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CBRL Group, Inc.

CBRL Group, Inc.

305 Hartmann Drive
P.O. Box 787
Lebanon, Tennessee 37088-0787
U.S.A.
Telephone: (615) 444-5533
Fax: (615) 443-9476
Web site: http://www.cbrlgroup.com

Public Company
Incorporated:
1970 as Cracker Barrel Old Country Store, Inc.
Employees: 62,000
Sales: $2.6 billion (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: CBRL
NAIC: 722110 Full-Service Restaurants; 453220 Gift, Novelty, and Souvenir Stores; 551112 Offices of Other Holding Companies

CBRL Group, Inc., was formed in 1998 as a holding company for Cracker Barrel Old Country Store restaurants, a chain of over 420 restaurants and gift shops located primarily along interstate highways in the Southeast, Midwest, Mid-Atlantic, and southwest United States. Cracker Barrel gift shops, considered by management to be an integral part of the restaurants country atmosphere, sell reproductions of early American crafts and such food items as preserves and old-fashioned candies.

GAS AND GRITS: ORIGINS

The first Cracker Barrel Old Country Store was founded in September 1969 by Dan Evins, a Shell gas station operator who felt he could attract more customers if a restaurant and gift shop were located on the stations lot. He borrowed $40,000 and built his first combination gas station/restaurant/store along the interstate highway just outside Lebanon, Tennessee. Within one month, Cracker Barrel Old Country Store began to make a profit. Evins incorporated the company the following year and sold half of the new business to a group of local businessmen, raising $100,000 to open his second gas station/restaurant/store. By 1974, Cracker Barrel was operating ten units, all located along interstate highways and all making a profit.

Although Cracker Barrels restaurant and gift shop sales grew, Evins gasoline business was less profitable. When the gasoline crisis hit in the early 1970s, the company began building new restaurants without gas stations attached. In 1974, Evins ended his distribution contract with Shell Oil. The restaurants did so well without gasoline service that Cracker Barrel eliminated gasoline service from all its locations soon thereafter.

GROWTH AND EXPANSION

Cracker Barrels solid growth began attracting the interest of independent investors, prompting the company to register with the Securities and Exchange Commission in 1974. Rapid expansion continued through the end of the decade. By 1983, the company was operating 27 units along interstate highways in Tennessee, North Carolina, South Carolina, Georgia, Kentucky, Florida, and Alabama. Between 1978 and 1983, net income and revenues had increased at annual rates of 26 percent and 25 percent, respectively, resulting primarily from the addition of new restaurants. In late 1981, when high interest rates threatened the companys expansion, Cracker Barrel went public, selling shares on the NASDAQ.

Despite Cracker Barrels continued expansion, sales began to slip. In 1985, Evins tried to stem the slide by making some broad management changes. We had some people in our management who had grown up in this company, and we were growing fairly fast for a small company, Evins told Restaurant Business at the time, adding, We realized that what we needed was some heavier parts in our equipment, so to speak. Changes included the establishment of a new marketing department and the hiring of five executives, all with experience in larger organizations. The impact was immediately positive. Net sales rose 20 percent to $80 million and net income grew 49 percent in 1986, due in part to improved operating efficiency and higher margins on sales.

Cracker Barrel also began opening restaurants near tourist destinations, including Opryland; Gatlinburg, Tennessee; and Hilton Head, South Carolina. By the end of 1987, the Cracker Barrel chain consisted of 53 stores in eight states, with annual net sales slightly over $99 million.

Analysts cited several reasons for Cracker Barrels success. According to Restaurant Hospitality magazine, One [reason] has been its unrivaled ability to evoke nostalgia without being corny. Cracker Barrel employees are simply warm and friendly. The stores look old-fashioned but are never cute. This atmosphere, reinforced by its inexpensive country cookin menu, helped Cracker Barrel carve out a niche for itself in the family restaurant business.

Cracker Barrel also instituted extensive manager and employee training programs in the 1980s, which greatly improved store efficiency and profit margins. Potential managers spent ten weeks in an extensive training session, whereas hourly employees followed an on-the-job course, called the Personal Achievement Responsibility program. Rewards, such as increased wages and cheaper benefits, were given for the successful completion of company-set goals. The result was a turnover rate among hourly employees of 160 percent, approximately half the industry average.

COMPANY PERSPECTIVES

Cracker Barrel Old Country Stores mission statement: pleasing people; it is short, but it says a lot. It gives all our Employees a flag to rally around as we accept only the highest levels of quality in our Guest hospitality, and in our relations with Employees, Suppliers and Shareholders. A common mission is vital. We have lots of different people in the company located in various places, in different time zones, with different challenges every day. But remembering we all share the same missionpleasing peoplekeeps us united in the unique Cracker Barrel culture. We need a common purpose to grab hold of to remember who we are. In todays business world, the words we frequently use are harsh. But pleasing people lets us talk about feelings and attitudes. Pleasing people is about caring, about letting Guests forget about the lousy day they had as they sit down at a table near the fireplace and order up a favorite meal, getting a genuine smile from the server. All that is something special in the Cracker Barrel experience. A walk through the Retail Store is the same kind of experience. Its not a fast hunt, but a slow tour around the displays. Pleasing people fits that experience, too. Pleasing people recognizes that we have four different sets of people in our picture. And it is all of those people that we must strive to please: our Guests, our Employees, our Suppliers and our Shareholders.

