Cracker Barrel Will Begin Testing Chicken and Biscuits Virtual Brand

The classic brand continues to build a multi-layered off-premises strategy.

February 23, 2021 Ben Coley

Cracker Barrel CEO Sandy Cochran is crossing her fingers that traveling will return to regular levels during the summer and that vaccines will improve dining room capacity.

But a multi-billion-dollar company such as the 663-unit Cracker Barrel doesn’t make money on hope alone. In lieu of restricted dine-in traffic, the chain is carefully building an off-premises program that will not only carry it through COVID, but provide an incremental boost once restrictions phase out.

In Q2, which ended January 29, off-premises sales increased 78 percent year-over-year. That came after a 122 percent uptick in Q1 and a 145 percent rise in Q4 2020. During this stretch, off-premises mix hovered between 25 to 35 percent.

Cochran believes the brand can maintain more than 50 percent of the increase it’s seen during COVID, and is putting pieces in place to that end.

In the Indianapolis market, Cracker Barrel converted a store into a ghost kitchen to supplement capacity in the area. At this location, the chain will begin testing a new virtual brand on Friday that serves Cracker Barrel’s chicken and biscuits.

“It’s a unique opportunity to offer something Cracker Barrel is known for and resonates as a delivery-only offering,” Cochran said Tuesday during the brand’s Q2 earnings call.

In the second quarter, Cracker Barrel saw high demand for its classic Heat n' Serve meals—even with higher price points—including its new smaller family dinner offerings. The brand plans to follow up that performance with the release of a new Prime Rib Heat n' Serve product for Easter, which serves up to six people for $109.99. To leverage the catering channel, the chain also released meatloaf sliders.

Each of those offerings tie into Cracker Barrel’s new digital store, which provides an integrated experience for customers ordering food and retail. Cochran said the brand has seen strong website traffic conversion and that the digital store contributed to off-premises success in Q2.

“Looking ahead, we intend to further leverage its capabilities and introduce additional enhancements to reduce friction and improve convenience for both dine-in and off-premise guests,” Cochran said. “We believe the digital store will allow us to extend our hospitality in new ways and empower guests by giving them more control over their journey with us.”

As it builds the off-premises program, Cracker Barrel is working to improve the channel’s margins by increasing average check and attachments of individual to-go orders, mitigating supply costs, utilizing technology to reduce labor pressures, leveraging the pricing power of Heat n' Serve meals, and rolling out new innovation.

Restaurant same-store sales dipped 18.5 percent in November and 28.8 percent in December as states added COVID restrictions. Since then, sales have improved, with comps finishing down 19.3 percent in January. Overall, Cracker Barrel dropped 21.9 percent in Q2, consisting of a 24.2 percent slide in traffic, 2.3 percent increase in average check, and pricing of 1.2 percent.

Restaurant revenue was $512.6 percent, or a 21.9 percent decrease year-over-year. Operating margin was negatively impacted by lower dining room sales because of closures, restrictions, and a decrease in travel. Cracker Barrel was also pressured by Heat n’ Serve meals, which rose in sales in Q2, but also came with lower margins.

As the industry heads into the spring and summer, the chain is confident it’s well-positioned to capitalize on a normal environment.

For example, Cracker Barrel is preparing to introduce hand-breaded chicken tenders—both a classic and sweet and smoky offering—as part of the third phase of a menu evolution that started a couple of years ago. Cochran said the items extend the strong equity of the fried chicken platform that Cracker Barrel launched in the back half of fiscal 2019. After this phase, the brand will set its eyes on the breakfast program. To make room for innovation and reduce complexity, the chain has eliminated 20 percent of its menu since the summer.

Cracker Barrel

Cracker Barrel's new beer and wine program mixes about 1 percent, but the brand believes it can double that.

Additionally, Cracker Barrel’s beer and wine program is now in roughly 350 stores. The full rollout to 600 stores, which has been delayed to COVID, is expected by Q1 of 2022. The program mixes about 1 percent, but Cracker Barrel believes it can double that. Thus far, mimosas have been the most popular, and the chain has continued to test more items like Sangria and Blue Moon.

In terms of store design, operators are learning how to adapt to changing dine-in preferences. Roughly 125 stores are officially offering front porch seating and about 200 are offering it unofficially. It’s not yet decided how much of that style will be incorporated into future stores, but it is one of the matters that the brand is sorting through.

“We’re thinking about how [front porch dining] should play into future prototypes,” Cochran said. “… We’ll be thinking about what kind of equipment and kitchen layout will allow our operators to deliver the menu more productively. So we have a lot of work against how to improve the productivity of new boxes, hoping that that will allow us to continue and maybe even increase the number of new Cracker Barrel units that we feel comfortable opening.”

Cracker Barrel’s other brand, Maple Street Biscuit Company, experienced a Q2 that exceeded expectations, Cochran said, including several weeks of positive comps toward the end of the period. The quick-service chain has 36 units, with one opening in Q2.

Cochran said the team is continuing to work on building the pipeline and refining operations and systems to support the scaling of the brand. She added that the focus has been on securing the best sites with appropriate occupancy rates.

“We will be entering new markets as well as looking for additional locations around existing markets,” Cochran said. “And I’d like to say within the next fiscal year, we’ll be looking at growth in the double digits back to where we originally thought in that sort of 15 to 20 range. So then it starts to become meaningful, certainly on the top line numbers for us.”

Cracker Barrel is expecting Q3 restaurant comp sales to slide between 11 and 14 percent compared to pre-pandemic 2019 levels. Cochran said roughly 126 stores were closed due to the extreme winter event across Texas, but noted those results are baked into the Q3 guidance.

Cracker Barrel also announced that it will achieve the remainder of its $50 million cost savings in Q3. The chain anticipates that a little more than half of the savings will come from labor and related areas and roughly 20 percent from G&A. The majority of the other savings will come from other operating expenses.

The offsets to the savings come in three categories: investments in labor and supplies to support safety protocols, expenses related to strategic initiatives, and net expense from sale leaseback transactions.