Financing

Cracker Barrel plans to invest $700M in a massive 'transformation'

With traffic down 16% year-to-date, the family dining chain is embarking on a rejuvenation effort to enhance its relevance to new and lapsed customers.
Cracker Barrel
Dining rooms will get a facelift that includes banquets and clearer sightlines. | Photo: Shutterstock

Cracker Barrel expects to spend as much as $700 million over the next three years to rejuvenate the 54-year-old concept’s operations, menu and perception among hardcore fans and uninitiated consumers alike.

The comprehensive update is intended to reverse a drop in guest counts that’s currently running about 16% year-to-date. The decline has been particularly severe at dinner, according to executives.

They acknowledged that the brand is also losing market share to competitors. Research revealed that the rivals, whom the officials did not name, are outshining the chain on such fundamentals as menu appeal, value, convenience and the overall guest experience.

“We generally rank in the middle of the peer set, and we do not lead in any of these areas,” CEO Julie Masino said in revealing the particulars of the recast to Wall Street analysts and members of the media.

The core problem, she said, is “we’re just not as relevant as we once were.”

The rejuvenation effort will touch virtually every aspect of the concept, Masino indicated. In all, she said, the attempt to make the concept more contemporary without losing its nostalgic ambiance encompasses about 20 initiatives. She grouped them into four areas:

Menu. Ten stores are currently testing a new bill of fare that Masino characterized as building on Cracker Barrel’s perception as a place to go for scratch-made homestyle foods while simultaneously appealing to more contemporary preferences. She cited the examples of a shepherd’s pie casserole, slow-braised pot roast and creamy chicken and rice.

In addition to revamping the options, the company will update the way certain dishes are made to simply the preparation process. For instance, back-of-house employees still cut lettuce and pineapples by hand. “Some of our recipes and processes haven’t evolved in decades,” Masino said.

For the sake of simplicity, some items will be dropped, she said.

Pricing.  “We believe there is a large opportunity to improve the way we price,” Masino said. She explained that there’s a surprising lack of variety in pricing from one market to another, with most units opting for the least-pricey of Cracker Barrel’s five pricing tiers. A unit in an area with $90,000-a-year households is charging the same as a store where the mean income is less than half.  She suggested that pricing will be customized more aggressively to the market a store serves. In test areas where pricing was more tailored to the market, the average check rose about 3%, according to the CEO.

Physical appearance. Many stores have not been adequately maintained, requiring “a defensive investment” in their physical appearance and functionality, said Masino.  Two units have tested a renovation package that guests characterized as “lighter, brighter, fresher, cleaner.”

Simultaneously, the chain is testing a new prototype that’s 15% smaller than the current typical Cracker Barrel, without any loss in seating. “This will help unlock unit growth over the long term,” Masino said.

The company has retained an industrial engineering company to ensure the operations of new stores are simpler and more efficient.

Off-premise. Although Cracker Barrel has grown its delivery and to-go businesses and has enjoyed particular success from its holiday catering programs, “there’s an opportunity to further grow this business,” said Masino. She did not divulge any particulars on how the chain intends to do it, but noted that the brand will continue to invest in digital enhancements like functionality upgrades to its loyalty program. Though introduced just a few months ago, it already boasts 5 million members, she noted.

To pay at least a portion of the rejuvenation effort, Cracker Barrel’s board voted to cut the company’s next quarterly dividend from $1.30 a share to about 25 cents.

The plan calls for spending $160 million to $180 million in its next fiscal year; $180 million to $220 million in fiscal 2026; and $260 to $300 million in fiscal 2027.

Masino indicated that Cracker Barrel’s results for the third and fourth quarters of fiscal 2024 will likely fall below expectations because of continuing traffic erosion.

CFO Craig Pommells indicated that results should start to improve significantly during the second half of fiscal 2026 and then continue into the next year.

The rejuvenation program was drafted not as one or two-year fix, but “for the next 10 years and beyond,” said Masino.

“We simply have to invest in the future,” she said.

The company is scheduled to report Q3 results on May 30.

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