CONTINUED SUCCESS AMID CONTROVERSY

Cracker Barrels tight management system helped it weather the recession in 1990 and achieve existing per-unit sales of over $2.7 million, almost double the per-unit sales of its nearest competitor, Big Boy. Around the same time, however, the company got caught in a controversy when it fired a number of homosexual employees. For a short time, it seemed the controversy would threaten Cracker Barrels expansion into the northern states. Nationally televised protests against the firings sprang up in New York City, Atlanta, and several other small towns. The city of New York, which held $3.6 million worth of Cracker Barrel shares in a pension fund, threatened to make waves if the company did not change its policy. Cracker Barrel announced it would no longer fire employees based on their sexual orientation, although protesters claimed that discrimination continued covertly. Despite the controversy (or perhaps because of the publicity it generated), company profits jumped 50 percent in 1991 to $22.8 million. The number of Cracker Barrel units grew to 106.

In the early 1990s, Cracker Barrel opened new restaurants at a rate of over 20 units per year and expanded into such states as Michigan, Wisconsin, and Missouri. For the first time in its history, however, Cracker Barrel faced some direct competition when Bob Evans Farms, Inc., opened seven Bob Evans General Stores with atmosphere and menu items that closely resembled those of Cracker Barrel. Bob Evans also opened the first in a chain of Hometown Restaurants, slated for development in towns with populations of 30,000 or less.

Analysts predicted heavy competition between the two restaurant chains because both intended to pursue the same market of vacationers hungry for a homey atmosphere and comfort food. Cracker Barrel seemed well prepared for a market share battle. Net income in 1992 rose 48 percent to $33.9 million, and the number of units expanded to 127. A 1992 Consumer Reports survey gave the chain the top customer satisfaction rating, while a survey appearing in the February 1, 1994, issue of Restaurant & Institution magazine found that Cracker Barrel has done the job better than all of its family-restaurant competitors.

Heading into the mid-1990s, Cracker Barrel focused on further expansion and diversification. The company introduced a new format called Cracker Barrel Corner Market. The new stores hoped to take advantage of the burgeoning home meal replacement category full meals prepared and packaged that required no cooking on the part of the busy consumer. Cracker Barrel opened a few Corner Market stores in business areas of Tennessee to test the concept. The stores initially offered prepackaged Cracker Barrel country cooking meals and later added drive-through windows and a cafeteria-style counter that offered hot meals. Unfortunately for Cracker Barrel, however, the new stores did not meet expectations, and the project was shelved in 1996.

In 1995 Cracker Barrel embraced a significant change when it hired Ronald N. Magruder as president and chief operating officer. Magruder came from Darden Restaurants and was known for taking The Olive Garden from the position of a small, regional restaurant chain to a national presence. Many analysts considered the hiring to be a positive move. Robert Derrington of Equitable Securities said in Nations Restaurant News, Its a hell of a coup for those guys. There comes a time when a company has to map out a succession plan. His coming on board was exactly the thing the company needed now.

With new management in place, Cracker Barrel set out on an aggressive expansion plan. For the fiscal year ended August 1, 1997, the company exceeded the $1 billion mark in revenues for the first time in its history. The average Cracker Barrel rang up more than $3 million in sales annually, which was nearly double that of such competing chains as Bob Evans Farms. Cracker Barrel was certainly among the leaders in the family restaurant industry, but the company was not without some growing pains. Although revenues during fiscal 1996 increased 20 percent over 1995s sales, net income declined 4 percent, from $66 million to $63.5 million. The drop in net income was the first Cracker Barrel had suffered since 1985. Much of the decline was attributed to the closure of three underperforming stores and the slowing of its expansion into the Midwest, particularly Wisconsin and Minnesota.

KEY DATES

1969:
Dan Evins opens the first Cracker Barrel Old Country Store, a combination gas station/ restaurant-store in Lebanon, Tennessee.
1970:
Cracker Barrel incorporates.
1977:
Cracker Barrel stops offering gasoline.
1981:
Company goes public.
1998:
Cracker Barrel acquires Carmines Prime Meats, Inc., and forms CBRL Group, Inc., as a holding company.
2001:
Company faces $100 million class action racial discrimination suit.
2004:
Cracker Barrel signs consent order with U.S. Justice Department to address racial discrimination problems; company appoints Cyril Taylor as president.
2006:
CBRL appoints chairman and chief executive Michael Wood as president; CBRL sells Logans Roadhouse chain for $486 million.

