On the road again: CBRL hits highways to regain high-traffic business

Nation's Restaurant News, Sept 22, 2003 by James Peters

LEBANON, TENN. -- When it comes to real-estate strategy, Cracker Barrel Old Country Store's way always has been the highway.

Though nearly half of the chain's new outlets last year were launched at locations off interstates, the nearly 500-unit restaurant chain has returned to a plan calling for the vast majority of new branches to open in close proximity to highways. Cracker Barrel sees that tactic as enabling it to maximize a prime competitive attribute.

The brand's goal is to be "absolutely dominant" in those high-traffic areas, Michael A. Woodhouse, president and chief executive of Cracker Barrel's parent company, CBRL Group Inc., said during a conference with analysts this month.

One factor contributing to CBRL's renewed focus on interstate sites is an increasing movement by some chains, including various casual-dining players, to those kinds of locations, Woodhouse said.

Cracker Barrel wants "to make certain that we're everywhere we can be before anybody tries to do that too much." he explained.

"Clearly, there's only a finite amount of real estate out there, especially in the better locations on interstates," observed restaurant stock analyst Robert Derrington of Nashville, Tenn.-based Morgan Keegan & Co. "Given the momentum of [CBRL's] business, they want to try to take advantage of all the tools they have in their concept, especially now, before it gets even more competitive out there."

Nearly 90 percent of Cracker Barrel's locations are near highway exits, and that strategy helped CBRL post a 16-percent increase in earnings to $106.5 million, or $2.09 per diluted share, for the fiscal year ended Aug. 1. In the previous year the company earned $91.8 million, or $1.64 a share. Fiscal 2003 revenue increased 6.1 percent to $2.2 billion.

In the year through August, off-interstate unit growth accounted for nearly 50 percent, or 11 out of the 23 new Cracker Barrels, compared with 30 percent that were not opened on highways in 2002. But for the current year the company is earmarking about 25 percent, or six, of its 24 planned Cracker Barrels to sites located away from interstates, officials said.

Of the 482 current branches of the family-dining restaurant and gift shop chain, only 59 are not near highway exits, according to Julie Davis, CBRL Group's corporate communications director.

The company also operates 98 restaurants and franchises 16 others under the Logan's Roadhouse brand name.

Cracker Barrel's renewed focus primarily on highway-side locations is not "a change so much as a recognition on our part that the on-interstate [development] is a continuing opportunity," Woodhouse said. "We don't want to be diverted by the attractiveness of off-interstate from making certain over a period of time we're everywhere we can be on interstate."

However, Woodhouse maintained that sites not near highways remain a "huge opportunity." and the overall sales volumes and profits generated by those units are "fine."

The company is testing some marketing and advertising efforts in order to build gift shop sales at nonhighway restaurants, which attract fewer tourists, Woodhouse indicated.

Comparable-store retail sales at the gift shops rose 1.3 percent for the quarter, compared with the restaurant components' same-store increase of 0.1 percent.

"I think retail clearly represents one of the best opportunities for this company to continue to drive both top and bottom lines," said analyst Derrington. "Moving away from interstate gives up some of that opportunity, potentially."

Cracker Barrel continues to "increase the freshness and broaden the appeal" of the retail merchandise, said chief financial officer Lawrence E. White. It also is increasing the variety of items at lower price points with "the idea being to encourage more frequent and impulse purchases," he said.

Like many family-dining operators, Cracker Barrel intends to build its dinner business through a number of initiatives The chain currently is testing items that would place more emphasis on dinner, "without detracting from the other dayparts," Woodhouse said.

Among other strategies, the chain is scheduling work shifts for its strongest employees--from regional vice presidents to hourly workers--during high-volume times, which include dinners on Fridays, Saturdays and Sundays, Woodhouse said.

Cracker Barrel also plans to test some layout changes in the second half of fiscal 2004 that would reduce bottlenecks at the hostess stand and cash registers.

Meanwhile, Logan's Roadhouse plans to implement menu and marketing changes based on consumer research. Under the leadership of Logan's recently named president and chief operating officer, Tom Vogel, the chain also plans to boost alcohol business and enhance takeout. Logan's posted a 0.7-percent increase in fourth-quarter same-store sales.