The brand has triple-digit growth potential.

If Cracker Barrel’s strategic partnership with eatertainment up-and-comer Punch Bowl Social seemed an odd pairing at first, this might wipe the fog off the mirror. The 18-unit concept has the unit economics and potential to eclipse 100 domestic locations, Cracker Barrel chief financial officer Jill Golder said Tuesday during the company’s Q4 review.

It’s a long-term vision and segment worth pouring serious capital in, which is exactly what’s happening.

“We believe this investment is another way we can drive long-term value creation,” Golder said.

Cracker Barrel purchased about 59 percent of Punch Bowl Social’s economic interest and roughly 49.7 percent of its voting interests in July. The surprising move cost Cracker Barrel $89 million for an initial non-controlling stake, with the company agreeing to provide upward of $140 million.

Broken down, the chain forked up the $89 million in fiscal 2019, which left $51 million for growth capital—of which Cracker Barrel provided $15 million or so already. Another $36 million remains. The stake Cracker Barrel acquired was previously held by private equity giant L Catterton, which has investments in Noodles & Company, Anthony’s Coal Fired Pizza, and many others. It’s also the firm that recently agreed to buy Del Frisco’s for $650 million.

Cracker Barrel’s deal with Punch Bowl Social also left the option open to buy the brand outright.

The Denver-based chain, founded by Robert Thompson in 2012, combines high-end food with experiential offerings, like shuffleboard, bowling, and pinball.


A look back: Is Punch Bowl Social the next great eatertainment brand?

It’s a crowded space suddenly, but most of the players, Punch Bowl Social included, remain challenger brands from a footprint standpoint. Dallas-based Main Event has 42 locations. Pinstripes, out of Chicago, has 10. Topgolf 66. Chuck E. Cheese’s and Dave & Buster’s really sprung the amusement-and-dining genre to life 40-plus years ago (Dave & Buster’s opened in 1982 and Chuck E. Cheese’s in 1977). They’re by far the largest figures, with 608 and 132 units, respectively.

But even Dave & Buster’s has spoken at length lately about the rise of competition in its own, once-lonely sector. Some of that has come from cannibalization during its own growth spurt. The rest, though, thanks to the rise of fellow eatertainment brands looking to capitalize on millennials’ preference to seek out and consume experiences. As Thompson told QSR earlier, “When the largest buying segment speaks, most of the consumer-facing retail world listens.”

Dave & Buster’s said after its Q2 report, where same-store sales declined 1.8 percent—the seventh negative run in the last eight quarters—that the base of its stores impacted by either competition or cannibalization grew from 40 to 45 percent in just one period alone.

A Cracker Barrel Waitress Serves Guests In The Restaurant

Cracker Barrel is emphasizing value in its menu and marketing.

The reason it’s such an attractive and growing category to fight for share in, CEO Brian Jenkins said, is because, in line with Thompson’s point, “consumers continue to increase spending on experiences.”

It’s the continuation of a trend born out of the recession: Consumers are willing to spend disposable income on social gathering options that don’t break the bank. Eating out, for instance, where older generations would go on vacations.

This is something that extends beyond just millennials, too. According to a survey conducted by food industry market research firm Datassential, nearly 60 percent of all consumers said they were interested in visiting an eatertainment concept, while 30 percent of consumers said they had already visited one. More specifically, around 40 percent of those surveyed said they were interested in visiting an arcade bar, bowling restaurant, or social emporium, while 26 percent were interested in visiting a golf entertainment venue.

Mike Kostyo, the company’s senior publications editor, put stock in the “social media era,” saying “everybody wants to go out and have an experience that they can share with their friends.”

We’re all living our best life on the internet, right? Eatertainment elevates taking a picture of food and saying, “Wish you were here!” to new heights.

One of the realities pressing Dave & Buster’s is the fact that concept differentiation has climbed above segment differentiation in this space, leading to a need for upgraded elements, like VR, and food and beverage improvements, to stand out. The brand’s recently debuted “wow wall” to showcase sporting events is a good example.

Punch Bowl Social has always fit the bill, as Cracker Barrel pointed out numerous times during Tuesday’s call. The chain previously engaged “Top Chef” judge Hugh Acheson to curate its food before he left to focus on other commitments. Sheamus Feely, who held leadership positions at BJ’s Restaurant & Brewhouse and Hillstone Restaurant Group, joined as Punch Bowl Social’s first chief culinary and beverage officer in 2018. Almost 90 percent of the brand’s revenue comes from food and beverage, with items like Chicken ‘N Waffles and Cocoa Dusted Carnitas.

As far as the economics go, Golder said Punch Bowl Social currently reports targeted average-unit volumes in the $7 million to $8 million range, with new unit store level EBITDA excluding pre-opening of 17 percent or higher. Punch Bowl Social plans to open an additional six restaurants by the end of fiscal 2020, too. “We look forward to partnering with Punch Bowl Social to help us scale and achieve its potential,” Golder said.

Which brings up the question, what can Cracker Barrel do for Punch Bowl Social?

Inside A Punch Bowl Social Restaurant, With Bowling Alley Shown

Punch Bowl Social is well positioned to take advantage of the social gathering craze.

When the deal was first announced, Thompson said in a statement, “[Cracker Barrel’s] high-volume, multi-location expertise will help us continue to realize our vision for growth across the country. Our continued goal is to be an experiential millennial and Gen Z lifestyle brand that creates authentic, social guest experiences. Having Cracker Barrel provide growth capital and strategic resources sets us up for the next exciting chapter for Punch Bowl Social.”

