LIVE VIDEO: WUSA 9 at 6pm    Watch
 

Cracker Barrel Rolls Out Plan To Expand Into Groceries

11:43 AM, Jan 27, 2013   |    comments
Cracker Barrel customers shop and eat at the restaurant in Nashville, Tenn., in 2006.(Photo: Steven S. Harman, The Tennessean)
  • Share
  • Print
  • - A A A +
  • FILED UNDER

NASHVILLE, Tenn. (USA Today) -- Cracker Barrel Old Country Store Inc. hopes the third time is the charm.

Since its founding in Lebanon, Tenn., in 1969, Cracker Barrel has been known for offering Southern comfort food and nostalgic Americana merchandise in a homestyle atmosphere. But the company has tried to be more than that.

Twice in the 1990s, it sought to expand its brand beyond those roots. First, it branched into the takeout business with several Cracker Barrel Corner Market locations throughout Tennessee. Then it opened a retail-only store, simply called The Store, in a Nashville-area mall. Both efforts failed.

Now officials with the restaurant chain plan to try again, this time by expanding their lineup of Cracker Barrel-branded food products and offering them at grocers and other outside retail outlets for the first time.

"Our research shows that our guests would like to be able to purchase Cracker Barrel products in places other than just our restaurants and retail stores, and we believe that there is opportunity here to meet that desire," the company stated in an email.

Analysts applauded the strategy, calling it a low-risk way to broaden brand awareness, appeal and revenues. But they caution that Cracker Barrel should avoid overreaching, as others have done in branching into non-restaurant channels.

"It's a good start, but you don't want to do too much or you'll risk brand dilution," said Stephen Anderson, an analyst with Miller Tabak.

Target is broader audience

Cracker Barrel already sells various food products such as pancake and corn muffin mixes, cobbler filling and syrup under its name. But those items are available only at Cracker Barrel stores and through its website.

That will change under a recent multiyear licensing agreement with John Morrell Food Group, a Smithfield Foods subsidiary. It will make various food products, including ham, bacon, lunch meats, glazes, jerky and summer sausage, under the Cracker Barrel name and sell them through grocers, mass merchandisers and other retail outlets.

Cracker Barrel hasn't said when those products will hit store shelves, but company officials said they don't expect the initiative to materially impact results in the fiscal year that ends in July. They wouldn't say how much revenue they expect the strategy to generate.

Analysts don't expect much financial impact at first because retail accounts for just 20 percent of the company's annual revenues. But boosting the bottom line is not the initiative's primary goal, at least initially, the company said in its statement.

"We are greatly increasing the number of consumers who will see and interact with the brand on a daily basis," the company email reads. "There will be quite a large impact on brand awareness that we will be able to build upon."

That is part of a strategic plan the company, under pressure from its largest shareholder to improve its financial performance, adopted in 2012. Sardar Biglari, who now holds a 19.99 percent stake in Cracker Barrel, has called the brand "an underutilized asset" and has pushed the company to branch into licensing and franchising.

"The Cracker Barrel brand can reach more consumers through supermarkets, which most American households must frequent, whereas not all of them will enter a Cracker Barrel store in the coming year," he wrote in a 2011 letter to the company.

It's a path that several other restaurant chains, including Bob Evans, Boston Market, P.F. Chang's and T.G.I. Fridays, have trod before. It's a popular strategy because it usually generates brand awareness and revenues, thereby appeasing shareholders, even as consumers have cut back on dining out during the recession, experts said.

In a 2011 U.S. consumer survey by Mintel Group Ltd., more than three-fourths who responded said they had bought restaurant-branded items. Families with household incomes of $75,000 or more, a key consumer demographic for restaurants, were among the most frequent buyers.

"If you're not growing (revenue), you're standing still," said Kathy Hayden, a U.S.-based food service analyst with the British market researcher.

Possible reward trumps risk

Analysts said Cracker Barrel's expansion move, while initially small in scope, is sound.

By offering a limited number of items not sold in its stores, Cracker Barrel reduces the risk of cannibalizing restaurant sales, they said. That's a mistake other restaurant chains have made, especially by offering frozen versions of their menu items.

Cracker Barrel isn't saying whether its retail food push will ultimately extend to the frozen-food market. Anderson said it shouldn't go there, citing existing competition for limited shelf space and the risk of undermining restaurant sales.

"If they steer clear of that, I don't think the restaurant operations will be affected that much," he said. "You want to avoid brand dilution."

Partnering with John Morrell also is strategically smart, analysts said.

Using a licensing agreement means "the risks are mostly on John Morrell, not Cracker Barrel" if the venture fails, Anderson said.

John Morrell also has a large presence and distribution network in Western states, which will help Cracker Barrel gain shelf space and build brand awareness in markets where it has little or no footprint, Hayden said.

"It should help them get their name out there," she said. "As long as they represent their brand and show why they are offering something new and different to the market, they should do fine."

Most Watched Videos