Cracker Barrel is feeling sales pressure from multiple angles as it heads toward the back half of 2022.

Topline figures in the brand’s fiscal third quarter were encouraging as February progressed, but higher-than-expected inflation and rises in COVID cases slowed recovery in March and April.

Restaurant costs of goods sold were 27.8 percent versus 24.3 percent last year, a 350-basis-point increase that was fueled by 18 percent commodity inflation. Labor costs were 31.6 percent compared to 28.8 percent in 2021, an 80-basis-point rise due to wage inflation and higher staffing at both managerial and hourly levels. While this happened, COVID cases have consistently moved upward since April, according to CDC data.

CEO Sandy Cochran pointed to three things in particular—customers 65 and older were slower to return to in-person dining, the higher-cost environment caused customers to limit their frequency and spending, and record-breaking gas prices disrupted traditional spring break travels.

Restaurant same-store sales lifted 10.9 percent year-over-year, driven mostly by dine-in traffic growth and 5.9 percent pricing, but still short of what Cracker Barrel projected. The same goes for total revenue, which increased to $790.2 million in Q3—10.8 percent above 2021 and 6.8 percent higher than 2019.

The 660-unit Cracker Barrel knows the road isn’t getting any easier. More price increases are planned for August and June, which will put the brand at 7 percent through the end of 2022. Commodity inflation is expected to be 16-18 percent in Q4 and wage inflation is projected to be 8-10 percent. That’s more moderate than Q3 but still higher than what Cracker Barrel anticipated.

“As we look to our fourth-quarter financial expectations, we anticipate the near-term pressures we faced on both our top and bottom lines in the third quarter to persist,” CEO Sandy Cochran said during the brand’s Q3 earnings call.

As the company continues to navigate the volatile macroeconomic environment, it’s working through a multi-pronged strategy to build long-term success. It starts with a recently finished six-month segmentation study that collected insight about which new customers Cracker Barrel can attract and for which core guests it can increase visitation.

Learning from that study, the chain is leaning into menu strength. 

For individuals decreasing spending, Cracker Barrel is committed to protecting its everyday value across all dayparts. But to be clear, this doesn’t mean couponing or discounting, and the chain is confident it can maintain its value proposition with the upcoming menu price increases this summer. This priority is mostly for the 65-and-up consumer group. With economic concerns, CMO Jennifer Tate said older customers are more pessimistic and worried about their financial future, therefore they are spending less.

The brand is also aware of guests who are looking for a more indulgent experience, and it wants to make sure they’re catered to, as well. There are plans to add premium entrees, shareable starters, and alcoholic and nonalcoholic specialty beverages.

“We do see that there are a group of consumers who they may be cutting back on some more luxury items or trips or vacations,” Tate said. “And when they come to Cracker Barrel, they actually want to splurge a little bit.”

Along with new items and LTOs, the company will launch the first phase of its breakfast menu evolution, which is centered around consolidation and a build-your-own option. Tate said the menu will give Cracker Barrel room for new craveable items to feature in marketing and opportunities to offer premium products. Consumers should find the menu easier to navigate and servers should find it easier to learn. The company spent the past couple of years going through the same processes with its dinner menu.

The brand is also continuing its beer and wine program and making progress toward its goal of a 2 percent dine-in mix. The lineup has grown through enhanced selling, in-store marketing, and new seasonal offerings.

As for Cracker Barrel’s weaknesses, guests told the brand it can do better with technology. The chain is hearing this from younger generations; roughly 30 percent of its guest base are millennials between 25 and 44.

So in April, the chain rolled out pay at the table via QR code, and later in Q4, it will launch Apple Pay and Google Pay. Additionally, the company is enhancing its digital store and revamping its app to streamline the ordering process and provide a more personalized experience.

There are even talks of releasing a loyalty program.

“With regard to loyalty, we believe this could be particularly impactful for our brand with our strong guest engagement, travel guest, and both restaurant and retail offerings, which will allow us to offer creative and unusually appealing rewards over and above new discounting. Given the investment here, we are approaching it prudently and thoughtfully,” Tate said. “And we’ll have more to share with you about this initiative in the future, but we’re optimistic about its potential to drive frequency and check growth.”

Off-premises will be a growth driver for newer customers, especially Gen Z and millennials. In Q3, sales outside the four walls remained significantly elevated compared to pre-COVID figures. Off-premises mixed 19 percent, fueled by year-over-year growth in catering and third-party delivery, offset by declines in to-go sales as guests returned to dine-in.

The chain now has multiple ghost kitchens, including one that recently opened in Atlanta, and two virtual brands, Chicken n’ Biscuits and The Pancake Kitchen by Cracker Barrel.

To best communicate all of these initiatives, Cracker Barrel will send targeted messages through digital and social channels.

“We are very bullish that we have a brand that stretches across generations and that we have the ability to do what we do well even better and to offer enhancements that both our core and other key guest groups want,” Tate said. – Source: FSR.