The breakfast chain pointed to the challenged consumer environment, but also acknowledged that its marketing messages were outshined by competitors during the fourth quarter.
Cracker Barrel indicated in June the fourth quarter was off to a slow start, but the chain was hopeful sales would pick up from the summer travel season.
It didn’t happen.
Fourth quarter restaurant and retail sales came in below the brand's expectations. Same-store sales increased 2.4 percent, but it was fueled primarily by 8.7 percent pricing. Traffic declines were larger in the $60,000–$80,000 household income range compared to guests from lower-income households. Younger consumers held up better than the 65-and-over crowd, yet that’s been the case for a handful of quarters.
“On the over 65, we just have not yet recovered the visits with that group to the extent we thought we would, really since the pandemic, whether it was in the beginning, health concerns, and then the pivot from health to value concerns,” CEO Sandy Cochran said during the chain’s Q4 earnings call. “ … The over 65 group is particularly value-conscious.”
It marked Cochran’s final earnings call as CEO. Julie Felss Masino, who previously served as president of Taco Bell’s international segment for five-and-a-half years, will take over the chief executive role in November.
Although sluggishness stabilized, Cracker Barrel anticipates declining traffic trends will continue for most of the first quarter. The casual-dining giant firmly believes pricing didn’t negatively contribute to Q4’s lackluster results.
“While our recent price increases have been higher than historical levels, we track guest value perceptions through a variety of means,” CFO Craig Pommells said. “We closely monitor competitive price points and we measure the impact of our pricing actions against the control group to ensure we have not triggered adverse guest behaviors. We have not seen a negative impact to traffic from our pricing actions, even in the currently sensitive environment.”
“That said, we believe price increases taken by the entire restaurant industry may be having a cumulative effect on dining behaviors, and we will continue to be mindful of the consumer and competitive environments in the markets we serve as we make pricing decisions going forward,” he added.
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But Cracker Barrel isn’t solely blaming its situation on a challenged guest environment. The chain admitted some of the struggles can be attributed to ineffective marketing messages amid a competitive promotional marketplace.
The brand lowered advertising spend because it typically finds advertising to be less impactful in the fourth quarter. Those funds were diverted to staffing, which Cracker Barrel views as a longer-term objective. The marketing messages that did go out focused on value, but Cochran said the communication “did not break through against the highly promotional advertising we saw from our competitors.”
She noted peers are “getting sharp in the price point” and increasing their advertising around value. One of the biggest examples is Chili’s, which ran TV commercials in March for the first time in three years. It plans to double down on those efforts during the fall season. The advertisements focus on Chili’s 3 for Me, a platform that allows guests to order an entrée, appetizer, and drink, ranging from $10.99 to $16.99.
“We’ve seen that [promotional] intensity really across a number of different segments,” Pommells said. “We’ve seen it in family at breakfast in particular. We’ve also seen it especially in the bar and grill segment also. So, it’s relatively broad-based, certainly not with every competitor. But if you just look back at the last few months on advertised price points, there have been a lot of advertised price points. There have also been a lot of all-you-can-eat type of offers in the marketplace. And not only in family or in one particular segment, we’ve seen it really across the board.”
In response, Cracker Barrel is deploying a series of short-term and long-term strategies to improve traffic. For marketing specifically, the brand increased its media spend so that it can better convey everyday value to core guests of all ages. The chain added bigger presences around popular avenues like college football and NASCAR to drive awareness. Promotion of breakfast has worked well, so this round is geared toward boosting the lunch and dinner dayparts. Some examples include a focus on Southern Fried Chicken, $8.99 all-day brunch, and the Over 20 Under $12 campaign. Additionally, the chain introduced a new physical menu format with better imagery that tested well.
“Everyday value has always been a hallmark of the brand, and we have worked hard to invest in value,” Cochran said. “Despite the price increases that we’ve been taking over the last few years, we still think we have ensured that there’s everyday value at every daypart on the menu so that a guest can come in and whether they’re looking for a low price point or it’s more of a celebratory indulge indication, they can find that on the menu. So, we’re continuing to ensure we have that optionality on the menu.”
Another big piece is the new Cracker Barrel rewards program, which should be an important source of guest insights and data. Based on the brand’s well-known peg game, customers will earn pegs for each dollar spent, both in restaurants and retail. Guests will be able to use those pegs for certain rewards at each level. There is a gaming aspect in which consumers can earn additional pegs through challenges and surprise and delight events. The plan is for the platform to go live later in September. That will be followed by a multi-channel media campaign in partnership with country music artist Dolly Parton in late October.
The program should prove useful as the company works to attract younger customers—at least that’s what a segmentation study showed the leadership team last year.
“Technology in general is more important to a younger guest, but the loyalty program came up surprisingly high on the list,” Cochran said. “So, we are optimistic that this will be something that they’ve hoped we would do and we will get great sign-ups, a lot of learnings.”
To upgrade the guest experience, the brand is working to elevate staffing, retention, hospitality, and training while simplifying operations so that employees aren’t pushed away from dining rooms and customers. This is particularly important as the brand prepares for Q2 and the busy holiday season. From a culinary perspective, Cracker Barrel still plans to lean into its core offerings, like the Country Fried Turkey and Cinnamon Roll Pie.
Bigger picture wise, the chain is researching guest behavior in partnership with outside firms so that it can better understand its place in the current competitive environment. That means strengths, opportunities, brand positioning, and any identifiable strategies to capitalize on these learnings. The brand is also reviewing its store base and how it can better leverage its presence in certain trade areas. That includes more consideration around the physical store design and potential refreshes.
Some brighter spots to note: Cracker Barrel delivered higher Q4 margins year-over-year thanks to cost controls, pricing, and lower inflation; achieved its goal of growing the catering business to above $100 million; and captured $30 million in cost savings.
The company opened 12 Maple Street Biscuit Company locations and two Cracker Barrels in fiscal 2023. As of July 28, there were 660 Cracker Barrel units and 59 Maple Street locations nationwide.
