Six months into the pandemic, Cracker Barrel CEO Sandy Cochran feels confident about her brand’s position.
In addition to returning 80 percent of staff members, same-store sales have flipped from a decline of 59 percent in May to down 28.2 percent in July and a decrease of 20 percent through the first six weeks of Q1. In the fourth quarter, off-premises sales increased 145 percent and represented 35 percent of sales, compared to 8.6 percent in the year-ago period.
More than 95 percent of Cracker Barrel’s 654 stores have open dining rooms. To reduce the impact of capacity restrictions, 350 units have implemented front-porch dining. Some locations have set up tables beneath tents in parking lots.
The momentum is building, and Cracker Barrel is determined to amplify that growth as it enters a new fiscal year. The brand plans to spend $100 million worth of capital expenditures in the upcoming year, and about 30 percent of it will go toward strategic initiatives.
A major priority will be the launch of an upgraded app. Currently being used in 150 stores, the digital platform serves as an integrated experience for customers ordering food and retail. Cochran said the technology will support bundled restaurant and retail offerings, a loyalty program, and increased personalization.
“It’s foundational for future planned initiatives that we believe will further enhance the guest experience and empower guests by giving them more control over their journey,” Cochran said during Cracker Barrel’s Q4 earnings call. “In addition to increasing convenience, we believe the digital store and these initiatives allow us to extend our hospitality in new ways.”
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The other tech piece includes the roll out of a new POS system that was suspended because of COVID. The cost-saving system is in 175 stores and is expected to reach 500 by the end of the year.
The digital objectives play right into Cracker Barrel’s plans for off-premises, as it expects the channel to remain elevated in 2021. Stores with open dining rooms are maintaining roughly 75 percent of growth outside the four walls. In addition to leveraging curbside pickup and third-party delivery, Cracker Barrel plans to test grab-and-go and a dedicated catering kitchen in Indianapolis.
Cochran said grab-and-go is meant to drive incremental to-go purchases from dine-in guests and build off-premises behavior for those who may not use it as much. The catering kitchen—Cracker Barrel’s version of a ghost kitchen—will potentially include menu items that traditional kitchens can’t handle, allow for third-party delivery, and supplement store needs around the holiday season. Both tests will launch this month.
Additionally, Cracker Barrel is keeping its focus on menu evolution, including hand-breaded chicken tenders that will be introduced later in the year.
There’s also the tested beer and wine program, a product that is now available in 100 stores. Based on the favorable results, Cracker Barrel plans to introduce the program to roughly 600 stores by the end of fiscal 2021. The beer and wine menu is targeted at improving the dinner daypart, but Cochran noted that mimosas have become popular in the breakfast and lunch dayparts. The company is testing new items and the first seasonal mimosa.
“The cadence is dependent to a large degree on the licensing requirements in the communities we’re in and to what degree we can move through that. That’s how the roll out will go,” Cochran said. “It’s difficult to predict. … We have not yet really started to promote it. But I’m encouraged with how strong it’s continued to be, especially in Florida where we’ve had it the longest.”
Regarding unit growth, Cracker Barrel is accelerating the expansion of fast-casual Maple Street Biscuit Company by opening up to 15 stores in 2021. Each of the current 35 stores are open with limited dine-in service. The brand continues to believe Maple Street has strong unit economics, which in a normal environment includes a targeted AUV over $1 million, store-level EBITDA over 17 percent, and a buildout cost of less than $750,000.
“I continue to be impressed with how the Maple Street team is navigating the difficult environment, and I’m excited about the brand’s future,” Cochran said. “The resilience they’ve demonstrated during the pandemic has reinforced the attractiveness of the concept and their business model. … In addition to opening these new locations, the Maple Street team is focused on developing replicable processes and on leadership development, staffing, and training to support the successful scaling of the brand as we accelerate their growth.”
In Q4, comp sales declined 39.2 percent, including a 40.7 percent decrease in traffic and 1.5 percent increase in average check. Restaurant revenue decreased 38.2 percent to $401.5 million. In fiscal 2020, Cracker Barrel earned $2.52 billion in total revenue, or a 17.9 percent decrease compared to last year. Same-store sales dropped 18.9 percent for the year, including a 21.6 percent slide in traffic and 2.7 percent uptick in average check.
Three Cracker Barrel stores are scheduled to open in 2021.
During the quarter, the company entered two sale-leaseback transactions. The first involved 64 properties that were part of a previous transaction set to expire in 2021. Cracker Barrel entered a new 20-year lease agreement, which resulted in a $70 million non-cash gain on sale of assets. To improve liquidity, Cracker Barrel entered a second sale-leaseback transaction in which the company sold 62 properties for roughly $150 million. The restaurant expects the second transaction to result in a $218 million non-cash gain on sale of assets.
Earlier in the year, the brand pulled forward a sustainable business model that cut 450 jobs in the field and corporate office. The restructuring plan is expected to produce annualized ongoing savings of roughly $50 million. Given the savings already realized, CFO Jill Golder said Cracker Barrel anticipates achieving the remaining balance of the approximately $50 million cost-savings target in 2021, with about $12 million to $13 million in savings in each of the first three quarters.
“We are confident that our plans and initiatives in fiscal 2021 will drive performance and long-term value creation,” Golder said. “ … We believe key initiatives, such as our lunch and dinner menu, the introduction of a beer and wine program, and our investment in digital guest experience enhancements will help sustain our momentum and drive improved performance.”
