Functional Paper

www.crackerbarrel.com, (NASDAQ: CBRL)

Headquartered in Lebanon, Tennessee, Cracker Barrel is an iconic US chain of restaurants combined with gift stores that provide Southern-style country meals and products with appearance and decor designed to resemble an old-fashioned general store from the early 1900s. Each location features a front porch with about a dozen wooden rocking chairs and several large barrels. Inside, a spacious, open dining area features a large stone fireplace often with logs burning, and decorative artifacts from the local area are displayed on the walls.

As you enter the front door at Cracker Barrel, you are in a unique, local-oriented gift shop that sells toys representative of the 1950s and 1960s, puzzles, woodcrafts, country music CDs, DVDs of early classic television, cookbooks, kitchen novelty decor, and early classic brands of candy and snack foods such as pecan rolls. Breakfast is served all day. There are two menus at Cracker Barrel, one for breakfast, and one for lunch and dinner.

The company strives to offer a friendly, family atmosphere, and affordable prices on country cooked meals all day long. As of September 15, 2021, there are 664 Cracker Barrel stores in 45 states. No stores are franchised. All stores are designed to appeal to both the traveler and the local customer. All stores are freestanding buildings and consist of about 20 percent floor space being devoted to the gift shop and the remainder dedicated to restaurant, training, and storage areas. All stores have stone fireplaces and antique furnishings.

Cracker Barrel’s fiscal year ends on July 30. For Q1 2022 that ended October 29, 2021, the company reported total revenue of $784.9 million, up 21.4 percent from the prior year period; and net income of $33.4 million, down 80.4 percent from the prior year. The company’s retail gift shops sales are performing substantially better than the firm’s restaurants.

Copyright by Fred David Books LLC; written by Fred R. David.

History

Founded in 1969 by Dan Evins, Cracker Barrel restaurants/shops were at first positioned near interstate highway exits and located in the southeastern and midwestern United States. Evins intended to attract the interest of highway travelers. The name Cracker Barrel comes from “cracker barrels” in old-time country stores that were used to transport soda crackers and then repurposed into tables. People would stand around the barrels chatting and catching up on local events while having a drink or eating, or just socializing.

The first Cracker Barrel was built just off I-40 in Lebanon, Tennessee, and opened in September 1969. Like today, that restaurant served Southern cuisine that included biscuits, grits, country ham, corn bread, dumplings, and turnip greens. Cracker Barrel was incorporated in 1970 and for a decade featured gas pumps on-site because Dan bought out gas stations near interstate highways and converted them into restaurants. Gas pumps were phased out in the 1980s but initially were available at every Cracker Barrel.

Cracker Barrel launched an initial public offering (IPO) in 1981 when it became public. By 1987, the company was a chain of more than 50 restaurants in eight states, with annual net sales of almost $81 million. Growth flourished for Cracker Barrel. In 2019, Cracker Barrel acquired the 35-restaurant chain Maple Street Biscuit Company. In Fall 2020, there were 665 Cracker Barrel stores in 45 states and in Fall 2021 there were 664 restaurants. In 2021, the company opened its first West Coast Ghost Kitchen in the Hollywood area. Named Cracker Barrel Kitchen, this is a delivery-only restaurant that uses DoorDash, Uber Eats, and Grubhub to deliver Southern cuisine to customers.

Beginning in 2020, a few Cracker Barrel restaurants began serving beer and wine. This program expanded such that beer and wine service is today offered in 480, or about 72 percent of all Cracker Barrels. Restaurants generate about 79 percent of all revenues for the company; gift shop revenues comprise 21 percent. The average check per guest at Cracker Barrel during 2021 was $11.40, which represents a 2.4 percent increase over the prior year. A typical Cracker Barrel serves about 5,500 restaurant guests per week. As a percentage of overall sales in 2021, breakfast generated 25 percent, lunch 38 percent, and dinner 37 percent.

Internal Issues

Vision/Mission

Cracker Barrel does not have a published vision statement on its corporate website or most recent Annual Report. The company’s mission statement however is two words: Pleasing People. Cracker Barrel has what it calls a People Promise whereby the company strives to have every employee and guest feel at home with a family atmosphere offered for everyone.

Cracker Barrel’s two-word mission statement has been in place since 1969. The company strives to live up to the mission of Pleasing People each day, trying hard to assure that every employee and guest feels at home, feels cared for like family, and feels like they belong. Cracker Barrels do exemplify a culture of hospitality that’s welcoming, respectful, and inclusive to everyone who walks through the front door.

