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When A Hedge Fund Tells A Restaurant How To Cook
Thanks to the Fed's 6 years of ZIRP, activism, i.e., loud, brash billionaires who come in and tell a company's management they need to use cheap debt to repurchase stock, engage in reckless M&A or spin off profitable units or they will become even louder and brasher has become one of the only profitable hedge fund strategies. Of course, this will cease the moments rates show even the smallest hint of rising but until then it is paradise for all activist hedge funds. In fact, the scramble for activist strategies is so big that WSJ reported earlier today that "funds under management by these activists and others grew by $9.4 billion in the first half of the year to $111 billion, gaining more in that period than in the previous two years combined, according to industry researcher HFR. Mr. Loeb and some other activists have described the current environment as the best they have seen for raising cash." Thanks Fed.
But how do you know when hedge fund activism has gone too far? Well, a good example is the 300-slide presentation (because more slides is always better than less when pitching quantity over quality) which Starboard Fund filed yesterday as "advice" to the management of Darden Restaurants, owner of Oliver Garden, on how to boost shareholder value and also steps the hedge fund would take to generate returns if it wins control of the entire board. Because while in addition to comping up with fleeting and imaginary valuations based on EBITDA projections and multiples, this is the first time that a hedge fund actually tells a restaurant company how to, drumroll, cook.
As the WSJ reported earlier, among the moves Starboard detailed in its never-ending presentation, in addition to using salt when cooking pasta, and going easy on the breadsticks, Starboard also had suggestions how to improve "food quality and alcohol sales, introduce technology to reduce waiting times at restaurants and cut millions in costs. And Starboard is sticking with its suggestion, which Darden has rejected as value-destroying, of separating the company's brands apart and putting its real estate into a third public company."
Needless to say Darden wasn't very impressed with this overture, and said it would review Starboard's plan, but added after its initial review it believed many of the changes were already being made under management's ongoing turnaround, which it says is working. "We remain open minded toward all ideas that support long-term value creation for our shareholders and improve the dining experience for our guests," Gene Lee, the company's chief operating officer, said in a statement.
So does cheap credit mean hedge funds know how to cook? Take a look at the following hilarious slide and decide:
Menu innovation is a top priority and is among our nominees' biggest strengths
The entire experience of food, service, and environment must be authentic and provide a joyful and genuine Italian dining experience.
- 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
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
Source: Czar gluten free data.
(1) "Gluten" and "Gluten free" are now among the top searches related to Oliver Garden, per Czar Metrics
Bottom line: thanks Ben and Janet's ruinous monetary policies we present unintended consequence number X+1: hedge funds, armed with cheap debt, tell a restaurant company how to cook. The New Normal truly never ceases to amaze...
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If you patronize McFood chains- YOU are part of the problem with the USSA.
Learn how to cook, or go to an actual restaurant, not a front for corporate AG & Hedge Funds.
Message to HF/Wall street. Please note that the number in your bankaccount is not equivalent to your IQ.
I'm shocked at how benign the comments are on this thread.
you can't position yourself as an italian restaurant then serve food that is not italian. eventually the market catches on that they are not actually eating italian food except in name only. just that little fudge of the facts is enough to turn patrons off. it is the primary reason i have never eaten at an olive garden. the other reason is there are still a good number of family run italian restaurants around to never ever want to eat there.
it is not that pasta is cooked with salt or the bread sticks are not hot. IT IS NOT FN ITALIAN!!!!
One of the big sources of looting in M & A is 'management fees.' Romney's Bain Capital was able to shell out several of their victims, er, acquisitions that way. This three hundred slide pile of dung is the justification for seven and eight figure payouts. Pretty good for covering your ass from stockholder lawsuits and claims in BK court.
LOL. Twenty years ago, Olive Garden made EVERYTHING fresh, including the pasta. I worked at one while i was in college. It was the corporate money grubbers that made it all go to shit when they decided they could make more profits if they would produce their food in some factory and only heat it to serve in the restaurant. The irony of these money grubbing assholes now bitching about the quality is not lost on me.
I fucking hate corporate America with a passion.
This means expensive, cocksuckers.
Corporate fluff that means fuckall.
Sure, authentic food is good, but if you want fresh without all of the preservatives, this means expensive, cocksukers.
Sure, but again, you're talking about upping the costs.
Does anybody on your fucking board know why tomatoes are the most common food producing plants in home gardens? Because you cannot fucking buy fresh tomatoes in the store. They were either picked too early to facilitate not spoiling during transport and storage, or are some shitty cultivar that has no flavor, but stores well or both. Same with a lot of other veggies. Fresh fish? Yeah, you either have to be near the water, or you have to fly that shit in. All of this shit means raised costs. Or maybe I just have a very different idea of what "fresh" means. What the fuck does "flavor-forward" mean. More corporate fuckall fluff? And didn't you already mention "fresh?"
Sure, you want to raise quality, keep the prices the same. Makes sense. But you'll scare away a lot of the land whales, and I question if you really have done an accurate cost-benefit analysis.
Mmmmmmkay.
If you want higher quality cooks, they're going to want higher pay. Just sayin'
As are most "ethnic" foods in the US. And I like the American version of pizza better than the Italian version. It's not always bad.
