Trouble Brewing at Cracker Barrel?
More than 40 years ago in 1969, Dan Evins developed the Cracker Barrel Old Country Store concept as a way to sell more gasoline for his then-employer, Shell Oil. The first store was built near an interstate exit in Lebanon, Tennessee, and was modeled after Dan’s childhood memories of an old country store. The cuisine is Southern, with grits, country ham, greens, and biscuits among the top sellers, and the décor is eclectic Americana. Most of the early stores also had gas pumps, further enticing customers to stop in, get a bite to eat, and fuel up before hitting the road again.
Since those early days, the Cracker Barrel chain has grown to encompass 620 locations in 42 states. The following chart illustrates its relatively slow but steady progression over the past 10 years:
Even today, 85% of its restaurants are located on interstate exchanges, and loyal customers seek them out during their travels. Each location features a front porch with rocking chairs where guests are invited to sit and rest a spell while they wait for their names to be called. Each table inside has a wooden peg game, and it’s common to see families huddling and planning their strategy to get the best score. Breakfast is served all day, but no alcoholic beverages are served anywhere in the chain.
The restaurant interiors are unique in their appearance, with no two stores exhibiting the same décor. Instead, the company maintains a warehouse stocked with thousands of old and antique decorative accents, ranging from old store and product signage to rusted tools to old portraits, photos, and pieces of art. The items are purchased, restored, and archived by the son of the family who decorated the first Cracker Barrel Old Country Store in the 1960s.
In its most recent fiscal year (ending August 3, 2012), the company generated total revenue of nearly $2.6 billion, 20% of which is derived from retail operations at each location’s in-store gift shop:
In order to get into the restaurant, guests must walk through these gift shops, where they can purchase such items as old-fashioned candy, Cracker Barrel-branded bacon and pancake mix, wooden toys, stuffed animals, country-style home décor items, and seasonal decorative products. Cracker Barrel has an exclusive music program that includes projects with some of the nation’s leading country, gospel, and bluegrass artists, such as Josh Turner, Dolly Parton, the Zac Brown Band, and Alison Krause & Union Station. The chain also offers a Book-On-Audio program, through which customers can purchase any of 200 titles at any of its locations then return it for the full purchase price, minus a $3.49 per week exchange fee. The company says that nearly one-third of its guests make a retail purchase.
The chain has won numerous accolades over the years, including Nation’s Restaurant Newsmagazine’s top family dining award for the past two years, Zagat’s designation of best breakfast at a full-service restaurant, and a spot on FORTUNE magazine’s “America’s Most Admired Companies” for 12 consecutive years. The company is participating in the U.S. Department of Energy’s EV Project and was one of the first restaurant operators to install electric-vehicle charging stations.
Perhaps because of all the buzz the company has generated in recent years, it has caught the attention of one of the restaurant industry’s rising stars, Sardar Biglari, who at only age 35 has already engineered the takeover of The Steak ‘N Shake Company and The Western Sizzlin’ Corp. Depending on who’s doing the commentary, Biglari is a young smart investor in the style of Warren Buffet or an aggressive corporate raider like Carl Icahn.
As the largest shareholder with 17.5% of the outstanding common stock, Biglari Holdings Inc. announced its intention of nominating its Chairman/CEO Sardar Biglari and its Vice Chairman, Phillip Cooley, to the Cracker Barrel board of directors. Biglari’s bid for a seat on the Cracker Barrel board last year was overwhelmingly rejected by shareholders, and earlier this year, Cracker Barrel adopted a so-called “poison pill” shareholder-rights plan to defend against a potential hostile takeover by Biglari Holdings.
Cracker Barrel counter-offered this year’s action with a proposal that Biglari nominate two independent directors, a plan which was promptly dismissed by Biglari. Biglari has also created a home page (www.enhancecrackerbarrel.com) dedicated to stating his case for “creative disruption” in the Cracker Barrel board room. The web site provides links to documents personally written by Biglari, as well as links to his own company’s SEC filings.
However, Biglari may have gone one step too far in his current quest to gain access to a position of power in Cracker Barrel – in late September, the U.S. Justice Department levied an $850,000 fine against his company. The civil penalty was assessed for Biglari Holdings’ alleged failure to give notice to federal regulators of its intent to actively participate in the management of Cracker Barrel, a violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Biglari has agreed to pay the fine but admits no wrongdoing, instead stating that paying the fee will be less expensive than the legal fees that would be paid to fight it.
Cracker Barrel Old Country Store Inc.’s annual meeting of shareholders will take place on November 15, and as recently as October 4, the company’s CEO/President, Sandra B. Cochran, sent a letter to the shareholders urging them to reject Biglari’s latest bid to take a seat on the board, citing potential jeopardy to the company’s “strong operational momentum.” A fly on the wall will have an interesting view at this upcoming meeting.
For more information about Cracker Barrel and thousands of other foodservice and retail companies, visit www.chainstoreguide.com or contact Chain Store Guide at 800-927-9292.
In the month of September, Chain Store Guide received responses from 292 restaurant operators with at least five locations. Of the companies surveyed, less than 10% said that Android or Apple mobile devices are currently in use inside their restaurants, with Apple being the dominant manufacturer. Almost 91% stated they are currently not using any mobile devices.