Down-home image can't hide Cracker Barrel's fine-tuned focus

Nation's Restaurant News, Nov 27, 1995 by Richard L. Papiernik

Just about a year ago, on my way to Miami from Orlando, I pulled off the Florida Turnpike looking for a decent breakfast spot. That's when I came across a rather rustic-looking wood-shingled building that looked like an old country store with people sitting in rocking chairs on the front porch.

It was that relaxed country-store appearance and those rocking chairs that enticed me into the Cracker Barrel Old Country Store.

At a recent Alex. Brown & Sons investment conference in Baltimore, I recalled that initial introduction to Cracker Barrel as I sat in the audience watching the down-home presentation made by Dan Evins, the company's founder, chairman and chief executive, and Jimmie D. White, the senior vice president for finance.

There they were, a couple of guys who seemed almost too country to be running more than a few good shops down South, trying to impress a lot of sophisticated Wall Street types that they ought to try visiting some Cracker Barrel restaurants.

And, oh yes, while they're looking at the restaurants, maybe they ought to be looking into making some investments in the Lebanon, Tenn.-based company.

Typical of the Cracker Barrel style is the recently released annual report that devotes 12 pages to a story and pictures about country and Western entertainer Roy Harper and his Sand Mountain Boys. It's just a personal success story with little - if any - apparent relevance to Cracker Barrel finances.

"Don't let that kid you," says Bear Stearns analyst Joseph Buckley in New York. "They have learned to capitalize on those presentations. They are very much good business people.

"Dan Evins is very sharp. He not only came up with the idea for Cracker Barrel; he had the ability to stay around and grow it. There aren't too many people in the business who can do both."

Craig Weichmann of Morgan Keegan & Co. in Memphis says: "Looking back, they found a niche when Shoney's allowed its presentation to go stale and Denny's was floundering. Cracker Barrel went out, cherry-picked the best sites and began coming in with some of the highest unit volumes in the business.

Alex. Brown analyst Steven Rockwell points out that average-unit sales for the 220 sites is about $3.9 million with "excellent" returns on investment.

Rockwell estimates the ROI at 37.4 percent compared with an average of 31.5 percent for some comparable concepts.

But there could be some problems on the horizon, according to Janice Meyer, an analyst at Prudential Securities in New York, who points out that over the last five years, Cracker Barrel has raised prices faster than the overall industry has - at about 3 percent every February.

"Customer counts have been declining," she stated in a recent report, although the company "has often denied a relationship" between higher prices and falling customer counts.

"But to us, if price increases have not hurt, which we doubt," Meyer said, "they certainly have not helped."

Since that report Cracker Barrel has decided to alter its usual 3-percent February price increase and will hold that to about 1.8 percent.

According to Weichmann, the competitive breakfast daypart will see no price increase, but dinner and lunch menus will go up more than 2 percent each so that the average total increase is 1.8 percent.

Evins said that the company and the industry have come off a pretty tough year in 1995 with competition and labor costs putting a lot of pressure on margins and that this year the competition is expected to heat up a lot more than the economy.

He told this reporter at the Baltimore conference that "with consumers feeling so squeezed it is difficult to pass all these costs on" and that some savings will have to be made in operations.

"However," he said, "we are afraid that with too much cost cutting, we would shoot ourselves in the foot, and we are not about to do that. In the short term, we will see some margin sacrifice."

Still, for fiscal 1995, which closed on July 28, Cracker Barrel grew profits by 9 percent, to $23.06 million, on sales that were up over the previous year by 21 percent, to $221.22 million.

That means lots of other travelers besides me obviously have gotten hooked in a similar manner by this restaurant company that has built its business on serving travelers along some of the nation's busiest interstate roadways, especially those in the Southeast.

My short wait, for instance, turned into an opportunity to browse - and then buy - at the gift shop. If I had the time, space and inclination to pack up a few rocking chairs, they would have made some great Christmas gifts for the kids. I didn't get a chance to sit out on the chairs, but the Southern country breakfast and service made me a real fan of the Cracker Barrel approach.

About half of Cracker Barrel's customers come in off the interstates with 30 percent of those travelers categorized as tourists and the other 70 percent as business.

The company's sales have been growing. For the first quarter of fiscal 1996, which ended Oct. 27, sales were up 19 percent, to $221.01, vs. $184.95 million in sales for its entry quarter in fiscal 1995. Profits rose 8 percent, to $16.79 million, from $15.60 million.