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Cracker Barrel
Cracker Barrel hand-makes about 522,000 biscuits each day.

Inside Cracker Barrel's Plan to Win Back Customers

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Guest traffic is on the decline for the classic brand. Can recent changes fix the trend?
By Danny Klein October 2018 Chain Restaurants

You never want to hear the words “restaurant” and “recall” in the same sentence. All things considered, though, Cracker Barrel’s recent run-in with the U.S. Consumer Product Safety Commission was a mild one. It was more bizarre than alarming. The Commission issued a recall of the $40 Driftwood Pineapples sold in Cracker Barrel’s retail stores. Reason being, the galvanized metal leaves at the top of the pineapple were cutting consumers’ fingers, including “one injury that required stiches,” according to the notice. Cracker Barrel sold the product online and in-store from June through August, and is offering full refunds.

While this odd turn was a blip in Cracker Barrel’s issues, some of the other concerns affecting the chain are not. The casual leader is coming off a difficult quarter where a sales volume slump pushed revenue down and led to a weak operating outlook for fiscal 2019, with Cracker Barrel projecting revenue at current locations to be roughly flat. And many of the operational problems aren’t instant fixes, hinting at a long-term recovery that could soften Cracker Barrel’s results through the entire calendar. Also, some of these initiatives come with a price tag, like the new kitchen equipment needed for a fried-chicken rollout Cracker Barrel is banking on. This could push operating profit margin down for the second straight year, as Motley Fool points out, down to 9.3 percent of sales from 9.7 percent in fiscal 2017 and 10.7 percent the prior year. Capital expenditures for the year are expected to run about $160 million to $170 million. The increase includes costs associated with the acquisition of sites and construction for new stores, as well as additional costs for “key initiatives to support our strategic plans,” the company said. These initiatives include fried chicken, off-premises, and a new point-of-sale system.

Same-store sales declined 0.4 percent year-over-year in Q4 and guest traffic fell 3.5 percent. Adjusted earnings per share of $2.19 and quarterly revenues of $810.9 million both missed analyst expectations. Cracker Barrel’s traffic has been in the red for some time now.

What raised alarm as well was the fact that comps decelerated from Q3’s 1.5 percent increase and Cracker Barrel hit the 0.4 percent decline even with a 3.1 percent increase in average check.

But is there a positive shift on the horizon? Cracker Barrel’s shares have added about 9.4 percent since it reported those Q4 results in September, pointing to a possible upswing, at least compared to where it was in early fall. And Tesley Advisory Group upgraded Cracker Barrel on October 16 to an outperform rating from neutral due to some upcoming changes and the effect on comp sales, especially the fried chicken introduction.

Let’s take a look at the start of Cracker Barrel’s turnaround and what the 660-unit brand is doing to reroute some of these negative trends.

Are guests dissatisfied?

Cracker Barrel’s Campfire menu has been a staple for the past three years. But it appeared to fall flat this time around. What Cracker Barrel did “to provide new news and maintain relevance,” CEO Sandy Cochran said in a September conference call, was to introduce several new menu items. At the time, Cracker Barrel billed this as “somewhat unexpected flavor twists,” including Roasted Sweet Glazed Chicken, Smoky Beef Brisket Breakfast, BBQ Pork, and a S’mores Latte. The expansion “unfortunately did not resonate with guests,” Cochran said. “Unexpected flavor twists” and Cracker Barrel’s core audience proved to be two peas in two pods, or something along those lines.

Meanwhile, Cracker Barrel decided to run fewer weeks of media at higher concentrations, which also didn’t land.

Really, this speaks to a broader directional misstep. Cracker Barrel seems to have veered off track a bit from its customer. Executives spent months spent poring over sales and survey data, and saw evidence of lower guest satisfaction that appeared to reflect this notion.

Cracker Barrel’s data showed “declines in guest experience metrics and a lack of emphasis on our value proposition and on delivering cravable food offerings,” Cochran said. This particularly impacted lighter users, or those guests who aren’t loyal users willing to forgive a deal or one-off experience that doesn’t align with the norm. “Service and hospitality has always been foundational to the Cracker Barrel brand,” Cochran added. “We continue to believe that it is a differentiator and a strength, but we must do a better job in consistently delivering this experience our guests expect.”

Cracker Barrel
Service and hospitality are core parts of Cracker Barrel's DNA.

Cracker Barrel’s solution: revaluate the guest touch points at all times, but especially at dinner, where the chain is typically most challenged. This involves rethinking what the guest truly wants and “looking holistically at the entire thing,” Cochran said. An example is the “check back, check down,” strategy Cracker Barrel has deployed in the past, where servers will hand tables their check early on. While effective earlier in the day, and with guests with one eye on their plates and another on the door, it faltered at dinner. It also didn’t work for every market, Cochran said. Basically, the concept doesn’t have umbrella appeal to a chain this size.

“… we're looking at every piece of it, how we are training our employees, how we are communicating to them, how we define the service model,” she said.

Change the message

In the competitive arena of casual dining, Cracker Barrel realized it couldn’t afford to whiff on value. Having friendly, hospitable service and offering abundant portions throughout dayparts is core to Cracker Barrel’s DNA. But was this story pushed effectively? Did it become wallpaper or peeling wallpaper? Were value-seeking guests getting what they asked for? If you look at the Campfire promotion and what slipped there, you see where the message gapped. And it’s why Cracker Barrel is moving quickly to, in a lot of ways, return to owning its historic standing. If anything, Cracker Barrel needs to reinforce value and abundance more than ever with the competitive landscape of fast casual and quick service improving food quality. There are simply a lot of breakfast and casual joints in town.