Intent on following through with its expansion strategy and eager to learn from its mistakes, Cracker Barrel began adapting menus to reflect regional tastesa necessary step, considering that Cracker Barrel was planning to open about 70 percent of its new stores outside of its core Southern market. Cracker Barrel learned its lessons the hard way when newly opened restaurants in Minnesota and Wisconsin performed rather poorly, where sales were only about 60 percent of sales at restaurants in the Southeast. The company realized that standard Southern fare, such as grits, was not high on the list of midwesterners cravings, and Cracker Barrel began to investigate regional foods. In Wisconsin, for instance, Cracker Barrel began to offer bratwurst. The company also added regional touches in decor. For example, a soapbox car was added to a store in Akron, Ohio, where a national soapbox derby was held each year.

By late 1997, Cracker Barrel was back on its feet, and during fiscal 1997 alone the company opened 50 new restaurants. Over a two-year period, in fact, Cracker Barrel had opened about 100 new units. Same-store sales increased by 4.3 percent in fiscal 1997, and operations had been streamlined and made more efficient through changes such as a new point-of-sale system. Cracker Barrel is no longer just a regional family dining format that happens to put up impressive numbers, said Merrill Lynchs Peter Oakes at the time in Nations Restaurant News. Its now an industry leadertaking [market] share and starting to flex its muscle, he noted.

CONTINUING DIVERSIFICATION AT THE DAWN OF THE 21ST CENTURY

In the spring of 1998, Cracker Barrel acquired Carmines Prime Meats, Inc., headquartered in Florida. The purchase marked the companys reentry to the home meal replacement category, as Carmines operated two upscale, gourmet food markets, known as Carmine Giardinis Gourmet Market, as well as an Italian restaurant, La Trattoria Ristorante.

Cracker Barrel perhaps indicated that it was serious about aggressive expansion in early 1999 when it reorganized as a holding company, CBRL Group, Inc., that owned and operated the Cracker Barrel restaurants, Carmines, and other businesses. Magruder was made president and chief operating officer of the new CBRL Group, while Dan Evins became its chairman and CEO while also continuing his duties as chairman and CEO of the Cracker Barrel subsidiary. Getting right to the task of expansion, CBRL acquired Logans Roadhouse, Inc., which operated 45 Logans Roadhouse restaurants in 12 states, for about $179 million in early 1999. Logans restaurants offered steaks, chicken, ribs, and seafood. CBRL also opened a retail-only test store in a mall in Nashville, Tennessee, in 1999.

CBRL made headway in its quest for expansion and diversification, but the company continued to face some challenges. In April 1999 Magruder resigned, and CBRLs earnings for fiscal 1999 (July 30), were disappointing. Revenues rose to $1.53 billion from $1.32 billion in 1998, but net income fell from $104.1 million to a shockingly-low $70.2 million. Same-store retail sales grew 2.4 percent, but same-store restaurant sales declined 3.1 percent, partly due to menu price reductions. In response, CBRL cut back its expansion plans to 30 new Cracker Barrel restaurants in 2000 and 25 the following year.

The company also worked on refining its Carmine Giardinis Gourmet Market operations and planned to open a third location in 2000. The process of integrating Logans Roadhouse restaurants into CBRL continued, and the company opened 12 new restaurants in fiscal 1999, with plans to open an additional 12 in fiscal 2000. CBRL also looked to other opportunities to boost revenuesuch as e-commerce and retail-only storeswhile focusing on continued improvements at its flagship Cracker Barrel restaurants.

Founder Dan Evins commented on CBRLs objectives in the companys 1999 annual report: As always, our goal is to execute a controlled long-term growth strategy while providing our guests with high quality food and attractive retail shopping. With the changes in place to improve operations where needed at Cracker Barrel, the addition of the Logans concept to our holding company structure, and the opportunities to leverage our expertise in areas of strength, we believe the future for CBRL Group is promising.

CRACKER BARREL CONTINUES TO REBOUND

By July 2000, Cracker Barrel was operating 426 restaurants in 40 states with retail functioning as an integral part of the business and accounting for about one-quarter of annual sales. Each Cracker Barrel restaurant ran about 9,500 square feet with the retail section occupying about 2,000 square feet. The restaurants retail section sold merchandise with a nostalgic, country theme, including T-shirts, rocking chairs, and country-themed craft items. In addition, home furnishings also were offered, ranging from crystal lamps to Fenton art glass to a variety of housewares that appealed to customers with traditional tastes. An assortment of games, toys, and candy were also available for children.

After the financial challenges of the late 1990s, Cracker Barrels business picked up. In February 2000 Cracker Barrel ranked as the top family dining chain in Restaurants & Institutions annual Choice in Chains survey of 2,800 customers. Its stock price also began to recover after the nosedive it took following an all-time high of $42 in early 1998. With improvements in restaurant staffing, food quality, and service, Cracker Barrels profit margins began accelerating in 2001.

