Restaurants owner of the Olive Garden, Capital Grille and Yard House restaurant chains, not to mention its menu and serving suggestions, scored an epic victory when earlier today Darden's entire board of directors was ousted.

As Reuters observes, the win is a feather in the cap for Starboard, one of Darden's largest investors with an 8.8 percent stake. It is uncommon for activist investors to win more than a few spots on company boards. The ouster is also a stinging defeat for Darden, which earlier this year alienated many investors after brushing off their vote requesting a special meeting on a $2.1 billion sale of Red Lobster.

Shares in Darden were up 1.6 percent to $50.06 in early trading.

So, as a reminder, here are the changes that will now be coming to one of middle-America's favorite, and less expensive, casual eating chains. From Starboard's presentation:

  • The food will be fresh whenever possible, with simple choices.
  • Menu items will be designed to help facilitate operational excellence and consistency by the restaurant staff.
  • We will embrace authenticity, especially as it pertains to the absence of preservatives, stabilizers, gums, additives, artificial colorings, and flavorings.
  • We will no longer disregard sound nutrition. Nutrition will not be the driving force, but it will now be carefully considered while greatly improving the taste and appeal of every dish.
  • Some parts of the menu can be flavor-forward with fresh ingredients: extra virgin olive oil. lemons, ripe tomatoes, an array of colorful vegetables, lean meats, and fresh fish.
  • Portion sizes may be gradually reduced, as guests will begin to equate Olive Garden's value proposition more with quality and excellence at fair prices, than with massive quantities of barely edible fried items, excessive cheeses, and heavy cream sauces.
  • Olive Garden's breadsticks are part of the brand equity, as they come to every table. The breadsticks need to be of the highest quality, with a better taste and a frimer texture, and each table must receive hot breadsticks.
  • The pasta at Olive Garden must be significantly improved. It must be prepared at the proper water temperature, boiled in salted water, precisely timed to not overcook, and tossed with sauces for each dish instead of the current practice of ladling sauce on top of heaps of coagulated pasta.
  • We must rethink the amount of items from the flyer. Most fried foods are not authentically Italian and it slows service.
  • We will explore a few gluten-free options, as many consumers prefer gluten-free dishes (1) Based on extensive research and discussions with culinary experts and suppliers, we believe we can accomplish these goals at Olive Garden's current price points without hurting margins.

The real question, however, is whether menu engineering is as simple as financial engineering in a time of ZIRP. Millions of Olive Garden diners are about to find out.

For those curious, here is the full Starboard slideshow again: