The activist investor who shook up Orlando-based Darden Restaurants now is taking aim at Outback Steakhouse and Carrabba’s Italian Grill, in what could be a less tumultuous move than nearly a decade ago.
Starboard Value, which won control of Darden’s board in 2014, has about a 10% stake in Tampa-based Bloomin’ Brands. There are some similarities between Bloomin’ and Darden, and Starboard has already brought in a former Darden top executive as an adviser.
“We’re Back with Another Restaurant Conglomerate: Bloomin’ Brands,” a recent slideshow from Starboard for the Capitalize for Kids charitable investors conference declared.
The slideshow called for Outback’s marketing to get back to being fun, noting past commercials featured cowboys, surfers and football. It also said better and more consistent service and food would bring more success to the chain, which has 564 company-owned locations.
The presentation also said there is room to grow its Carrabba’s chain into the clear No. 2 behind Darden’s Olive Garden in Italian casual dining. Carrabba’s has 199 company-owned restaurants and Olive Garden has 906.
Bloomin’ also owns Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
When asked by the Orlando Sentinel about Starboard’s presented plan and stake in Bloomin’, as well as if the company had already changed anything to adjust to Starboard, Cathie Koch, Bloomin’ vice president of corporate affairs, said in an email that “Bloomin’ Brands has engaged with Starboard Value since it invested in the company and we have appreciated hearing their team’s views.
“We look forward to continuing a constructive dialogue as we remain focused on enhancing value for all shareholders,” Koch said.
San Diego-based restaurant analyst John Gordon doesn’t expect Starboard’s investment in Bloomin’ to be as much of a fight as its involvement with Darden turned out to be.
In Darden’s case, every board member was replaced as Starboard CEO Jeffrey Smith won a vote to put in place himself and 11 others on it in October 2014. Gene Lee was named Darden CEO in 2015 after taking on the interim role following the board replacement and longtime CEO Clarence Otis announcing his retirement in July 2014.
Otis, who was criticized for the $2.1 billion sale of Red Lobster, revealed his departure after months of fighting with investment groups about Darden’s direction, the Orlando Sentinel reported in 2015.
“I don’t think that anybody wants to go through another battle for Darden again,” Gordon said. “[Bloomin’ CEO David Deno is] a little more politically savvy … whereas Clarence had been a longtime CEO at Darden and he felt that he knew best.”
Gordon said Starboard’s Smith is a positive influence for restaurants based on his work with Darden as well as Papa John’s after the pizza company’s own troubles.
In 2015, Darden’s board approved spinning off the real estate of the Olive Garden and LongHorn Steakhouse chains. Cash from the deal was planned to help get rid of about $1 billion in debt. Starboard exited the Darden board in 2016.
Starboard’s presentation pointed out the success Darden has had since Starboard’s involvement as well as the similarities between the chains owned by Bloomin’ and Darden.
One slide was titled: “Like Outback, Olive Garden Suffered from Execution Issues Prior to Starboard’s Involvement at Darden.”
Starboard has also brought on a retired Darden executive, David George, as an adviser for its investment in Bloomin’, according to a Securities and Exchange Commission document. George retired from Darden as executive vice president and chief operating officer in August 2020.
Gordon said Starboard was a “catalyst” for Darden.
“The CEO had to exit. The board exited. A high performer [Lee] was installed as CEO,” Gordon said. “… Bloomin’ is in kind of a dead zone right now. They’re in a momentum-less mode right now. They need a catalyst in order to get their brands moving.”
Gordon described Starboard’s slideshow as a “wave-top level” look at Bloomin’ and he expects Starboard will come out with more plans.
He added that based on his own visits, Outback appears to have the same look as it has for two decades.
“No. 1, is that the look and feel of Outback isn’t conducive or friendly for lunch business, in my opinion,” Gordon said.
As for growing Carrabba’s, Gordon believes the brand needs a new approach.
“Carrabba’s is going to have to change,” Gordon said. “It’s already been middle class. So for it to zoom up, where’s it going to go? How is it going to be repositioned? They’re going to have to do the conceptual work with planners and with all kinds of folks.”
Gordon said he believes Darden could be standing in its path.
“The issue is how do you bring Carrabba’s up to Olive Garden’s strength,” Gordon said. “Olive Garden was created by Darden… it has years and years of history and tradition and successful advertising.”
“Carrabba’s can’t grow because Olive Garden is blocking their way.”
Darden spokesman Rich Jeffers said the company doesn’t comment on its competitors.