The brand is investing in menu innovation, a beer/wine program, and digital channels.
Cracker Barrel has an expectation that virtually all of its stores will welcome back dine-in customers by the end of June.
The casual brand is roughly 75 percent of the way toward that goal with 505 locations having reopened dining rooms as of May 29. At those stores, the dollars and traffic have followed.
In the week ending May 29, same-store sales were down 32 percent at dine-in units compared to a decrease of 76 percent at stores operating off-premises only. At those 500-plus locations, much of the off-premises business has been retained, albeit still early in the process.
“As we’ve been reopening dining rooms, we’ve been pleased with the reaction we’ve had,” CEO Sandy Cochran said Tuesday during the company’s Q3 earnings call. “So guests are coming back both to dine with us in the restaurant as well as continuing to use the off-prem business maybe more than we had expected.”
All 664 Cracker Barrel units remained open for off-premises, but business was hampered from March to late April due to closed dining rooms, decreases in the breakfast and lunch daypart, and a slowdown in travel that hurt Cracker Barrel’s off-interstate locations. When it pivoted to off-premises only, Cracker Barrel used a limited menu, introduced family meals, implemented curbside pickup, and accelerated the rollout of DoorDash.
As a result of the pandemic, Cracker Barrel’s organizational realignment plan was pulled forward, which resulted in 450 employees being terminated in the field and corporate office. Cochran said the sustainable business model improvements are expected to result in annualized ongoing savings of roughly $50 million. CFO Jill Golder said the savings will benefit restaurant labor and G&A.
To preserve cash, the brand also furloughed a number of employees, but 70 percent of those workers have returned.
“We’re pleased with our ability to retain, particularly our experienced tenured employees,” Cochran said. “There have been pockets of feedback that some employees were reluctant to come back. Many of those are ones that may be uncomfortable given their personal or their family situation in terms of safety. So we feel good about how we’re navigating that in terms of bringing employees back.”
Cracker Barrel had a positive beginning to the quarter with comps growing 2.4 percent in February. But with the onset of the COVID crisis, same-store sales slid 36.5 percent in March. During the last week of March—the first week in which all stores were off-premises only—comps dropped 85 percent year-over-year. In April, same-store sales decreased 78.6 percent
The brand finished Q3 down 41.7 percent. That breaks down to a 43.6 percent plummet in traffic and a 1.9 percent bump in average check. Third-quarter restaurant revenue dropped from $610.1 million in 2019 to $360.4 million this year.
Here’s how same-stores sales have trended through Q4 thus far:
- Week ending May 8: –74 percent (15 units open)
- Week ending May 15: –62 percent (115 units open)
- Week ending May 22: –55 percent (270 units open)
- Week ending May 29: –45 percent (434 units open)
Although the company is focused on conserving funds, it’s planning to balance that approach by making investments in menu evolution, a wine and beer program, and digital channels.
The menu evolution was a pre-COVID initiative that prioritized new items and simplification like a new chicken pot pie and country fried pork chop, in addition to a new menu design that reorganizes offerings into new categories.
Stores have migrated to the new menu as they’ve reopened dining rooms. Cochran said the company expects all stores to transition to the revamped menu in the coming months.
“We believe the new menu results in increased consistency and execution and that it better highlights our signature offerings and abundance, value, and variety,” Cochran said. “I’ve been pleased with the results so far, and both guests and operators have responded positively.”
In regard to the tableside beer and wine program—which also includes orange and strawberry mimosas and hard cider—Cochran said Cracker Barrel conducted extensive research and determined customers had a strong interest in alcoholic beverage options. The data showed it was also a way to reduce the veto vote, particularly during weekend dinner. Testing, which is taking place at 20 stores, started pre-COVID and offered promising results, Cochran noted.
To take advantage of enhanced off-premises sales, Cracker Barrel plans to further invest in technology via the implementation of contactless payment on mobile devices in the fall and the rollout of a digital store, which will provide what Cochran described as an “integrated and enhanced user experience for guests ordering food and retail.”
“We believe the pandemic and the growth in off-premises has accelerated the adoption and acceptance of digital usage and has further emphasized the importance of convenience,” Cochran said.
Cochran said the brand is optimistic about the future of Maple Street Biscuit Company, which experienced less severe declines in sales due to its higher off-premises business and position in the fast-casual segment. She expects the conversion of Holler and Dash stores to be completed in the coming weeks.
However, eatertainment chain Punch Bowl Social did not fare that well. The pandemic forced all locations to shut down and Cracker Barrel decided to cut ties and swallow a $132.9 million hit on an investment it made less than a year ago.
“After extended discussions, and in keeping with our disciplined approach to capital allocation, and our strategy to focus resources on the core brands during the pandemic, we made the decision not to provide additional funding,” Cochran said.
Cracker Barrel also recorded an $18.3 million impairment charge “due to declining operating performance and resulting negative cash flow projections” at five Cracker Barrel stores. However, Golder said this doesn’t imply any store closures.
Golder said estimated that weekly cash burn rate is neutral with comps down 45 percent, which assumes investments in key initiatives. Cracker Barrel ended Q3 with $363 million in cash on hand. The brand hasn’t had any issues with its supply chain thus far.