Inside a Punch Bowl Social restaurant, with bowling lanes and couches.
Amber Boutwell

Cracker Barrel decided against investing further in Punch Bowl Social in March, citing a strategy to concentrate on its core business and the uncertainty of the eatertainment company’s viability after the COVID-19 pandemic.

Sardar Biglari Calls Cracker Barrel's Punch Bowl Move 'Panic Exit’

Biglari Capital wants to investigate the chain's dealings with the eatertainment brand.

Biglari Capital, a shareholder of Cracker Barrel, criticized the brand Wednesday for ending its deal with Punch Bowl Social, describing the move as a “panic exiting.” 

In a letter addressed to Cracker Barrel CEO Sandy Cochran, Biglari Capital Chairman Sardar Biglari began by questioning the July acquisition of Punch Bowl. He noted that the eatertainment brand primarily serves alcoholic beverages, which doesn’t jibe with Cracker Barrel’s country-cooking family dining business, and that the end result of the investment was a $133 million loss. He said it was an investment loss of 100 percent. 

Biglari, which owns 2.1 million shares, or 8.6 percent of Cracker Barrel, continued by admonishing the company for ending the deal two days before the passage of the CARES Act, which includes $350 billion in forgivable loans for small businesses. Chains such as Punch Bowl are eligible because the terms are based on employees at individual locations, not an overall count. 

“No rational business person would make such an important decision until the legislation had passed and its provisions had been evaluated,” Biglari said in the letter. “At the very moment when landlords and lenders were negotiating with tenants and borrowers to mitigate the economic damage caused by the pandemic, including the cessation of parts of the economy, the board and management acted hastily to rid themselves of a significant investment without first obtaining details of the $2 trillion stimulus package. Thus, we are concerned not only with questionable investments the board and management are making, but also with how they are handling those investments once they have been made.”

Cracker Barrel announced March 25 that Punch Bowl closed all of its 19 locations and laid off most of its employees and that it would not save the eatertainment company from foreclosure. In the announcement, Cracker Barrel said it preferred to focus on its core business and mentioned the uncertainty surrounding the future of Punch Bowl given the COVID-19 pandemic. The company valued the equity investment at $79.5 million at the end of January.

Launched in 2012 by Robert Thompson, Punch Bowl Social blends activities, including shuffleboard, ping-pong, bowling, pinball, and Skee-Ball with food specialties like pan-fried pork chops and chicken and waffles. CrowdOut, a non-bank lender for middle-market companies, said back in March that it's continuing to support Punch Bowl Social and working with the management team to navigate through the pandemic. 

During Cracker Barrel’s Q4 earnings call, CFO Jill Golder said she viewed the Punch Bowl investment as a way to engage younger demographics and “drive long-term value creation.” She believed there was potential for 100 units at the time. 

On October 31, Biglari claimed that his company sent a letter to Cracker Barrel asking to inspect records related to decisions such as the acquisition of Punch Bowl, because his team believed the purchase was “unusual and its valuation was sky-high.” 

Biglari said his company has constantly asked for data, but Cracker Barrel continues to refuse requests. He once again called on the brand to release information, adding that the lack of transparency will force Biglari Corp to seek representation on the board at the next annual meeting. 

He said an investigation is even more important now, considering the company’s move to cut ties with Punch Bowl. 

“The crux of the matter is that the board and management have demonstrated a profound lack of business judgment by panic exiting Punch Bowl Social,” Biglari said. “Shareholders can and should expect the board and management to be transparent about how such decisions were reached.”

“… As a long-standing and large shareholder of the company, we would expect the board to take the prudent action of complying with this request, which is in the best interest of all shareholders,” he continued. If you have nothing to hide, why not release the information?”