At the end of the year, however, Cracker Barrel was hit with a $100 million class action lawsuit alleging discrimination against African American customers. At least 42 plaintiffs, including the National Association for the Advancement of Colored People, claimed that Cracker Barrel segregated African American customers in the smoking section and denied them service. Cracker Barrel denied the allegations and vowed to defend what it called the color blindness of its 440-unit restaurants. The case followed other discrimination suits. Following allegations that it discriminated against homosexuals, in 1999, the company was again sued by African American employees who claimed to be victims of discrimination in promotion and pay.

In October 2002, a federal judge denied national class action status to the racial discrimination suit. The U.S. District Court ruled that the plaintiffs failed to prove that a common set of circumstances extended across a variety of situations. The suit, however, prompted a U.S. Justice Department civil rights investigation that found widespread discrimination against African American diners at Cracker Barrels in seven Southern states. In May 2004, the company signed a consent order with the Justice Department to implement wide-ranging policies to overhaul its practices and combat discrimination. The agreement involved new diversity training programs, random testing by undercover diners, the posting of nondiscrimination statements on menus, and the hiring of an outside auditor to monitor its race bias policies.

The lawsuit seemed to have little effect on Cracker Barrels profits, as its restaurants outperformed the broader market. Moreover, the company received the Good Sam Clubs Welcome Mat Award in 2002 and 2003 and took honors as Restaurant Hospitality s Chain of the Year. Destinations magazine also ranked it for the tenth consecutive year as the Best Restaurant Chain for Groups.

In 2003, the company returned to the strategy of opening new restaurants in close proximity to highways to head off competitors who were increasingly locating in high-traffic areas. Nearly 90 percent of Cracker Barrels locations were near highway exits, which helped boost CBRLs earnings 16 percent to $106.5 million for 2003. The company did not neglect the growth potential of nonhighway locations, however. Cracker Barrel began testing marketing and advertising efforts to build gift shops sales at nonhighway restaurants, which attracted fewer tourists.

CHANGING OF THE GUARD

In August 2004 Cracker Barrel announced that executive vice-president Cyril Taylor would take over as president and chief operating officer starting January 1, 2005, after the retirement of Donald Turner. Taylor had joined the company 26 years before as an associate unit manager. He rose to become regional vice-president in 1997 and steadily moved up the chain of command from there. Taylor was known to share Turners philosophy of paying hefty bonuses to unit managers and regional and division supervisors who created profitable restaurants by developing employee and customer loyalty. Taylor also promised to make improved race relations, which continued to be an issue for the company, a priority when he took over. In a September 2004 article in Nations Restaurant News, he stated that with my promotion I will not tolerate anyone being treated differently based on the color of their skin, adding that the important concept here is mutual respect at all times and under all conditionsin the way that managers treat employees and in the way that employees treat each other and our customers.

Cracker Barrel accelerated its marketing program to better promote its brand name. Some of its marketing highlights involved introducing seasonal menus five times each year and expanding its association with the Grand Ole Opry in Nashville by becoming the radio programs first title sponsor. Cracker Barrel also hired a leading public relations firm, Manning, Selvage & Lee, to address its lingering lawsuit accusing the company of racial discrimination against black customers and employees. The company agreed in September to settle the case for $8.7 million.

Entering 2005 Cracker Barrel further expanded its music-based marketing program by becoming the presenting sponsor of Grammy Award winners Alison Krauss and Union Stations tour. The sponsorship agreement entitled the company to Internet promotions, signage at concert venues, and on-site marketing opportunities. Cracker Barrel also expanded its line of CDs for sale in the restaurants retail stores. The company viewed increasing its sponsorships and line of CDs as an important step in promoting its brand name, especially after its retail sales were beginning to decline. The music marketing program aimed to integrate Cracker Barrels restaurant and retail operations in order to promote sales at both.

In July 2006, both company president Cyril Taylor and three top executives opted to retire from the family dining chain. Taylors retirement came with fiscal 2006 same-sales down 1.1 percent and same-store retail sales down 8.1 percent.

With the slew of retirements, CBRL consolidated its management to address operational problems. Taylor was succeeded by CBRL chairman and chief executive Michael Wood. The company also sold its 166-unit Logans Roadhouse to a group of private equity firms, including Bruckman, Rosser, Sherill & Co., Canyon Capital Advisors, and Black Canyon Capital, for $486 million. The sale allowed the company to focus on luring customers back to its flagship Cracker Barrel chain.

Maura Troester
Updated, Mariko Fujinaka; Bruce P. Montgomery

PRINCIPAL SUBSIDIARIES

Cracker Barrel Old Country Store, Inc.; Carmines Prime Meats, Inc.

PRINCIPAL COMPETITORS

Bob Evans Farms, Inc.; Dennys Inc.; IHOP Corporation.

