While traffic from older customers is still a struggle, milennial and Gen Z customers are enjoying the chain's beer and wine program, along with increased breakfast customization.
Cracker Barrel is turning back the clock, at least when it comes to customers.
While the chain has experienced lower visitation from guests 65 and older for months now, the company saw increased traffic from younger customers in the fourth quarter (ending July 29), especially millennials between 25 and 34 and customers between 44 and 55.
"Although it will take time to move from an over-indexed position of visitation by guests who are over 65 to one that is more balanced, we believe the things that we are doing to appeal to younger guests and families are working," CEO Sandy Cochran told analysts during the chain's Q4 earnings call.
Cracker Barrel has worked toward this for years. In 2020, the chain added beer and wine for the first time in its 51-year history. In February, the program was in roughly 550 of 663 restaurants and making progress toward a 2 percent mix. The restaurant offers multiple beer varieties, sparkling and white wines, orange and strawberry mimosas, and sangria for $6.79 and lower. Earlier this year the brand added Roscato wine and a Jack Daniel's spiked lemonade. CMO Jennifer Tate said the chain is seeing strong retention of overall beverage incidents with younger consumers.
The brand then struck a chord with its new breakfast launch in June. Cracker Barrel added a Build Your Own Homestyle Breakfast option in which customers start with two eggs cooked any way, their choice of meat and a side, and biscuits n' gravy, all starting at $8.99. The chain also tacked on Impossible sausage as an alternative, appealing to the rise of flexitarians among the millennial and Gen Z age brackets. Tate said the build-your-own section is mixing above expectations because of the younger generation's appreciation for customization.
"We rate really high in terms of food, value, and just the environment," Tate said. "I think a lot of these folks are in that stage of their life where they're starting to have families. And so what Cracker Barrel represents is very appealing for them. Our menu innovation, our breakfast news, Build-Your-Own Breakfast, Strawberry Cheesecake Pancakes, a lot of the items that we launched in the fourth quarter were particularly intended for this group."
Cracker Barrel is building this young customer base through digital means. This year, the chain rolled out pay at the table via QR code, Apple Pay, and Google Pay. The next objective is releasing a loyalty program, which should launch by the end of the year. This should improve an off-premises channel that mixed 18 percent in the fourth quarter—in line with long-term expectations. Catering in particular is expected to grow by 25 percent in fiscal 2023 and top $100 million.
"We are taking the time to get it right as we believe the [loyalty] program needs to be compelling and well-developed before we launch it," Cochran said.
Same-store sales lifted 6.1 percent year-over-year, driven mostly by 7 percent pricing (3 percent carryover from a Q1 increase and 4 percent carryover from a Q3 increase). It's a noticeable slowdown from the 10.9 percent rise in the third quarter. Food inflation came in at the high end of what Cracker Barrel expected, with restaurant costs of good sold coming in at 28.7 percent, up from 25.1 percent in the prior year. The 360-basis-point rise was driven by commodity inflation of 18 percent. That includes soaring inflation for poultry (35 percent), oils (76 percent), and grains (27 percent). Labor expenses were 35.5 percent, an increase from 34.2 percent last year, fueled by wage inflation and lower productivity levels.
Amid the inflationary noise, Cracker Barrel isn't losing low-income customers, but it's still seeing decreases from the 65-plus consumer. And the increased frequency from millennials hasn't been enough to offset negative traffic from older customers.
The chain believes inflation will ease in the back half of fiscal 2023, so it decided to pass on much—but not all—of the cost impact through pricing. Using industry data, Cracker Barrel found that its gap versus competitors increased on almost every value metric compared to last year.
"We believe this was the right decision to maintain our strong value proposition with our guests, especially in the face of a potential recession," Cochran said.
In fiscal 2023, Cracker Barrel expects 8 percent pricing. Typically, the brand implements two big increases per year, but recently it's moved toward frequent, smaller jumps that are closely monitored from several sources to check for trade-down or traffic drops. The company already took its August pricing action, which should be the largest of the year. The chain holds the option to not take pricing in the back half of 2023 if it sees negative trends.
The concept projects commodity and wage inflation of 8 and 5 percent in 2023, respectively. Total revenue should grow 7-8 percent, including the opening of three to four Cracker Barrel stores and 15-20 Maple Street Biscuit Company restaurants. The brand wants to spend $125 million in capital expenditures, $30 million of which is related to new store development.