Well then, fuck your bread sticks! You need gluten for levin bread. I also bet that gluten free pasta tastes like shit too.
Olive Garden's breadsticks used to actually taste good.....20-25 years ago. I'm willing to bet they were made fresh, in the store, back then.
I've got an idea for this "expert" hedge fund c(R)ook... why don't you just hit the SELL button (would that make it a SHORT ORDER?)... douche....
And if you are so full of fuking smart ideas just start a new chain yourselves.....
or appeal to Board of Directors to put him on the management team of OG. Unless he is the BOD.
So where does a hedge fund find the time to come up with a 300 page slide show to tell a restaurant how to do it's business?
Oh btw, without that quantitative easing and inflating oil prices (and commodity prices)- the actual food would be affordable for a business to serve without preservatives and the other junk.
Even with inflating oil prices, food should be affordable in all but the large cities. It's how our whole agriculture system is set up that is wrong.
But you want to see people bitch? Tell them that non-seasonal stuff is going to be expensive as fuck. Blueberries in Janurary? That shit doesn't grow during that month where I am.
Nah, it's the commodity speculation that's coming off all silly.
Like Hillary Clinton's cattle trade, farmers' daughters have used the QE markets to push up the price of their crops, like for example wheat? During a "drought" where the supply drops and the cost of growing this stuff has already gone up.
Or even better yet, SUGAR! Crops go through this "drought" that has the same legitimacy as "peak oil" scam and the price goes up. So for whomever is making the processed food from this sugar will have to substitute the sugar so the finished good can remain marketable in this economy. So in order to cut costs, chances are that they will stick something like high fructose corn syrup in the product instead of sugar. Or rbgh in the dairy cows. Or palm oil instead of something of a higher quality (Europeans can't handle whatever palm oil is in the food in the US).
Add in other items, like property taxes if the chain owns the buildings, electricity costs, advertising...other items like rising oil prices to deliver the food to the restaurant included in the cost of goods sold.
This may be in your pasta sauce, it could be in your relish.
I know a cook with a truck who was forced to substitute ingredients due to the rising cost of gas vs the bottom line. The Asperger kids who LOVED his food were now getting sick on it because he changed the ingredient, true story.
I basically told this guy he would be better making his own condiments in his work area with a blender instead of buying it at this point.
Running a restaurant is a tough business as is before the commodity inflation factor vs. weak demand meets smaller bottom line.
I don't understand why the hedge fund couldn't get OG to hedge it's profits with something backed by an inflated price of a normal ingredient, ie. wheat (in pasta).
I mean, they're a HEDGE fund. They're supposed to be pros at this.
I'm going to reserve judgment on the question until the busboy at my local OG shows me his ginormous PowerPoint slide deck explaining how and why the Starboard Value Fund should rebalance its holdings.
Hey, fair is fair, am I right?
Olive Garden is barely edible and their salead dressing gloves you the shits like eating Olestra potato chips.
The bread sticks taste like they are made from sawdust and seem like they are cooked in a microwave.
I would NOt spend time or effort in telling these restaurants how to do business.
First, I had to wait tables at RL, the other darden restaurant and these chains are exactly the same.
Has anyone seen Jennifer Anison's character in OfficeSpace?
The managers are some of the biggest dipshits that couldn't get a real job that required, say - like, people skills. You're literally running TCP reports.
I HATED serving. It wasn't customer service, it was the protocol.
If people dine at OG, they obviously don't care about quality or grandeur. Your main point as a server is to flip as many tables and rack up as many tips as you could in a 4 or 10 hour shift before having your section stolen by the "head" server (as in head, I mean sucking on little body parts and after hour drinks-real perks in the hospitality industry). If the customers don't want the presentation, you work with what the customers want since the manager only orchestrates it and the patrons are your boss (the patrons pay your wages).
I used to hate management forcing us to check up on the table 20 times during a meal to check on the quality of frozen food. I was literally annoyed at the fact that I had to annoy the patrons. If something was wrong, we always fixed it dealing with pissed off cooks and bartenders.
AS an ex-server, I will admit that SERVERS SUCK ASS. Many at the school i went to never finished a quarter of EASY classes, let alone graduated and are stuck there 10+ years later with absolutely no other marketable skills.
Except for the after hour drinking business and after a while, you get a beer belly and you're no longer the hip young "sales" person you once were then aspire to become management.
The management at these places are often as cheesy and sleazy as the HF guy who wrote up the 300 page powerpoint somethingorother... he has way too much money and time on his hands.
I also know that a lot of food prepped at ANY major restaurant is prepackaged stuff with chemicals in it unless you're fine dining or eating at a mom and pop. I have bad dietary restrictions so I stay out of OG altogether.
Keep the greasy frozen in the middle burnt breadsticks.
Maybe Karma does work. Since graduation-I found myself in the company of fabulous immigrants who wanted to prepare REAL food for me the minute they stepped off the plane from Italy. True story. It's some of the best food you'll ever eat.
Darden does not need a new marketing plan because they just got one.
I have an idea! Unlimited hedge funds for a month, $100!
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