FURTHER READING

Carlino, Bill, Magruder Exits Darden to Join Cracker Barrel, Nations Restaurant News, July 17, 1995, p. 1.

Cerbrzynski, Gregg, Cracker Barrel Spins More Music into Its Marketing Mix, Nations Restaurant News, February 7, 2005.

Cracker Barrel Set the Surveys Standard for Family Dining for the Fourth Straight Year, Restaurant & Institution, February 1, 1994.

Farkas, David, Kings of the Road, Restaurant Hospitality, August, 1991, p. 118.

Ganem, Beth Carlson, My Country, Right or Wrong, Restaurant Hospitality, February 1993, p. 73.

Gutner, Todd, Nostalgia Sells, Forbes, April 27, 1992, p. 102.

Harper, Roseanne, Cracker Barrel Plunges Back into HMR with Carmines Purchase, Supermarket News, April 20, 1998, p. 49.

Hayes, Jack, After Free Fall Cracker Barrel Rolls As a Top Contender in Family Segment, Nations Restaurant News, November 17, 1997, p. 1.

, Cracker Barrel Denies Racial Bias, Says It Will Fight 100M Class Lawsuit, Nations Restaurant News, January 7, 2002.

, Cracker Barrel Protesters Dont Shake Loyal Patrons, Nations Restaurant News, August 26, 1991, p. 3.

, Taylor: Cracker Barrel Culture to Be Focus of Leadership Change, Nations Restaurant News, September 13, 2004.

, With New Prexy in Place, CBRL Group Readies Expansion, Nations Restaurant News, October 5, 1998.

Inquiry on Cracker Barrel Stores, New York Times, September 13, 2002.

Kramer, Louise, Cracker Barrel Expands Test of Corner Market, Nations Restaurant News, June 5, 1995, p. 7.

Kuhn, Mary Ellen, Cracker Barrels Sweet Nostalgia, Confectioner, December 2001.

LaHue, Polly, Cracker Jack Cracker Barrel, Restaurant Hospitality, August 2003.

Lichtblau, Eric, Cracker Barrel Agrees to Plan to Address Reports of Bias, New York Times, May 3, 2004.

Lovel, Jim, Cracker Barrel Reloads Marketing Arsenal, Adweek Southeast, December 20, 2004.

Oleck, Joan, Bad Politics, Restaurant Business, June 10, 1992, p. 80.

Papiernik, Richard L., CBRL Posts Rockin Results as Clientele Vies for Seats, Nations Restaurant News, December 10, 2001.

, Cracker Barrel Springs a Leak, Bottom-Line Fix Under Way, Nations Restaurant News, November 25, 1996, p. 11.

Peters, James, On the Road Again: CBRL Hits Highways to Regain High-Traffic Business, Nations Restaurant News, September 22, 2003.

Rhein, Liz, Along the Interstate with Cracker Barrel, Restaurant Business, June 10, 1987, p. 113.

Tarquinio, J. Alex, Restaurants: King of Grits Alters Menu to Reflect Northern Tastes, Wall Street Journal, September 22, 1997, p. B1.

Walkup, Carolyn, Family Chains Beat Recession Blues with Value, Service, Nations Restaurant News, August 5, 1991, p. 100.

Yanez, Luisa, Food Fight on the Interstate, Restaurant Business, September 20, 1992, p. 50.

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CBRL Group, Inc.

CBRL Group, Inc.

P.O. Box 787
307 Hartmann Drive
Lebanon, Tennessee 37088-0787
U.S.A.

Telephone: (615) 444-5533
Fax: (615) 443-9399
Web site: http://www.crackerbarrelocs.com

Public Company
Incorporated:
1970 as Cracker Barrel Old Country Store, Inc.
Employees: 49,314
Sales: $1.53 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: CBRL
NAIC: 72211 Full-Service Restaurants; 45322 Gift, Novelty, and Souvenir Stores; 44511 Supermarkets and Other Grocery (Except Convenience) Stores

CBRL Group, Inc., was formed in 1998 as a holding company for Cracker Barrel Old Country Store restaurants, a chain of over 420 restaurants and gift shops located primarily along interstate highways in the Southeast, Midwest, mid-Atlantic, and southwest United States. Cracker Barrel gift shops, considered by management to be an integral part of the restaurants country atmosphere, sell reproductions of early American crafts and such food items as preserves and old-fashioned candies. CBRL also owns and operates Carmines Prime Meats, a gourmet food market located in Florida, and Logans Roadhouse restaurants, which specialize in steaks and are located throughout much of the United States.

Gas and Grits: 1969-80

The first Cracker Barrel Old Country Store was founded in September 1969 by Dan Evins, a Shell gas station operator who felt he could attract more customers if a restaurant and gift shop were located on the stations lot. He borrowed $40,000 and built his first combination gas station/restaurant/store along the inter-state highway just outside Lebanon, Tennessee. Within one month, Cracker Barrel Old Country Store began to make a profit. Evins incorporated the company the following year and sold half of the new business to a group of local businessmen, raising $100,000 to open his second gas station/restaurant/store. By 1974, Cracker Barrel was operating ten units, all located along interstate highways and all making a profit.

