In three years. The most common barriers people face

In the restaurant industry,
many companies are looking to technology to boost revenues and improve
efficiency. Many restaurants are developing mobiles apps, so customers can
place orders online and pick them up in store. Sit-down restaurants have added
point of sales (POS) systems at each table. These systems allow customers to
place orders, pay bills, split checks, and add tips without waiting for a
waiter. This increases table turnover and reduces errors in ordering.

Barriers to entry are low in
the industry due to its attractiveness. Many new restauranteurs have difficulty
sustaining their operations after the first three years. The most common
barriers people face are the lack of start-up capital, overcoming consumer
skepticism, location, and marketing costs. All of which are vital to sustaining
a business.

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Cracker Barrel has a commitment
to high-quality, home-style food. They pride themselves on using fresh
ingredients for their menu items. Specifically, they obtain blueberries from
Maine, Valencia oranges from Florida, Syrup from Vermont, and other ingredients
from local markets. They also maintain relationships with retailers who provide
40% of their merchandise placed in their stores.

Cracker Barrel has a clear
view of their target customer: travelers. This is why 83% of Cracker Barrel
restaurants are located along interstate highways, with the remainder located
off-interstate or near tourist destinations. To retain their customers, Cracker
Barrel offers a variety of ways to keep them coming back. Customers are able to
sign up for a free email newsletter to stay updated on new menu items, store
gifts, and more. They offer coupons and gift cards through different websites
that are available for use at most stores.

 Cracker Barrel’s target market
is travelers. Whether that is road trippers, truck drivers, or traveling
salesmen. They use billboard advertising to attract drivers for a good meal.
According to the U.S. Department of Transportation, a person averages 36 miles
of driving per day. Seventy percent of travel is for personal and recreational
reasons. With over 1,600 billboards, Cracker Barrel advertisements reach most
of their customers. The number of people who travel is expected to increase due
to more people retiring, road trips, and business travel.

In a recent analysis, Cracker
Barrel determined that the majority of their customers fall into the Baby
Boomer generation (43%). These are their loyal customers who love the
atmosphere and quality of Cracker Barrel. Slowly they are enticing younger
generations to their restaurants with 28% of customers in the Gen X period, 18%
are millennials, and 11% are in the Gen Z group.

Cracker Barrel offers a
variety of products related to breakfast, lunch, and dinner. They are set apart
from other restaurants with their gift shops in every location. Customers do
have the option of frequenting other restaurants who are competitors to Cracker
Barrel. Many places have similar menus, offering home-style cooking with a
family focus. The threat of new entrants is slim for Cracker Barrel since it
has a large presence nation-wide.

To start with, the company has an attractive
valuation. The Price-Earnings Ratio is 20.8 (TTM); this
compares favorably to the Restaurant and Bar Industry’s PE Ratio of 28.9 (TTM)
and the S&P 500’s PE Ratio of 22.9 (TTM). 

In the last few years, revenue has steadily increased along
with its gross profit.
Next to its competitors, Cracker Barrel is outperforming. Figure
2 below depicts Bob Evans, Cracker Barrel, Denny’s, and DineEquity’s gross
profit over the past ten years. Bob Evans has been declining since 2009,
whereas Denny’s and DineEquity seem to be stagnant. The industry is highly attractive for Cracker Barrel. The company’s
financial strength is reflected in its strong ROE and ROA which currently sit
at 37.70% and 13.37%, respectively. Their financials give them the means to
grow and expand. Additionally, Cracker Barrel’s brand allows it to attract and
retain customers even in a competitive industry.  Restaurant
growth for Cracker Barrel is already significant. Their store sales are growing
at a rate much faster than the restaurant industry as a whole. The typical
retail location is responsible for approximately 20% of the total revenue. Earnings
per share have grown from $5.51
per share to $8.28 per share between 2014 and 2017 (an increase of 50% in three years). 

Management
effectiveness also appears to be high, as the chain features far lower employee
turnover than the industry as a
whole. This reduces training costs, and many believe leads to higher sales, as
happy employees lead to happy customers. From a numbers standpoint, Return on
Equity (a Wall Street measure of management effectiveness) is currently over 37%.Recent political changes could potentially impact the
restaurant industry. Cracker Barrel always has to be aware of and respond to changing
tax rates, increasing minimum wages and shifts in the economy. Increasing
minimum wages could force companies to lay off workers to keep costs down. If
unemployment rates rise, families will spend less of their budgets on dining. Changing cultural norms and values are impacting the
restaurant industry. Younger generations are becoming more health conscious and
looking for alternative dining options. What is deemed “snack culture” is
increasing in popularity as well. People tend to eat more small meals in a day rather
than three larger ones. Cracker Barrel focuses on home-style meals that do not
necessarily fall into the healthy category. 

