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Cracker Jack Cracker Barrel
C H A I N O F T H E Y E A R
There isn’t a cutting edge in the entire place, and therein lies the strength of Cracker Barrel Old
Country Store. Its folksy demeanor and down-home cooking is a refuge for those who seek comfort in
a tumultuous world. Welcome, ladies and gentlemen, to America’s most comfortable restaurant and
this year’s winner of R ESTAURANT HOSPITALITY’S Chain of the Year. By Polly LaHue
A U G U S T 2 0 0 3 R E S T A U R A N T H O S P I T A L I T Y 49
T
here’s been a lot written in recent years about comfort food. During tough
times, pundits say, people yearn for the foods that have always made them
feel good. But long before 9/11, “Operation Iraqi Freedom,” and this most
recent and grueling downturn in the economy, few restaurant companies have
offered food and an experience more comfortable than Cracker Barrel.
Perhaps that’s why this Lebanon, Tenn.-based company has thrived for three
decades and, during these tough times, has collected a barrel full of awards. A
strong senior management team armed with four seemingly simplistic, but powerful
2 0 0 3
COZY COMFORT: Cracker Barrel has long represented a place of refuge, a place where one could get a meal like Mom used to make.
Best Practices points, have shaped this 34-year-old chain into an award-winning giant. Cracker Barrel re- ceived the Good Sam Club’s Welcome Mat Award in 2002 and 2003, was ranked for the tenth consecutive year as the Best Restaurant Chain for Groups from Destinations magazine, and, this year, took honors as R ESTAURANT H OSPITALITY ’ S Chain of the Year. For an enterprise more than three decades in the making, Cracker Barrel has remained surprisingly true to its roots. In 1969, Dan Evins, a Shell Oil “jobber” for the Tennessee/ Georgia territory, wanted to of-
fer travelers a place to stop for a good meal at a fair price, quality gift items and gasoline. When he learned that a strip of land off Interstate 40 near Lebanon was available, he saw the perfect opportunity to build a combination retail store and restaurant with a gas sta- tion. He envisioned the restaurant much as it is today: filled with unique and authentic rural artifacts. In that first store, as in the 482 operated today by parent company CBRL Group, Inc., guests found slow-cooked country favorites made with pure and simple ingredients from old-fashioned, homestyle recipes. Chicken n’ Dumplins, Meatloaf and Roast Beef are staples on the dinner menu today, comple- mented by a long list of vegetables and side dishes. All that home cooking has helped build a loyal following, especially with travelers, to the tune of 180 million meals yearly. With restaurants along interstates in 41 states, Cracker Barrel has been able to take that brand awareness and move it out into core markets, continued on page 54
We looked at the stores that did the best, learned from them,
captured those things in training materials, and rolled them back into
our system. Our Best Practices have become a way of life.
TRUE TO ITS ROOTS: For more than three decades, Cracker Barrel has remained a constant in an ever-changing world. Its Early American interior simply says, “Please join us and relax. We have a good meal waiting for you.”
TOP DOG: Cracker Barrel represents old-fashioned values, but under Mike Woodhouse’s leadership, the concept is progressive and forward-thinking.
know it is prepared properly. At the same time, says Wood- house, the concept has focused on finding different ways to deliver the same high quality at a lower cost. “We’ve done a lot of work in the purchasing area and we’re doing work in other areas to take cost out without changing the customer expe- rience at all.” With an average guest check of $7.42 that translates into estimated net sales of $1.8 billion for fiscal 2003, customer feedback is an important part of the Cracker Barrel puzzle. “We do a lot of focus groups and get feedback di- rectly from customers,” Woodhouse says. “They’re pretty vocal about what Cracker Barrel is and what it isn’t. We’re well known for comfort foods cooked from scratch,” Wooodhouse says. “Whenever you have consumers come to a restau- rant, and they actually trade up on the menu, I think it speaks volumes about how this company has po- sitioned this brand,” says Derrington. “It’s not like they’re driving traffic with low price point loss lead- ers. The fact is, check averages are growing faster than price increases. Consumers recognize the value, and it speaks volumes about the price poten- tial that the brand still has that they’ve yet to take ad- vantage of.” Competition for those dollars is everywhere. Though family restaurants would seem to be key com- petitors, Cracker Barrel has a strong crossover into the casual dining segment. Yet Turner says every restau- rant is competition. “We’ve heard from our guests that homestyle is very important,” Woodhouse says. “Although we have a varied menu, they think of us as homestyle food. We’re tops in mind in terms of travelers. But we’re happy to take more guests from the other guys.”
They’re happy to take retail dollars, as well. With a gift shop business that rakes in 23% of overall sales and 1,200 visitors who pass through each store daily, the task at hand is a bit more complicated than decid- ing what gum to stock near the register.