Although Cracker Barrels restaurant and gift shop sales grew, Evins gasoline business was less profitable. When the gasoline crisis hit in the early 1970s, the company began building new restaurants without gas stations attached. In 1974, Evins ended his distribution contract with Shell Oil. The restaurants did so well without gasoline service that Cracker Barrel had eliminated gasoline service from all its locations soon thereafter.

Growth and Expansion in the 1980s

Cracker Barrels solid growth began attracting the interest of independent investors, prompting the company to register with the Securities and Exchange Commission in 1974. Rapid expansion continued through the end of the decade. By 1983, the company was operating 27 units along interstate highways in Tennessee, North Carolina, South Carolina, Georgia, Kentucky, Florida, and Alabama. Between 1978 and 1983, net income and revenues had increased at annual rates of 26 percent and 25 percent, respectively, resulting primarily from the addition of new restaurants. In late 1981, when high interest rates threatened the companys expansion, Cracker Barrel went public, selling shares on the NASDAQ exchange.

Despite Cracker Barrels continued expansion, sales began to slip. In 1985, Evins tried to stem the slide by making some broad management changes. We had some people in our management who had grown up in this company, and we were growing fairly fast for a small company, Evins told Restaurant Business at the time. We realized that what we needed was some heavier parts in our equipment, so to speak. Changes included the establishment of a new marketing department and the hiring of five executives, all with experience in larger organizations. The impact was immediately positive. Net sales rose 20 percent to $80 million and net income grew 49 percent in 1986, due in part to improved operating efficiency and higher margins on sales.

Cracker Barrel also began opening restaurants near tourist destinations, including Opryland; Gatlinburg, Tennessee; and Hilton Head, South Carolina. By the end of 1987, the Cracker Barrel chain consisted of 53 stores in eight states, with annual net sales slightly over $99 million.

Analysts cite several reasons for Cracker Barrels success. According to Restaurant Hospitality magazine, One has been its unrivaled ability to evoke nostalgia without being corny. Cracker Barrel employees are simply warm and friendly. The stores look old-fashioned but are never cute. This atmosphere, reinforced by its inexpensive country cookin menu, helped Cracker Barrel carve out a niche for itself in the family restaurant business.

Cracker Barrel also instituted extensive manager and employee training programs in the 1980s, which greatly improved store efficiency and profit margins. Potential managers spent ten weeks in an extensive training session, whereas hourly employees followed an on-the-job course, called the Personal Achievement Responsibility (PAR) program. Rewards, such as increased wages and cheaper benefits, were given for the successful completion of company-set goals. The result was a turnover rate among hourly employees of 160 percent, approximately half the industry average.

Continued Success Amid Change in the 1990s

Cracker Barrels tight management system helped it weather the recession in 1990 and achieve existing per-unit sales of over $2.7 million, almost double the per-unit sales of its nearest competitor, Big Boy. Around the same time, however, the company got caught in a controversy when it fired a number of homosexual employees. For a short time, it seemed the controversy would threaten Cracker Barrels expansion into the northern states. Nationally-televised protests against the firings sprang up in New York City, Atlanta, and a number of other small towns. The City of New York, which held $3.6 million worth of Cracker Barrel shares in a pension fund, threatened to make waves if the company didnt change its policy. Cracker Barrel announced it would no longer fire employees based on their sexual orientation, although protesters claimed that discrimination continued covertly. Despite the controversy (or perhaps because of the publicity it generated), company profits jumped 50 percent in 1991 to $22.8 million. The number of Cracker Barrel units grew to 106.

In the early 1990s, Cracker Barrel opened new restaurants at a rate of over 20 units per year and expanded into states such as Michigan, Wisconsin, and Missouri. For the first time in its history, however, Cracker Barrel faced some direct competition when Bob Evans Farms, Inc., opened seven Bob Evans General Stores with atmosphere and menu items that closely resembled those of Cracker Barrel. Bob Evans also opened the first of a chain of Hometown Restaurants, slated for development in towns with populations of 30,000 or less.

Analysts predicted heavy competition between the two restaurant chains because both intended to pursue the same market of vacationers hungry for a homey atmosphere and comfort food. Cracker Barrel seemed well prepared for a market share battle. Net income in 1992 rose 48 percent to $33.9 million, and the number of units expanded to 127. A 1992 Consumer Reports survey gave the chain the top customer satisfaction rating, while a survey appearing in the February 1, 1994 issue of Restaurant & Institution magazine found that Cracker Barrel has done the job better than all of its family-restaurant competitors.

