Is menu overload the problem at Olive Garden?
Sept. 15, 2014
by Monica Watrous
|Starboard Value said Olive Garden serves too many breadsticks, contributing to food waste.
ORLANDO, Fla. — For Olive Garden, the chain with unlimited breadsticks and never-ending pasta bowls, a declining performance may be the result of its famous abundance.
Too many breadsticks, too much salad dressing and too many menu options were among a list of grievances aired against the casual dining chain in a nearly 300-slide presentation published on Sept. 11 by activist investor Starboard Value LP. The New York-based hedge fund, which owns approximately 8.8 percent of Olive Garden’s parent company Darden Restaurants Inc., proposed a comprehensive operational improvement plan for the Orlando-based operator ahead of its annual meeting in October.
Citing examples of food waste in Olive Garden’s unlimited salad, soup and breadsticks offerings was only part of Starboard’s case. The investor also argued the Italian chain’s menu is “far too complex,” with a total of 96 items, compared with 62 at competitor concepts Bravo Cucina Italiana and Brio Tuscan Grille.
Darden’s dilemma? “How do we continue to simplify our menu offerings and maintain our high variety ratings?”
The question was posited by Gene Lee, president and COO, during a Sept. 12 earnings call with financial analysts. Darden executives defended the broad-based transformational plan in progress for its Olive Garden brand, as well as the breadth of the menu.
“We want to continue to simplify,” Lee said. “We don’t want to add complexity to the menu. As we rolled out the menu in Olive Garden six months ago, we knew we got too broad, but in casual dining, it’s tough to take items off the menu. Everybody has their favorite menu item, and so we have to be very strategic as we do that.”
Indeed, the company has learned customers may not appreciate actions to slim down the selection. Over the summer, Olive Garden resurrected its braised beef and tortellini, a dish that was ditched during a menu revamp, after hundreds of the entrée’s enthusiasts complained on social media.
Olive Garden, Darden’s only brand to post a same-restaurant sales decline during the company’s most recent quarter, isn’t its only chain with a relatively high number of menu items. LongHorn Steakhouse has 98 items, compared to Outback Steakhouse’s 70 and Texas Roadhouse’s 64, according to Starboard.
|Olive Garden brought back its braised beef and tortellini dish after customers complained following its removal from the menu.
“When we look at LongHorn against its major competitor, even though we may have more menu items today, our variety scores are lower,” Lee said. “Strategically, we in LongHorn continue to try to increase our variety scores to make ourselves available for more occasions.”
The hedge fund also suggested an overstocked menu may have contributed to problems at Red Lobster, with its 138 items to Joe’s Crab Shack’s 79.
In addition to higher labor costs and inefficiencies, Starboard said menu complexity creates higher risk for errors in the kitchen, increases customer confusion and ordering time, and “presents a cheap diner image and signals to the customer that ‘we do everything, but nothing well.’”
Complication is an issue many of Darden’s foodservice peers have sought to avoid recently. Both McDonald’s and Burger King admitted in the past year that too many limited-time offers created operational headaches in its restaurants. Burger King has since adopted a new approach of simple innovation with “fewer, more impactful launches.” The scaled-down menu model has proven successful for such brands as Chipotle Mexican Grill and Five Guys Burgers, whose unfussy selection appeals in particular to the coveted millennial customer.
Dave George, president of Olive Garden, has been tasked with optimizing the chain’s menu, which requires striking that balance between variety and complexity.
“One of Dave’s projects right now in Olive Garden is saying how do I decrease this menu by 20 percent, how do I maximize my [stock-keeping units], how do I ensure that when I’m in a category I don’t have too many menu items doing the exact same thing?” Lee said. “How do I ensure I don’t have too much pasta, cheese and red sauce and so on and so forth?”
The company said it will continue to work on paring down Olive Garden’s offerings, but it warned that dropping menu items may directly correlate to a drop in sales performance.
“And when you have eight appetizers on a menu versus six, you sell more appetizers with eight even when those appetizers are in the similar gap,” Lee said. “There’s a real balance here that we have to watch. But the ultimate objective is… we need to continue to simplify our menus, simplify our processes and how we prepare the food and how we deliver it. And it’s something that we talk about here every single day.”