CEO Sandy Cochran said Biglari has already deteriorated the value of Steak ’n Shake.
After facing continued criticism from shareholder Sardar Biglari, Cracker Barrel sent a letter to shareholders Thursday, writing that his views aren’t credible and that he has a “long-term track record of lagging performance and problematic governance at his own company.”
The letter, written by CEO Sandy Cochran, is in response to Biglari’s push for representation on Cracker Barrel’s board through nominee Raymond Barbrick, president and co-CEO of The Briad Group. Biglari, the owner of Steak ’n Shake and Western Sizzlin’, controls 2.1 million shares, or 8.7 percent of Cracker Barrel.
On multiple occasions, Biglari has lashed out at Cracker Barrel for its purchase of Punch Bowl Social in July 2019 and the eventual $133 million hit the brand took when it cut ties with the eatertainment chain early into the pandemic. He called it “one of the worst business blunders in the annals of restaurant history.”
In the letter, Cochran said Cracker Barrel invested in Punch Bowl after months of research and negotiations. According to the CEO, the chain had solid sales, profitability, growth potential, effective management, and millennial and Gen-Z consumers that complemented Cracker Barrel’s demographics.
Then the COVID pandemic swept through the U.S. in March, shutting down all the Punch Bowl units. Cracker Barrel determined that the brand would require “significant management attention and millions of dollars of capital,” which would go beyond any funds available under the CARES Act. Because of the uncertainty surrounding the brand, Cracker Barrel chose to focus on core operations.
“Six months later, Punch Bowl continues to struggle because of the pandemic, and we believe it is likely to remain challenged for the foreseeable future,” Cochran said in the letter. “Punch Bowl Social is one of the thousands of unfortunate corporate casualties of the pandemic. While we are obviously very disappointed with the outcome of our investment, we are more disappointed that we never got the opportunity to prove out our investment thesis and grow Punch Bowl Social to its full potential.”
Cochran said Biglari’s recent nominee is his fifth attempt in 10 years to use a proxy contest to advance his own interests.
She made note of Biglari’s moves at Steak ’n Shake, where he used a proxy contest in his first step to taking control of the company. Cochran said he did this without paying a customary “control premium” to other shareholders, and then renamed the company Biglari Holdings, licensed his own name for a royalty to Steak ’n Shake, and “proceeded to oversee the destruction of tremendous shareholder value.”
In 2019, Biglari Holdings saw same-store sales declines of 6.9 percent and traffic decreases of 11.2 percent.
“We consider the deterioration of Steak 'n Shake, a brand that once held a storied place in American restaurant history, to be a cautionary tale of poor capital allocation, underinvestment, lack of strategic vision, subpar leadership, and lost brand identity,” Cochran said.
Although Cracker Barrel was concerned with Biglari’s track record, Cochran said the company still considered Barbrick as a potential director. The brand used a nationally recognized third-party recruiting firm to help with the efforts. After a review from both the firm and three of Cracker Barrel’s independent board members, it was decided that Barbrick did not have enough experience.
The interviewers questioned his lack of experience with public companies and the relevancy of his work history as an executive in a company that operates restaurants that had largely exited the casual-dining sector.
The board instead chose to appoint Gisel Ruiz, a former Walmart executive.
“Mr. Biglari is correct about one thing—Cracker Barrel is one of the greatest restaurant concepts ever created,” Cochran said. “However, what I believe Mr. Biglari has never understood, but I believe you do, is that it isn't just 'the concept’ that makes Cracker Barrel so valuable. It's the people, the culture, the execution, and our collective commitment to consistently delivering an outstanding employee and guest experience that allow us to deliver our shareholder returns. Never before has this been more apparent to me than after the year we've just had.”