Heading into the mid-1990s, Cracker Barrel focused on further expansion and diversification. The company introduced a new format called Cracker Barrel Corner Market. The new stores hoped to take advantage of the burgeoning home meal replacement categoryfull meals prepared and packaged that required no cooking on the part of the busy consumer. Cracker Barrel opened a few Corner Market stores in business areas of Tennessee to test the concept. The stores initially offered prepackaged Cracker Barrel country cooking meals and later added drive-thru windows and a cafeteria-style counter that offered hot meals. Unfortunately for Cracker Barrel, however, the new stores did not meet expectations, and the project was shelved in 1996.

Company Perspectives:

Cracker Barrel Old Country Stores mission statement pleasing peopleis short, but it says a lot. It gives all our Employees a flag to rally around as we accept only the highest levels of quality in our Guest hospitality, and in our relations with Employees, Suppliers and Shareholders. A common mission is vital. We have lots of different people in the company located in various places, in different time zones, with different challenges every day. But remembering we all share the same missionpleasing peoplekeeps us united in the unique Cracker Barrel culture. We need a common purpose to grab hold of to remember who we are. In todays business world, the words we frequently use are harsh. But pleasing people lets us talk about feelings and attitudes. Pleasing people is about caring, about letting Guests forget about the lousy day they had as they sit down at a table near the fireplace and order up a favorite meal, getting a genuine smile from the server. All that is something special in the Cracker Barrel experience. A walk through the Retail Store is the same kind of experience. Its not a fast hunt, but a slow tour around the displays. Pleasing people fits that experience, too. Pleasing people recognizes that we have four different sets of people in our picture. And it is all of those people that we must strive to please: our Guests, our Employees, our Suppliers and our Shareholders.

In 1995 Cracker Barrel embraced a significant change when it hired Ronald N. Magruder as president and chief operating officer. Magruder came from Darden Restaurants and was known for taking the Olive Garden from the position of a small, regional restaurant chain to a national presence. Many analysts considered the hiring to be a positive move. Robert Derrington of Equitable Securities said in Nations Restaurant News, Its a hell of a coup for those guys. There comes a time when a company has to map out a succession plan. His coming on board was exactly the thing the company needed now.

With new management in place, Cracker Barrel set out on an aggressive expansion plan. For the fiscal year ended August 1, 1997, the company exceeded the $1 billion mark in revenues for the first time in its history. The average Cracker Barrel rang up more than $3 million in sales annually, which was nearly double that of competing chains, such as Bob Evans Farms. Cracker Barrel was certainly among the leaders in the family restaurant industry, but the company was not without some growing painsalthough revenues during fiscal 1996 increased 20 percent over 1995s sales, net income declined 4 percent, from $66 million to $63.5 million. The drop in net income was the first Cracker Barrel had suffered since 1985. Much of the decline was attributed to the closure of three under performing stores and the slowing of its expansion into the Midwest, particularly Wisconsin and Minnesota.

Intent on following through with its expansion strategy and eager to learn from its mistakes, Cracker Barrel began adapting menus to reflect regional tastesa necessary step, considering that Cracker Barrel was planning to open about 70 percent of its new stores outside of its core Southern market. Cracker Barrel learned its lessons the hard way when newly opened restaurants in Minnesota and Wisconsin performed rather poorly, where sales were only about 60 percent of sales at restaurants in the Southeast. The company realized that standard Southern fare, such as grits, was not high on the list of Midwesterners cravings, and Cracker Barrel began to investigate regional foods. In Wisconsin, for instance, Cracker Barrel began to offer bratwurst. Cracker Barrel also added regional touches in decor. For example, a soapbox car was added to a store in Akron, Ohio, where a national soapbox derby was held each year.

By late 1997, Cracker Barrel was back on its feet, and during fiscal 1997 alone the company opened 50 new restaurants. Over a two-year period, in fact, Cracker Barrel had opened about 100 new units. Same-store sales increased by 4.3 percent in fiscal 1997, and operations had been streamlined and made more efficient through changes such as a new point-of-sale system. Cracker Barrel is no longer just a regional family dining format that happens to put up impressive numbers, said Merrill Lynchs Peter Oakes at the time in Nations Restaurant News. Its now an industry leadertaking [market] share and starting to flex its muscle.

Continuing Diversification at the Turn of the Millenium

In the spring of 1998, Cracker Barrel acquired Carmines Prime Meats, Inc., headquartered in Florida. The purchase marked the companys reentry to the home meal replacement category, as Carmines operated two upscale, gourmet food markets, known as Carmine Giardinis Gourmet Market, as well as an Italian restaurant, La Trattoria Ristorante.