The retail side of the business T URNER SAYS THIS PAST YEAR THE COMPANY IMPLEMENTED A PLANNING (^) function that helps buyers decide which mer- chandise to purchase, how much to stock and when to stock it. The executive team had questioned the mix and timing for merchandise. That mix, which has slowly and methodically evolved over the last three years, has taken a turn toward more nostalgic mer- chandise, including such gifts as antique gardening items, old fashioned popcorn makers, and the com- pany’s signature hardwood rocking chairs. In addition, a recently added line of gadgets and tools has been successful in targeting impulse pur-
chases for guys. “We’re focusing on the price points to make sure they are in line with the check average,” Woodhouse explains. “We’re not trying to sell $200 items in a $ per check restaurant. We’re selling a lot more items at slightly lower prices. That’s good for us and good for our guests.” Though it’s difficult to tabulate, Wood- house estimates one in three restaurant guests also makes retail purchases, and the average purchase is about $4. Derrington says in the late ’90s, prior to Wood- house’s appointment as CBRL Group CEO, the com-
pany forced too many aggressive price increases at a time when they were cutting service standards. Con- sumers not only paid more, they also got less. Wood- house and his team not only reversed that and dropped prices, they brought in key retail people fo- cused on tightening in-store operations, cutting costs, and getting the employees more focused on selling the products. “Instead of trying to sell everyone a rocking chair for $100, the sweet spot for them is in the range of $ to $25, the best point being in that $10 range,” Der- rington explains. “They’ve begun to slowly improve sales and improve profitability on that side of the busi- ness. I give this management team huge credit for not just raising prices or doing things without thinking about it and the repercussions of those moves.” “We’ve got to keep this business simple for all of us,” Woodhouse says. “We tend to have a more complex
CHA CHING: Retail sales and profits are on the rise in CB’s adjoining country store.
Derrington predicts earnings per share growth of at least 15% through
the next five years. For a company this old to drive the kind of earnings
growth it has is nothing short of incredible.
continued on page 58
operation than a lot of other operations. The challenge for us is keeping it simple for the guests (while) deal- ing with quite a complex business behind the scenes.” Part of the complexity lies in the expansion of the chain, which added 23 new stores this year and ex- pects to add 20 to 25 new stores yearly for the next three to five years. The company has a new three- month check-up process to monitor new stores fol- lowing their opening to see that they are on track. The process reviews hiring decisions, training effective- ness, sales figures and cost controls, as well as cus- tomer feedback. “We’ve taken a rigorous approach over the last few years,” says Gilbert, who joined Cracker Barrel two years ago. “Because our new unit growth is relatively small for our overall size, we need to get every unit right. We’ve been very careful and thoughtful in that process.” In fact, the company has been so successful, it has only had to close eight properties in its 34-year history,
and one of those had been devastated by a tornado. Derrington approves of the way CBRL is growing the chain. “This is not a company that needs to open 20% new stores every year to meet their earnings ex- pectations,” he says. Based on their current expansion plan, projected store sales growth and margin expan- sion, Derrington predicts earnings per share growth of at least 15% through the next five years. “For a com- pany this age to drive the kind of earnings growth it has, is nothing short of incredible,” he says. That’s not to say the company hasn’t had its share of rough times. The most recent came just four years ago when attorneys representing a group of 13 African- American employees or former employees held a news conference to announce they were pursuing a class-action lawsuit against Cracker Barrel for alleged
incidents of racial discrimination. On May, a U.S. District Court judge rejected the class action suit, saying the employees had failed to make their case. About 23% the company’s 50, plus employees are minorities, according to Turner. About 13% of those are African-Americans, and more than 7% of the company’s store managers are African- Americans, as are its top three executives who handle human resources, employee training and purchasing. It was the second time in six months that a judge re- jected a class-action suit against Cracker Barrel brought by the same attorneys. Derrington thinks the company goes out of its way to treat both its employees and customers extremely well. “When you look at how the turnover in this com- pany has continued to fall, I think it speaks volumes about how this company takes care of its employees and the customers it serves,” he says. “I think the frus- trating thing about (the lawsuits) is that they have es- pecially tried to maintain fair relations with their em-
ployees. In this business, it’s hard enough to find good people. If you abuse your employees, they’re never going to take care of your guests.” “The thing that impresses me most is that this is not a company that is resting on its laurels,” says Derring- ton. “They’ve had a nice little run for two or three years here, and they continue to look for ways to im- prove the business. They continue to evolve the menu, trying to stay consistent to their guest’s expec- tations. And they continue to evolve the retail side of the business.” If history is an indicator, Americans will continue to flock to Cracker Barrel in good times and in bad, and the business world will take notice. Woodhouse just might want to clear some space off the Cracker Barrel mantle for a few more awards.
Cracker Barrel has been so successful over the years, it has had to
close only eight stores in its 34-year history, and one of those stores
was demolished by a tornado.
SLOW DOWN: Cracker Barrel pays homage to the slower, country way of living by inviting guests to sit on its front porch and relax.