“We continue to believe that everyday value is a key differentiator for the Cracker Barrel brand. In the current environment in which there's a heightened focus on value both from our consumer and our competitors, we must do a better job of communicating and reinforcing our value offering,” Cochran said.

Here’s how Cracker Barrel will address this:

Firstly, “making value and affordability priorities for our culinary team through all stages of product development for menu promotions as well as for core menu additions,” Cochran said.

Another point: “finding our communication strategy to focus more on our unique menu items as well as placing greater emphasis on value and price point messaging.”

"The Cracker Barrel brand remains strong and differentiated. And while I'm confident that our plans have begun addressing the issues and will drive long-term value creation, our short-term outlook is more cautious as we believe that it will take some time to implement our plans and to reverse the trends in traffic." — Cracker Barrel CEO Sandy Cochran.

The hero in the room: Daily Delights. The company tested the menu platform during fiscal 2018 before implementing it systemwide in August. Cracker Barrel’s fall menu promotion was incorporated into Daily Delights and supported with several weeks of national TV media.

Essentially, the platform has legs because it allows Cracker Barrel to communicate everyday value across all dayparts—Sunrise Specials at $4.99, Weekday Lunch Specials at $5.99, and Country Plates for $7.99 at dinner. Cracker Barrel can keep pulsing news to those platforms. Donald Hoffman, Cracker Barrel’s SVP of marketing, said Daily Delights calls attention to three low price points but also lets the chain “periodically inject some new news behind those in three tiers.”

In Q2, Cracker Barrel expanded tests to 12 markets from nine and used four weeks of TV to support it, as well as in-store merchandising. It then moved some products to the national menu, like the Pick 2 Combo in Three Cheese Grilled Cheese. Another example is how Cracker Barrel used the promotion to highlight biscuits in the fall and introduced a Biscuit French Toast and a Parmesan Crusted Biscuit Pot Pie. Fun fact: Each day, Cracker Barrel hand-makes about 522,000 biscuits or more than 190 million per year.

Cracker Barrel
Cracker Barrel's Campfire promotion didn't resonate as the brand hoped this year.

Back to the menu

All of this isn’t to say Cracker Barrel plans to stop adding new items. That in itself is a key stand in the chain’s history. The shift is more about introducing items that fall into defined guidelines—value, abundance, variety. Put in straightforward terms by Cochran: “These new items are rooted in what our guests know and love but extended into new offerings.”

The rollout referenced by Tesley Advisory Group that sparks the most optimism is bone-in fried chicken. This hand-breaded four-piece half chicken, served with two made-from-scratch sides, and a choice of bread, “is executable at high volumes,” Cochran said.

Cracker Barrel tested it last fall to work out operational kinks, equipment configurations, and measure guest reaction. Positive results, and perhaps the weakness of the Campfire launch along with other pressing concerns, led Cracker Barrel to expedite the rollout. In September, about 45 stores were serving the fried chicken, with 170 expected to feature the offering before Thanksgiving. A complete rollout is planned by summer. Crafted coffee is also expected to ramp up.

There’s no question the item can increase traffic and sales, and should help lift off-premises orders. However, as noted earlier, it’s a complex initiative in need of multiple pieces of kitchen equipment. Cochran said Cracker Barrel would take a break after the Thanksgiving push and start again in January. “Any time you roll something that complex in terms of equipment, that complex in terms of what it's doing to the menu and where all the trade is coming from and how that's impacting labor, and that complex with the consumer we're trying to introduce an entire new platform, I think, there is risk associated with it,” Cochran said. A lot is being invested into this platform, clearly. It’s something that will likely balance between costs, training, comp sales, and improved traffic for some time as the mix works itself out. In other terms, the short-term reaction, from a balance sheet perspective, might not be as impressive as the long-term rise in customer satisfaction and traffic metrics.

Speaking again to the value point, Cochran said customers in tests “think it's bountiful and a very good value for the amount of food they're getting for the price.”

Cracker Barrel has also pushed the rollout, along with customer satisfaction, to the top of its priority list. One thing it footed down was the POS rollout. Cracker Barrel will have the ability to use server tablets when the new technology installs, “which we believe will help both the guest service experience, along with us being able to better manage labor and leverage labor,” Cochran said. “Also, we're looking at a new labor system kind of following that, as well as a new food cost management system that we would use with the new point-of-sale.”

With the prioritization of guest service and fried chicken, however, Cracker Barrel slowed down the POS rollout. It plans to get up to 70 or 80 in the current fiscal year, adding that the implementation requires a good deal of training to bring the team up to speed.

Another major push

Cracker Barrel anticipates brining third-party delivery to more than 200 stores by the end of the fiscal year. Additionally, it expects to add to its in-house catering van fleet to cover a large subset of its system. This coupled with the addition of a catering sales manger in key markets points to a promising to-go future. “We gained many learnings after rolling out our off-premise platform. And in fiscal 2019, one of our priorities is to simplify and enhance our operations to drive an improved guest experience,” Cochran said.

Overall, Cochran said Cracker Barrel accomplished important foundational work this past year, but admitted “we must do a better job in driving traffic and delivering a consistent guest experience.”

It appears Cracker Barrel is on the right track. It’s just not going to happen overnight.

“The Cracker Barrel brand remains strong and differentiated. And while I'm confident that our plans have begun addressing the issues and will drive long-term value creation, our short-term outlook is more cautious as we believe that it will take some time to implement our plans and to reverse the trends in traffic,” she added.