A lesson of wrong thinking from Olive Garden Restaurant.

By Steve Moran

Here’s a lesson of wrong thinking from Olive Garden Restaurant.

This happened a few years ago and I don’t know if I didn’t see the story or forgot it. But it popped up in an article I read this morning.

Activist Investor

An activist investor got control of Olive Garden at a time when they were really struggling and pushed for a bunch of operational changes including carefully limiting each table to one breadstick per person plus one extra. Then if, and only if, customers asked for extras would they get them.

They projected this would save them something like $5 million per year. In addition, they expected it would encourage patrons to purchase more high margin appetizers. It was 100% logical. Almost like free money.

Except . . .

It completely cheesed off both customers and servers. Customers complained, stayed away, and talked about the restaurant’s cheapness, the end result being fewer customers wiping out that $5 millon dollar savings plus more.

The servers ended up spending an unreasonable amount of time counting breadsticks and running for more breadsticks, and because customers were unhappy, they were not as nice to the servers and left lower tips.

What they completely ignored was that for their most loyal customer base, unlimited salad and breadsticks were the cornerstones of their love for Olive Garden.

It was a super dumb idea and Olive Garden leadership quickly figured it out, in part by listening to social media, and went back to the old way of doing things.

Senior Living Dumb — A Downward Spiral

Over the years, I have heard so many stories of large senior living organizations purchasing great, high performing senior living communities with the idea that they would come in and make a ton more money by fixing the operation.  

That fix almost always included reducing food costs and staffing levels to the standards their company deemed acceptable. And, there is no question that in the first few months or first year or two, profits soared.

Here’s The Problem

It was those extras that got the community into the high 90%. When the community’s food and staffing became ordinary, the occupancy became ordinary, and over time, those big profits evaporated.

Interesting Times . . .

We are in interesting times. There are some super high performers and others that are really struggling. I get that when making payroll or debt payments is a problem, cutting expenses may look like the only way to make ends meet. The problem is that doing this almost never ends well. It is just a downward spiral.

It is much better to look for additional capital or cash flow to improve service and not reduce it. It also means not just holding on for the market to get better, but actually looking at what the great performers are doing and copying them.