Not even the breadsticks, it appears, can save Olive Garden from financial turmoil. And its sister chain under parent company Darden Restaurants’ umbrella, Red Lobster, doesn’t appear to be faring much better. That’s why a hedge fund has launched an activist campaign to break up the company.
Barington Capital Group, which holds a 2% stake in Darden, is pushing management to separate into three companies: one consisting of the struggling, or in the hedge fund’s words, “mature” Olive Garden and Red Lobster chains; another featuring its up-and-coming, “higher-growth” restaurants like The Capital Grille and Longhorn Steakhouse, among others; and a third that houses its real estate holdings.
In an 85-page presentation released Tuesday, Barington outlines its case, a majority of which details how the sagging financials and weakened brands of Olive Garden and Red Lobster are dragging down Darden as a whole. It’s a fascinating look at two high-flying casual-dining franchises that have fallen on hard times. Here’s a breakdown of what’s going so wrong at Olive Garden and Red Lobster and how Barington plans to save them:
3. Of the 2,138 restaurants Darden operates in the U.S., 823 are Olive Gardens and 705 are Red Lobsters, with the two brands accounting for $6.2 billion of its nearly $8.7 billion in revenue.
13. Barington’s plan for Darden? Focused management to help rebuild Olive Garden and Red Lobster.
The chains, which Barington calls “among the largest casual-dining brands in the U.S.,” demand a focused management’s attention, and shouldn’t be lumped in with other, disparate brands, thus leveraging the potential to put Olive Garden and Red Lobster back on top.
14. Update - Dec. 19, 11:45 a.m., ET: Darden has decided to spin out the Red Lobster brand
The restaurant group announced this morning that it would spin out Red Lobster and slow the expansion of its Olive Garden brand. Darden also said it was open to selling Red Lobster entirely.
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