Organizational Structure

Cracker Barrel seems to operate using a divisional-by-product (decentralized) organizational design because there is a top executive responsible for the restaurant operations and revenues and a separate top executive responsible for the retail operations. However, as indicated in the list of top executives given here, the structure and exact delegation of authority is unclear. Note from the list provided in Exhibit 1, there is no COO and no division-by-region top executives at Cracker Barrel. Note the CEO is female as are 3 of 10 top executives, and 3 of the 11 members of the company’s board of directors.

Exhibit 1 Cracker Barrel’s Top Executives and Probable Organizational Chart

Source: Based on information at https://investor.crackerbarrel.com/corporate-governance/management

Diversity, Equity, and Inclusion (DEI)

Cracker Barrel’s dining room and gift shop are places where people of all ages, races, genders, ethnicities, walks of life, political preferences, and sexual orientations are welcome and feel at home. Openness and hospitality for all is part of the company’s People Promise and mission of Pleasing People. The company strives to hire, develop, retain, and promote diverse talent that reflects the communities it serves. There is no union at Cracker Barrel. No metrics are given on the corporate website or most recent Annual Report regarding company performance and progress on DEI companywide.

As of July 30, 2021, more than 33 percent of Cracker Barrel’s employees were racial and ethnic minorities and about 68 percent were female. The company has established Employee Resource Groups (ERGs) to allow employees to feel valued, respected, included, and connected through a wide range of programs, events, and community outreach projects. Currently, there are six ERGs functioning in the Cracker Barrel organization:

1. LGBT Alliance: Promote LGBT awareness and inclusion in the workplace

1. United Cultural Awareness Network (UCAN): Embrace culture to enhance the work experience

1. Women’s Connect: Inspire women leaders

1. Veteran and Military Volunteers (VERG): Supporting veterans and military-affiliated employee

Marketing

Outdoor advertising (i.e., billboards and state department of transportation signs) is Cracker Barrel’s largest advertising vehicle used to reach travelers and local patrons. In fiscal 2021, the company had more than 1,500 billboards, and this expense comprised about 33 percent of the company’s total advertising spent for the year. For the other 67 percent, Cracker Barrel uses television and social media and a customer relationship management (CRM) program that uses email, text messages, push, notifications, and an exclusive music program to energize desire for the brand and affinity with our guests. Cracker Barrel’s advertising expenses in 2019, 2020, and 2021 were $81.8 million, $79.1 million, and $83.6 million, respectively.

Finance

Cracker Barrel’s fiscal year ended on July 30, 2021; the company reported 2021 revenues of $2.81 billion, up 11.8 percent from the prior year. Comparable store restaurant sales for fiscal 2021 increased 8.4 percent versus fiscal 2020, led by a 5.3 percent increase in store traffic and a 3.1 percent increase in average check. Comparable store retail (gift shop) sales for fiscal 2021 increased 20.9 percent compared with fiscal 2020, substantially better than restaurant sales. The company reported fiscal 2021 net income of $254.5 million. Thus, Cracker Barrel overall is doing excellent, with the gift shop performing outstanding.

Cracker Barrel’s fiscal 2021 income statement and balance sheet are provided in Exhibit 2 and Exhibit 3, respectively. Note the dramatic improvements in 2021 due in part to customers returning to dine-in seating as the pandemic subsides.

Exhibit 2 Cracker Barrel’s Recent Income Statements (in Thousands

Source: Based on Cracker Barrel’s Fiscal 2021 Annual Report, p. 49–55.

Exhibit 3 Cracker Barrel’s Recent Balance Sheets (in Thousands)

Q1 and Q2 of 2022

Many restaurant companies compare 2021 results to 2019 rather than 2020 because pandemic closures were bad for all dine-in restaurants. For Cracker Barrel’s Q1 2022 that ended October 31, 2021, compared with Q1 2019, Cracker Barrel’s comparable store restaurant sales increased 1.4 percent and comparable store retail (gift shop) sales increased 17.6 percent. For Q1 2022, the company’s net income was $33.4 million and declared a quarterly dividend of $1.30 per share, payable on February 1, 2022 to shareholders of record on January 14, 2022.

Recall that shareholders of all firms expect a 5+ percent growth annually on both revenues and net income, so Cracker Barrel is doing excellent. Cracker Barrel’s total revenue of $784.9 million for Q1 2022 represented an increase of 21.4 percent compared with Q1 2021 and an increase of 7.0 percent compared with the first quarter of 2019.

