Restaurant execs tend to characterize the industrywide slowdown in traffic as a “headwind,” and the new leadership of Cracker Barrel Old Country Store is no exception. Roughly 30 days into her new job, CEO Julie Masino invoked the euphemism to describe a 7%-plus slide in restaurant transactions for the quarter ended Oct. 27.
Her thesaurus might have advised a more appropriate term for what the nostalgia-themed concept’s retail component endured. Like “hurricane gale.”
Significant floor space is devoted to the gift shops that complement Cracker Barrel’s dining rooms. Yet sales of stick candy, old-fashioned wooden toys, rocking chairs and other items fell 8.1% on a nominal basis. Cracker Barrel did not reveal how much higher the folksy wares are priced today, but it acknowledged that sticker shock may have been a factor. If inflation drove up the cost of tee shirts and tchotchkes in equal measure to the hike in Cracker Barrel’s menu prices, retail transactions dropped by nearly 15%.
It wasn’t as if abysmal sales of a single retail product dragged down the total intake. “We experienced sales declines across most of our categories,” Masino told financial analysts in a follow-up call to the company’s first-quarter earnings report.
“Some of this was due to lower restaurant traffic, but we also believe some price-conscious guests may have reduced their retail purchases as a way to manage their overall spend with us,” she added.
Put otherwise: On-premise customers are deciding whether to buy the new Dolly Parton CD or a side of bacon to go with their pancakes. Given the higher profit margins that restaurant fare usually sports, Cracker Barrel’s preference would likely be the bigger breakfast order.
Even with patrons keeping their wallets in pocket while walking through the gift shops, the company’s profits plummeted 68% for the quarter, with operating income margins falling to just 2.3%.
The gift shops are an essential part of the Cracker Barrel concept’s general store theme. Turning their floor space into more dining-room capacity, or just omitting them from future stores, would be like eliminating the nuts from Almond Joys. The product just isn’t the same.
We feel Cracker Barrel’s pain. Once, “media” meant inking sheets of dead-tree material and mailing a stack of the printed paper to readers’ offices and homes. In case you haven’t noticed, Restaurant Business stopped being a printed magazine several years ago, after a 100-year-plus run as a publication. The fact you’re reading this is proof the world can continue after a monumental change.
Phasing out gift shops would be a huge move for Cracker Barrel. Even with Q1’s decline in retail revenues, the stores generated about $163 million in revenues for the period. On a per-unit basis, the contribution pencils out to a $246,700 contribution for the three-month period.
Fortunately, the family dining powerhouse has a new business ready to slide into the freed floor space. Two, in fact.
The company is shifting much of its development effort and resources to its fledgling breakfast-and-lunch chain, Maple Street Biscuit Co. The growth concept’s limited hours could that switch a challenge, but there are ways to work around it.
The other possibility would be sticking with retail, but shifting the product line from gifts and crafts to takeout food. Cracker Barrel is already moving in that direction with its ready-to-eat and heat-and-eat family meals. Off-premise options already account for 17.5% of the chain’s sales, and the revenues generated by the multi-portion meals grew during Q1 at a year-over-year rate of 50%.
The busiest time for that relatively new product line is the stretch from Thanksgiving through Christmas. That also happens to be the peak time for the Cracker Barrel gift shops.
Giving hardcore Cracker Barrel fans another way to buy meals might also address what Masino identified as a key issue for the brand. “For as many guests as we serve each day, many of them only visit us once or twice a year,” the Yum Brands alumnus said. Boosting frequency is “the best way to drive growth.” The availability of a Cracker Barrel meal for the home table could be a way to do it.
Operating a takeout food shop is not alien ground for the company. It once tested a secondary brand called Corner Market, albeit 30 years ago. It bombed back then. But that, of course, was before the off-premise boom that the pandemic ignited. Might Corner Market have been ahead of its time?
Masino was asked about the future of Cracker Barrel’s retail operations during the company’s Q1 conference call with financial analysts. “Since 2019, the retail business has outperformed pretty consistently, both in terms of sales and profit,” she responded when asked about the outlook for the retail spaces. “So we’re very proud of that business.” In short: You’ll still be able to get our rock candy and Christmas ornaments.
Masino revealed during the call that Cracker Barrel embarked on a “strategic transformative initiative” in late September. She characterized it as an intense study of the brand’s strengths and weaknesses, as well as “a wide-ranging assessment of the near-term and long-term opportunities.”
It’s not so far afield to think the omission of gift shops in future Cracker Barrels may be one of the opportunities that come to light.