Cracker Barrel Old Country Store wants to be more than the place you go during a road trip.
The Lebanon, Tenn.-based chain of family-dining restaurants and knick-knack retail shops wants to bolster its off-premise business.
Doing so would help the chain keep up with various full-service competitors that are working to offset declines in sales and traffic. Cracker Barrel’s same-store sales rose 1.5% in its fiscal third quarter ended April 27. But traffic declined 1.3%.
Cracker Barrel is working to build off-premise with three different strategies.
One is on individual orders, something that is growing organically as consumers demand more off-premise options. Cracker Barrel is planning to test delivery in the coming quarters to meet that demand, adding its brand to the growing number of chains of all stripes looking to delivery.
Another is what the company calls its “heat-and-serve” business aimed at family gatherings. The company offered a family meal, featuring a ham and several other sides, over the Easter holiday, for instance.
A third is catering. “We’ve put in a number of programs to support that,” Sandra Cochran, CEO of Cracker Barrel, said on the company’s earnings call Tuesday. For instance, she said, the chain has added catering managers in certain markets. And the company is testing some menu items specifically for the catering business.
Off-premise remains a small part of Cracker Barrel’s overall sales, just 7.5% thus far. But that is up by “double digits” over the previous year, and the company's ultimate goal is to get it to 10% in the coming years.
The chain is seeing growth in “all three categories” of its off-premise business. “We’re early in off-premise,” CFO Jill Golder said on the company’s earnings call. “But we’re pleased with our progress.”
The shift to more off-premise business comes amid a competitive landscape. It also comes as sales for the chain slowed down some in May, suggesting that the overall industry sales environment has retained some “choppiness,” and that improvement early in the year was an indication of “pent-up demand” after the holidays.
“Competition remains very tough,” Cochran said. “There’s a lot of overcapacity. In casual dining, though improved, traffic trends are still negative. It’s too early to tell if the trend with the consumer will be sustained.”
Still, she said, Cracker Barrel has some initiatives that could build on sales in the coming months. “We anticipate some improvement in the industry,” Cochran said.
One thing that isn’t expected to improve, at least in the fourth quarter, is commodity costs. The restaurant chain’s cost of goods sold increased 80 basis points as a percentage of sales, the result of a 5.1% increase in the chain’s food costs in the period.
Golder blamed that on high egg, pork and beef prices. And she blamed those high prices largely on demand.
Egg prices are due largely to “strong consumer demand” and a “static flock size,” coupled with “aggressive features around eggs” during the Easter holiday, Golder said.
And the company’s beef costs, especially roast beef and ribeye, are demand-driven, too. Meanwhile, the chain is coming off of low pork prices, all of which led to the increase in commodity prices.
Cracker Barrel expects that to continue into this quarter.
Cracker Barrel reported a 3.9% increase in net income for the quarter, to $48.7 million, or $2.03 per share. Revenue rose 3% to $721.4 million.