With technology becoming depended on in today’s world,
restaurants are turning to it to increase efficiency and reduce costs. If
Cracker Barrel implemented POS systems, they run the risk of creating a
depersonalized restaurant experience – opposite of the family aspect they try
to create.Cracker Barrel’s
main customer segment is travelers. This segment can be divided by age into
Baby Boomers, Generation X, Millennials, and Generation Z. Their most loyal and
frequent customers are of the Baby Boomer group between ages 51-65. To these
customers, Cracker Barrel provides a home-style meal at a fair price. When
customers enter any of the 645 locations, they are guaranteed a home away from
home with a relaxing, fun and family-friendly atmosphere. Depending on the time
of year, customers can experience seasonal promotions and limited time offers
on menu items and store merchandise. Anyone driving
down a highway in the United States is sure to pass a Cracker Barrel billboard
or their signature logo on an exit sign. Cracker Barrel has over 1,600
billboards and claims to be “among the top billboards advertisers in the restaurant
industry.” In addition to billboards, the company also uses social and digital
media channels, online video and radio, and their unique music program to
advertise to customers.  Once the
customer enters the restaurant, the customer relationship begins. Throughout
their dining or shopping experience and even after their meal customer service
representatives are waiting to assist them. Customers can even sign up for
newsletters to receive updates on the company’s new menu items and seasonal
promotions.  With each
location containing a restaurant and retail section, their revenue stream is
divided 80/20, respectively. In the restaurant division, breakfast, lunch and dinner
make up the following percentages of restaurant sales: 24, 39, 37,
respectively. The retail store offers apparel and accessories, food, décor,
toys, and a bed and bath section. Apparel and accessories account for 30% of
retail revenue, food allots 18%, décor brings in 13%, toys make up 11%, and bed
and bath are the smallest section with 8% of sales. Cracker Barrel
would not operate without their key resources. They employ over 73,000
individuals across the United States and rely on their customers to bring them
business. Their store merchandise is another key resource as it contributes to
one-fifth of total revenue each year. Cracker Barrel also has its trademark
logo which allow customers to recognize them anywhere in the country. Advertising and customer
relationships are key activities for Cracker Barrel. A large portion of their
success comes from their extensive advertising. Once a customer is brought in,
they can begin to establish connections and create loyal customers. Cracker
Barrel would not able to deliver their promise of quality food without their
vendors. They have established vendors in Tennessee, Texas, Florida, Maryland,
Indiana, and South Carolina that deliver meat and produce to every location up
to three times per week. They also maintain relationships with local vendors
and in the People’s Republic of China to stock their shelves with merchandise. Cracker Barrel is a value driven
company. They are willing to pay higher costs for higher quality foods, as
proven with multiple deliveries per week. Cracker Barrel is also a cost driven
company as they find ways to keep costs low in other areas as to not disturb
the quality of their product. They buy the land for 65% of their locations and
leasing the remainder; with this tactic they also reap the benefits of land
appreciation. With billboard advertising they are able to limit costs to only 3%
of their revenue. The majority of their costs is incurred in salaries and
wages, which accounts for 35% of their revenue. Restaurant and retail costs are
lower at 20 and 10%, respectively. The remainder falls into their operating
expenses.  

A detailed view of the business
model canvas can be found in Appendix A.Cracker Barrel delivers quality
food for a low cost. Because of this, the company is between efficiency and
quality (it works) on the Value Creation Frontier scale. The competitor
positioning map (Figure 1) and the gross profit chart (Figure 2) show evidence
of Cracker Barrel being superior in terms of quality and would be considered “on
the line”. 

The value-adding functions of
Cracker Barrel include their infrastructure, supply chain management team, IT,
and human resources. Their infrastructure holds their brand identity of
home-style meals, their well-maintained culture to “please people” and provide
a familial atmosphere, and their presence along highways offering easy access.
Supply chain is key when maintaining vendor relationships and ensuring your
vendors are able to continue to deliver multiple times per week as they do. Cracker
Barrel is expanding their IT presence with online ordering and email
newsletters. This department will continue to be vital as POS systems gain
popularity and the millennial generation demands them. Handling 73,000+
employees and ensuring proper training and benefits, is a difficult task for
human resources. They will be key when Cracker Barrel decides to expand again
to maintain the consistent quality of service they pride themselves on.

 

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