Cracker Barrel Old Country Store Inc. said this week that rising gasoline prices may challenge its recent successful traffic-building efforts in the months ahead.
“We think that given our susceptibility, particularly in the summer travel season, to potential increases in gasoline prices, it is appropriate to be suitably cautious about our third and fourth quarter traffic outlook,” Cracker Barrel chief financial officer Lawrence E. Hyatt said Tuesday.
The operator of 610 family restaurants, which are located primarily along highways, had factored in “approximately flat” traffic for the second half of the fiscal year ending in July, when forecasting annual same-store sales growth of between 1 percent and 2 percent, Hyatt said in an analyst call discussing second quarter earnings.
Lebanon, Tenn.-based Cracker Barrel reported Tuesday same-store traffic growth of 1.1 percent for the second quarter ended Jan. 27, the first increase in five quarters. Revenue and same-store sales rose during the quarter, but net income fell due to expenses related to the 2011 proxy fight with activist investor Sardar Biglari.
Hyatt’s statement about the potential for consumers to cut back on travel and dining as higher gas prices crimp discretionary spending came as research suggested that sales at many restaurant chains had not yet been affected by consumer reaction to increases at the pump.
And while the national unemployment level is falling, “the pace of improvement remains slow, and consumer spending is still being pressured by higher grocery and energy costs,” said Cracker Barrel president and chief executive Sandra B. Cochran.
The company will concentrate its advertising spending in the second and fourth quarter, she said, when guest traffic traditionally is highest. In November 2011, the chain launched its first national TV advertising campaign, “Handcrafted by Cracker Barrel,” in support of the brand’s “wholesome connections” messaging.
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“We believe the new advertising was an important contributor to our sales growth during the quarter,” Cochran said.
The company expects to continue with TV advertising later in the year, but a full analysis of the costs and benefits from the first campaign are pending, she said.
Cracker Barrel efforts to improve and “deliver a more consistent guest experience” have benefited from additional employee training and an investment of less than $2 million in restaurant equipment and technology, such as printers and computer display screens, Cochran said.
“We’re pleased with sustained improvement in guest satisfaction scores, which are up from the same quarter last year across a spectrum of key measures,” she said. “In particular, we noted solid increases in our primary areas of focus, such as the friendliness and attentiveness of our servers, temperature of food and speed of service.”
Cracker Barrel anticipates commodity cost inflation of between 5.5 percent and 6.5 percent during its current fiscal year.
“We’re planning modest menu price increases, which are expected to more than offset the dollar impact of these cost increases, but not offset the margin impact,” Cochran said.
A transportation management system beginning in the second half of the fiscal year is expected to reduce expenses tied to distribution of gift-shop inventory, and the completion of the rollout of the first phase of an enhanced labor management system during the second quarter, are among cost-cutting moves.
The labor management system was greatest factor behind a year-over-year 30-basis-point reduction in wage costs during the quarter, Hyatt said.
“Our store level cost controls remain tight” in the second quarter, Cochran said, noting that compared with the same 2011 quarter, “we saw lower maintenance and utility expenses, and we continued to realize the benefits of organizational streamlining initiatives.”
Cracker Barrel executives also discussed:
• Menu pricing. The chain is gaining traction in its efforts to define menu and price strategies to increase guest frequency and boost value, Cochran said. Recent moves include holiday and seasonal menu promotions; the introduction of $5.99 weekday lunch specials; and meal add-ons, including baked potatoes topped with broccoli and cheese, that help boost Cracker Barrel’s guest-feedback scores and drive sales growth.
“We’re working on enhancing our salads and daily lunch specials and creating a new ‘Better for You’ section on the menu, and restructuring our Country Dinner plates to build value perception,” she said.
• Website. Company officials said they were excited by the results of initial efforts to leverage the chain’s updated website to engage guests outside its restaurants and directly connect with them at a “lower cost than with many other [marketing] channels.” Cochran said an online virtual checkers tournament attracted nearly 50,000 participants who played nearly 400,000 games. Another initiative let guests upload photos of themselves participating in the chain’s annual in-restaurant Fall Festival promotion.
• Gift shop. For its in-store gift shops, Cracker Barrel hopes to continue to build on momentum gained through such recent moves as adding a line of proprietary dolls, improving its assortment of goods and more prominently displaying such items as “nostalgic beverages.”