Compared to Q2 of fiscal 2019, Cracker Barrel’s total revenue in Q2 2022 increased 6.2 percent, including a comparable store restaurant sales increase of 1.9 percent and a comparable store retail sales increase of 13.7 percent, as well as 7 new Cracker Barrel and 31 new Maple Street net additions. For Q2 2022, the company’s comparable store off-premise restaurant sales grew 123 percent versus Q2 2019 and comprised 24 percent of restaurant sales. Specifically in Q2 2022, the company reported total revenue of $862.3 million, up 27.3 percent compare

By-Segment Information

About 83 percent of all Cracker Barrels are located along interstate highways. The remaining 17 percent are located off interstate or near tourist destinations. Each location offers the combo of gift shop and restaurant, unique, effective, friendly, Southern, inclusive atmosphere. Exhibit 4 and Exhibit 5 give Cracker Barrel’s revenues by segment. Note that the restaurant generates four times the revenue of the gift shop.

Exhibit 4 Cracker Barrel’s Revenues by Segment (in Thousands $)

Source: Based on Cracker Barrel’s 2021 Form 10K, p. 35.

Exhibit 5 A Histogram of Cracker Barrel’s Revenues by Segment (in Millions $)

Retail Sales (Gift Shop)

Cracker Barrel gift shops (retail sales) derive revenue from five basic product groupings: Apparel and Accessories, Food, Décor, Toys, and Media. The percentage that each product group contributed to 2021 total retail (gift shop) sales were 29, 18, 13, 13, and 8 percent, respectively. About 33 percent of all items sold in the gift shops are purchased from vendors in China.

Restaurant

Cracker Barrel opened two new stores in fiscal 2021 and plans to open three new stores during 2022. That really is not much given there are 664 Cracker Barrels open as of September 15, 2021. The company owns the land and buildings for 360 stores, while the other 304 properties are either ground leases or ground and building leases. The typical store has about 8,900 square feet, including about 1,900 square feet of retail selling space and dining room seating for about 170 guests.

Maple Street Biscuit Company (MSBC) and Holler & Dash Concepts

In 2019, Cracker Barrel acquired MSBC, a breakfast and lunch fast-casual restaurant that offers biscuit-inspired meals with coffee and a limited selection of beer and wine in some locations. MSBC is open only for breakfast and lunch. In 2016, the company started its own breakfast and lunch fast-casual restaurant named Holler & Dash Biscuit House.

During 2020, Cracker Barrel converted six Holler & Dash locations into MSBC locations. As of September 15, 2021, there are 37 company-owned MSBC locations open in leased properties in Alabama, Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Texas and seven franchised MSBC restaurants were open.

Competitors

There are thousands of competitors in the full-service restaurant business that compete with Cracker Barrel, including thousands of mom-and-pop restaurants. Some analysts suggest however that there are five major rival companies: Darden Restaurants, Golden Corral, IHOP, Denny’s, and Bob Evans.

Exhibit 6 reveals how Cracker Barrel recently was rated on a variety of issues as compared with its five major rival companies. Note the total score of 19 is excellent, with only Darden Restaurants being a better place to dine. Note also that Cracker Barrel was the best on gender equity and customer satisfaction. Note also that Darden is a formidable competitor.

Exhibit 6 How Does Cracker Barrel Compare to Rival Companies (1=Best, 6= Worst)

Darden Restaurants

Headquartered in Orlando, Florida, Darden Restaurants (stock symbol DRI) is the parent company for many popular restaurant chains, including Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, Yard House, Cheddar’s Scratch Kitchen, Eddie V’s Prime Seafood, and The Capital Grille. With more than1,800 restaurants and 160,000 employees, Darden is one of the 50 largest private employers in the United States. Golden Gate Capital purchased Red Lobster from Darden Restaurants in August 2020.

Business at Darden Restaurants is booming. For example, Q1 2022 sales increased 51 percent to $2.31 billion when the company added 34 new restaurants on top of its existing restaurants performing really well. During that Q1, Darden’s earnings were $232 million, and the company bought back $186 million of its outstanding stock in anticipation of continued success and a rising stock price. Darden expects its total sales for fiscal 2022 to be about $9.5 billion with same-restaurant sales up about 30 percent from the prior fiscal year.

Golden Corral

Headquartered in Raleigh, North Carlina, Golden Corral is a privately held US chain of restaurants operating in 43 states. Golden Corral offers the iconic, popular endless buffet for breakfast, lunch, and dinner. It is a favorite family restaurant among adults and children and competes directly with and close to Cracker Barrel in hundreds of locations.

Bloomin’ Brands

Headquartered in Tampa, Florida, Bloomin’ Brands (BLMN stock symbol) is a large restaurant holding company that owns Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Aussie Grill by Outback, Fleming’s Prime Steakhouse, and Aberaccio (Brazin only). Thousands of customers daily choose to dine at one of these Bloomin’ brands rather than Cracker Barrel. One of the world’s largest casual dining companies with almost 80,000 employees and more than 1,450 restaurants in 47 states, Puerto Rico, Guam, and 20 countries, Bloomin’ Brands was recently named to the Forbes’ list of America’s Best Employers for Diversity for the third year in a row. Bloomin’ Brands was honored as one of America’s Best Large Employers in 2021. Just go to www.bloominbrands.com, and you will see that this company is a formidable rival to Cracker Barrel.

