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Breadstick-Gate: A day in the life of a salty activist hedge fund analyst

Breadsticks

There are a number of good reasons to work at an activist hedge fund. Institutional investors love them, assets are pouring in and, for all the gleeful cynics out there, you get to create 300-page decks on why a public company and its management stink.

Take the latest from activist investor Starboard Value, which has some rather granular suggestions for Darden Restaurants, owner of struggling food chain Olive Garden. Think less emphasis on traditional issues concerning activist investors, like conflicts of interest or claims of pyramid schemes, and more on salt, breadsticks and salad dressing.

In a massive 294-page manifesto on what’s wrong with Darden, with a particular focus on its Olive Garden franchise, Starboard Value analysts dug real deep. Olive Garden needs to adhere to a stricter breadstick policy – of one breadstick up front and one additional breadstick if the customer requires, says Starboard. Servers fail to follow this procedure 57% of the time, according to their analysis.

Then, roughly 60 pages later, Starboard takes Olive Garden to task for no longer salting the water before boiling pasta and for its liberal use of salad dressing. They then spend seven additional pages chastising Olive Garden for not getting its customers drunk enough. “Only 8% of sales is from alcoholic beverages at Olive Garden, while Italian peers average more that twice that (16.5%).”

Starboard analysts even broke down Olive Garden’s average Yelp review scores on a state-by-state basis (note: Idaho is a huge fan of the Garden; Wyoming and New York: not so much). The activist investor’s plan for a turnaround includes the obvious – more influence on the board – but also the use of extra virgin olive oil, San Marzano tomatoes and more wine promotion, among other ideas.

So that’s just a peek into the work-life of an analyst at an activist hedge fund. Frankly, it sounds pretty fun.

In all seriousness, though, the industry has never been in better position. In a recent survey, a whopping 70% of institutional investors said they’re prepared to invest in activist funds this year.

Famed activist investor Dan Loeb just raised $2.5 billion for his new fund. He wrapped up the fundraising in a ridiculously short two weeks. Needless to say, he’ll be ordering that third breadstick.

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Quote of the Day: “Shockingly, Olive Garden no longer salts the water it uses to boil the pasta, merely to get a longer warranty on its pots. This appalling decision shows just how little regard management has for delivering a quality experience to guests.” – Starboard Value on Olive Garden

Comments (1)

Comments
  1. Excellent insights mentioned regarding Olive Garden (profuse bread sticks, unsalted noodle boiling, excessive salad dressing, lackluster alcohol consumption). While I can imagine these sound humorous or trivial to someone unfamiliar with the franchise, I actually worked there and will heartily agree with the corrosive effect of each element listed. Wish I had been on the team that drew up that report. Probably could have added some additional useful critiques :)

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