Cracker Barrel demonstrated that it was serious about aggressive expansion in early 1999 when it reorganized as a holding company, CBRL Group, Inc., that owned and operated the Cracker Barrel restaurants, Carmines, and other businesses. Magruder was promoted to president and chief operating officer of the new CBRL Group, while Dan Evins became its chairman and CEO while also continuing his duties as chairman and CEO of the Cracker Barrel subsidiary. Getting right to the task of expansion, CBRL acquired Logans Roadhouse, Inc., which operated 45 Logans Roadhouse restaurants in 12 states, for about $179 million in early 1999. Logans restaurants offered steaks, chicken, ribs, and seafood. CBRL also opened a retail-only test store in a mall in Nashville, Tennessee, in 1999.

CBRL made headway in its quest for expansion and diversification, but the company continued to face some challenges. In April of 1999 Ronald Magruder resigned, and CBRLs earnings for fiscal 1999, which ended July 30, 1999, were disappointing. Revenues rose to $1.53 billion from $1.32 billion in fiscal 1998, but net income fell from $104.1 million to a shockingly-low $70.2 million. Same-store retail sales grew 2.4 percent, but same-store restaurant sales declined 3.1 percent, partly due to menu price reductions. CBRL cut back its expansion plans to 30 new Cracker Barrel restaurants in 2000 and 25 the following year.

Despite a few hardships, CBRL remained determined to grow and succeed. The company worked on refining its Carmine Giardinis Gourmet Market operations and planned to open a third location in 2000. The process of integrating Logans Roadhouse restaurants into CBRL continued, and the company opened 12 new restaurants in fiscal 1999, with plans to open an additional 12 in fiscal 2000. CBRL also looked to other opportunities to boost revenuesuch as e-commerce and retail-only storeswhile focusing on continued improvements at its flagship Cracker Barrel restaurants. Founder Dan Evins commented on CBRLs objectives in the companys 1999 annual report: As always, our goal is to execute a controlled long-term growth strategy while providing our guests with high quality food and attractive retail shopping. With the changes in place to improve operations where needed at Cracker Barrel, the addition of the Logans concept to our holding company structure, and the opportunities to leverage our expertise in areas of strength, we believe the future for CBRL Group is promising. With 426 restaurants in 40 states by mid-2000, there seemed to be no stopping the company from achieving its goals.

Key Dates:

1969:
Dan Evins opens the first Cracker Barrel Old Country Store, a combination gas station/restaurant-store in Lebanon, Tennessee.
1970:
Cracker Barrel incorporates.
1977:
Cracker Barrel stops offering gasoline.
1981:
Company goes public.
1998:
Cracker Barrel acquires Carmines Prime Meats, Inc. and forms a holding company, CBRL Group, Inc.

Principal Subsidiaries

Cracker Barrel Old Country Store, Inc.; Logans Roadhouse, Inc.; Carmines Prime Meats, Inc.

Principal Competitors

Advantica Restaurant Group, Inc.; Bob Evans Farms, Inc.; Big Boy; Darden Restaurants, Inc.; Shoneys, Inc.

Further Reading

Carlino, Bill, Magruder Exits Darden to Join Cracker Barrel, Nations Restaurant News, July 17, 1995, p. 1.

Cracker Barrel Set the Surveys Standard for Family Dining for the Fourth Straight Year, Restaurant & Institution, February 1, 1994.

Farkas, David, Kings of the Road, Restaurant Hospitality, August, 1991, p. 118.

Ganem, Beth Carlson, My Country, Right or Wrong, Restaurant Hospitality, February 1993, p. 73.

Gutner, Todd, Nostalgia Sells, Forbes, April 27, 1992, p. 102.

Harper, Roseanne, Cracker Barrel Plunges Back into HMR with Carmines Purchase, Supermarket News, April 20, 1998, p. 49.

Hayes, Jack, After Free Fall Cracker Barrel Rolls As a Top Contender in Family Segment, Nations Restaurant News, November 17, 1997, p. 1.

, Cracker Barrel Protesters Dont Shake Loyal Patrons, Nations Restaurant News, August 26, 1991, p. 3.

, With New Prexy in Place, CBRL Group Readies Expansion, Nations Restaurant News, October 5, 1998.

Kramer, Louise, Cracker Barrel Expands Test of Corner Market, Nations Restaurant News, June 5, 1995, p. 7.

Oleck, Joan, Bad Politics, Restaurant Business, June 10, 1992, p. 80.

Papiernik, Richard L., Cracker Barrel Springs a Leak, Bottom-Line Fix Under Way, Nations Restaurant News, November 25, 1996, P. 11.

Rhein, Liz, Along the Interstate with Cracker Barrel, Restaurant Business, June 10, 1987, p. 113.

Tarquinio, J. Alex, Restaurants: King of Grits Alters Menu to Reflect Northern Tastes, Wall Street Journal, September 22, 1997, p. B1.

Walkup, Carolyn, Family Chains Beat Recession Blues with Value, Service, Nations Restaurant News, August 5, 1991, p. 100.

Yanez, Luisa, Food Fight on the Interstate, Restaurant Business, September 20, 1992, p. 50.

Maura Troester

updated by Mariko Fujinaka

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