External Information

Cracker Barrel operates in the full-service segment of the restaurant industry; MSBC operates in the fast-casual segment. As of the end of June 2021, 39 states had reopened to 100 percent indoor capacity, whereas 11 states were open at 50 to 80 percent capacity. Restaurant menu prices in 2021 are about 4 percent higher than the prior year period largely because wholesale food prices are increasing steadily. The following data defines Cracker Barrel:

· Industry: Restaurants and Bars (ICB 40501040)

· Industry: Eating places (SIC 5812)

· Industry: Full-Service Restaurants (NAICS 722511)

· Number of Employees: 70,000 (Approximate Full-Time as of 07/30/2021)

Partly due to labor shortages, many full-service restaurant chains have recently invested in labor-saving technology to cut costs and have redesigned their restaurants to create a more-modern ambiance. However, the full-service restaurant industry is projected to return to rapid growth over the 5 years to 2026 as pent-up demand from the pandemic spurs away-from-home dining and government regulations diminish. Full-service restaurant revenue is forecast to grow at an annualized rate of 5.2 percent to $192.6 billion during the 5-year period. Consumers are increasing going out to eat as the economy improves and consumer confidence returns to growth, and people are traveling more; Cracker Barrel caters to travelers.

Full-service restaurants are facing increased competition from a growing number of fast-casual restaurants that serve high-quality food at reasonable prices, such as Chipotle Mexican Grill and Panera Bread. These restaurant chains with low overhead costs continue to threaten full-service restaurants. In response, many full-service restaurant chains are expanding operations abroad to emerging economies to meet their shareholder expected level of annual growth, typically 5+ percent top line and bottom line on an income statement.

The Omicron and Delta variants of COVID-19 are worrisome variables for all restaurants, including Cracker Barrel. Further local and state-mandated closures and restrictions on seating capacity would negatively impact Cracker Barrel’s revenues and profits. Perhaps Cracker Barrel should more extensively embrace companies such as UberEats or DoorDash or even launch their own “remote kitchen services.”

Conclusion

A careful analysis of the competitors and available opportunities across regions is needed along with Cracker Barrel’s strengths and weaknesses to plot a strategy for the company moving forward. How aggressively should Cracker Barrel build and open new restaurants, and where? Should the company consider franchising, something it has historically avoided in the past? For their fiscal 2022 full year, Cracker Barrel plans to open three new Cracker Barrel locations and 15 new Maple Street Biscuit Company locations.

Remember, your job as the student is not to describe what Cracker Barrel is currently doing or what Cracker Barrel plans to do based on reading press releases or the company Annual Report, but rather your job is to consider that you have been hired by Cracker Barrel to develop and provide a 3-year strategic plan. Cracker Barrel’s upper management, and in this case your classmates and professor, are looking for you (or paying you a high fee if hired by Cracker Barrel) to recommend what you feel is the best direction for the firm moving forward based on your strategic management research, knowledge, and expertise. Recall that the case says Cracker Barrel opened two new stores in fiscal 2021 and plans to open 3+15=18 new stores during 2022; that really is not much. Shareholders of nearly all companies expect a minimum of 5 percent annual growth on both revenues and net income, so Cracker Barrel likely needs to build new restaurants more aggressively.

Consumers are increasingly price sensitive while at the same time demanding high quality in their away-from-home dining. This is partly why fast-casual restaurants, such as Chipotle Mexican Grill, Schlotzsky’s, Qdoba Mexican Eats, and Panera Bread, are performing so well and taking business away from full-service restaurants such as Cracker Barrel. Should Cracker Barrel acquire one or more of these high-performing fast-casual, sit-down-inside restaurants? Recall that both of Cracker Barrel’s major competitors, Darden and Bloomin’, are holding companies for several successful restaurant chains.

Prepare a clear 3-year strategic plan for Cracker Barrel indicating the direction you think will be most advantageous for management moving forward. Deciding how to allocate resources across regions is a difficult yet major challenge and job of a strategist. Prepare projected financial statements if possible to reveal your expectations regarding the financial impact of your proposed strategies.

References

1. https://www.comparably.com/companies/cracker-barrel/competitors

1. Cracker Barrel’s 2021 Form 10K.

1. https://investor.crackerbarrel.com/corporate-governance/management

1. www.bloominbrands.com

(1=Best; 6=Worst)?