Cracker Barrel CEO Sandy Cochran added: “… it gives us an opportunity to enter a new category with exposure to new guests and demographics while also leveraging our strengths and the similarities between the two companies. Cracker Barrel and Punch Bowl Social are both highly experiential brands that emphasize quality food and beverage, hospitality, and fun.”

The sentiment didn’t change much Tuesday. Cochran called the investment “another growth vehicle” for Cracker Barrel that will allow the company to “enter a new and expanding segment,” with an “award-winning, highly differentiated brand with strong growth potential.”

Punch Bowl Social’s management team continues to operate the brand from its Denver headquarters. Cracker Barrel, meanwhile, plans to provide input and strategic advice, Cochran said, as well as capital to jumpstart expansion, but keep its main focus on the company’s 667-unit flagship.

And speaking of Cracker Barrel, Q4 was a positive turn for the legacy brand, capping what’s been a solid year after some rough 2018 trends. Same-store sales lifted 3.8 percent, year-over-year, comprised of 0.2 percent traffic growth and average check of 3.6 percent. The latter was driven by menu price increases of 2.3 percent and favorable menu mix impact of 1.3 percent.

Cracker Barrel also grew its off-premises business 20 percent compared to the prior-year quarter. For the full year, off premises accounted for 9 percent of sales, an increase of 150 basis points from fiscal 2018. Cracker Barrel’s delivery program was live in more than 450 stores at Q4’s end, with another 150 planned for this coming calendar.

The positive traffic, while slight, is Cracker Barrel’s best performance in at least two years.

  • Q4 2019: 0.2 percent
  • Q3 2019: –1.8 percent
  • Q2 2019: 0.1 percent
  • Q1 2019: –1.6 percent
  • Q4 2018: –3.5 percent
  • Q3 2018: –1.3 percent
  • Q2 2018: –0.9 percent
  • Q1 2018: –1.8 percent
  • Q4 2017: –1.8 percent
  • Q3 2017: –2.1 percent
  • Q2 2017: –2.1 percent
  • Q1 2017: –1.7 percent

On the comps side, Cracker Barrel posted green results for the fourth straight quarter after dipping negative to close 2018.

  • Q4 2019: 3.8 percent
  • Q3 2019: 1.3 percent
  • Q2 2019: 3.8 percent
  • Q1 2019: 1.4 percent
  • Q4 2018: –0.4 percent
  • Q3 2018: 1.5 percent
  • Q2 2018: 1.1 percent
  • Q1 2018:  0.2 percent

Adjusted earnings per share came in at $2.70 in Q4. Revenues were $787.1 million. Both figures beat Wall Street estimates of $2.43 and $774 million, respectively, per Zacks Equity Research.

Operating income totaled $79.4 million, down 4 percent, year-over-year. Operating margin declined 10.1 percent, a 10-basis points decline from 2018.

A Salad And Baked Potato At Cracker Barrel Restaurant

Can Cracker Barrel ignite its dinner daypart?

What’s going right, and introducing a dinner push

One of the issues this time last year, when Cracker Barrel’s traffic flashed in the wrong way, was the brand’s drift from core traits. Essentially, it whiffed on value, craveable menu items, and the customer service ticks it was famous for. Here’s a deeper dive into the issues.

Cochran said during Q4’s review that Cracker Barrel is executing a “long-term roadmap to enhance the core, expand the footprint, and extend the brand.”

The goal at hand: work on what makes Cracker Barrel, Cracker Barrel, and then accelerate and invest in growth drivers such as off-premises. “Extend the brand” refers to vehicles such as Punch Bowl Social, as well as fast casual Holler & Dash, which Cochran mentioned once on the conference call, saying “we believe there is great opportunity in the breakfast and lunch-focused fast casual segment.”

A key to Cracker Barrel’s reinvigoration in 2019 was its Southern fried chicken combo dinner, which kicked off the highly marketed Signature Fried Chicken line. The company invested heavy in new equipment, training, and is now in innovate mode. Q1 began with a promotion that features Homestyle Chicken—two pieces of chicken breast previously only available on Sundays. Additionally, Cracker Barrel unveiled a Homestyle Chicken BLT, providing a glimpse into what’s available at the brand’s ideation disposal. Cracker Barrel is supporting the promotion through national TV, with ads continuing its reenergized strategy of explicitly highlighting food and value.

Historically, Crack Barrel’s most challenged arena has been dinner. What’s made it even more pressure-cooked lately is the infusion of discounting into the marketplace, especially around the daypart, where many casual-dining competitors operate exclusively.

Cracker Barrel’s plan to ignite the category, Cochran said, is to introduce Signature Items, akin to the Signature Fried Chicken line. Meanwhile, also unveil a new everyday-value focused menu of homestyle dinners for $8.99.

Cracker Barrel will remove some menu items as well to lower complexity, boost consistency, and ease employees’ tasks. “As we redesigned [the dinner offering], we want to highlight the value that is in our menu every day,” Cochran said.

Additionally, the brand will showcase some of its favorites in a way that makes it easier for guests to understand and for employees to execute.

In the past, because breakfast and dinner were different menus, customers didn’t quite process the fact Cracker Barrel offered morning staples all day, Cochran said. So, now, the chain will look at putting the breakfast component on its dinner menu to reinforce the differentiator.

“We’re trying to accomplish a lot in the dinner refresh,” Cochran said. “But absolutely have in mind that we will reinforce and highlight the value that we believe is so important to the brand and to our guests.”

Cracker Barrel expects to take a phased approach with the dinner initiative, she added. It’s headed for tests in a “substantial” portion of units in the second half of the year.

Casual Dining, Chain Restaurants, Feature, Finance, NextGen Casual, Cracker Barrel