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A Strategic Analysis of Cracker Barrel

By Rachelle Fakhouri, Hannah Furlong, Tammy Lam, Sara Nash, and Julie Sauro

julie s

on 1 May 2013

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Transcript of A Strategic Analysis of Cracker Barrel

D.Financial Ratio Analysis VI. Managerial Implications III. Internal Analysis A. Nature of the Firm: Culture & Leadership
B. Organization Structure
C. Value Chain Analysis: Red Thread Part1- Finding Core Competence
D.Financial Ratio Analysis: Red Thread Part 2 - Determining Competitive Advantage A. Introduction

Cracker Barrel operates in the full-service, casual-dining sector of the restaurant industry
Product line consists of food and retail items
Breakfast, Lunch, & Dinner
80% of revenue generated by restaurant division Determining competitive advantage A Strategic Analysis of Cracker Barrel By Rachelle Fakhouri, Hannah Furlong, Tammy Lam, Sara Nash and Julie Sauro Business Case
•Centralized business structure
•Ranked number one by Technomic Inc. and National Restaurant News in several different categories:
•Menu variety, service, friendliness, value, & quality
•Voted “Best Family Dining Restaurant” for 19 consecutive years in Restaurants & Institutions magazine Red Thread: Competitive Advantage Cracker Barrel’s core competence has led the company to obtain a competitive financial edge against its competitors, giving them greater financial flexibility to undertake certain investment opportunities. A. SWOT Overview B. History & Heritage

Founded by Dan Evins on September 19, 1969 in Lebanon, TN
1977 – 13 stores from TN to GA
1980 to 1990 – opened 84 stores nationwide
1996 – store count reached 257
Today – over 600 stores in 42 states C. Mission Statement

“Pleasing people®”
(Applies to employees, guests, vendors and shareholders) D. Strategic Question:
How can Cracker Barrel increase its market share? Economic Opportunities
Improved consumer confidence (University of Michigan Survey of Consumer Sentiment Threats
Food inflation
Tax rates
Customer traffic growth to remain below 1% through 2019 Socio Cultural Trends Opportunities
Large focus on customer loyalty programs
Gluten-free market expected to grow by 30% annually through 2015 Threats
Consumers are more health conscious
“Snack culture” - 48% of all adults snack between meals, 44% eat alone Technology Opportunities
Adopting Mobile POS systems
Computerized Restaurant Revenue Management Threats
Depersonalized restaurant experience Natural Opportunities
Green alternatives
Purchasing both in bulk and locally to reduce carbon footprint Threats
Natural disasters affect commodity prices, as well as cause political conflict Demographic Opportunities
Rapid Asian and Hispanic population growth
Millennials are expected to make up 36% of the total workforce by 2020 Threats
Bifurcation - separation between high-end and low-end
Baby-boomers creating shift in age distribution Regulatory/Political/Legal Opportunities
None Threats
Fair Labor Standards Act (FLSA)
Health codes Global Opportunities
International expansion
BRIC countries Threats
Infrastructure or supply chain availability
Political and legal barriers RED THREAD Changes in consumer preferences and increases in consumer confidence are opportunistic for the restaurant industry. Industry Structure Highly fragmented with concentrated power
480,000 restaurants in the United States
Combined restaurant revenue in the U.S. is $400 billion
Breaks down into full-service and quick-service segments Quick-Service Segment
Holds 53% of market share
Includes fast food, fast casual, and buffet style strategic groups Full-Service Segment
Holds 47% of market share
Includes the casual dining and upscale dining strategic groups
Growth for casual dining is supposed to continue at rate of 1% annually Mature stage
Projected sales growth for 2013:
3.8% (restaurants)
2.9% (full-service)
1% (casual dining)
Leveraging is an industry trend Life Cycle Porter's Five Forces Industry Attractiveness The restaurant industry is highly fragmented with a concentrated power within the casual dining strategic group. Rivalry is highly threatening within this strategic group as many firms are competing for market share in a mature industry with limited growth. The top firms within the casual dining strategic group of the industry are able to capture the most value amid an environment with a high threat of substitutes and new entrants. New Entrants The industry attractiveness for new entrants is moderately high, due to low barriers to entry. While the barriers to entry are low, many new entrants struggle to sustain their operations past their first three years. Incumbents The industry attractiveness for incumbents is high, especially for the competitors who hold the top 20% of the market share because they have the financial resources and economies of scale to respond to constant changes in consumer trends. Firm The industry is highly attractive for Cracker Barrel. Cracker Barrel’s financial strength, reflected in its strong ROE and ROA, give the company the means to grow and expand. Additionally, Cracker Barrel’s brand equity and image allow it to attract and retain customers even in a competitive industry. Strategic Group Analysis Casual Dining Strategic Group - B,L,D = Restaurant offers breakfast lunch and dinner, open before 10 am Low Price = Average ticket price/person ≤ $15
High Price = Average ticket price/person >$15 Strategic Group Analysis Cont. Results:
Cracker Barrel, Bob Evans, Denny’s, and IHOP
Open 16-24 hours per day
Average ticket price from $8-$9.44
Market cap between $0.54 billion - $1.86 billion  Key Success Factors Weights and Totals Competitor Dynamics Competitor Dynamics Cont. Competitor Dynamics Cont. Competitor Dynamics Cont. With competitors placing emphasis on location expansion, cost reductions, menu development, and or improving their existing locations, several key challenges for Cracker Barrel are their limited number of locations and operating margin slightly underperforming its strategic group. RED THREAD Identifying Strengths and Weaknesses A. Nature of the Firm: Culture Built on a strong foundation of mutual respect
Equal opportunity for all employees, regardless of race, gender, background, etc.
Heavy focus on pleasing people
Guest Relations Center
Interactive Voice Response system (IVR system)

“We believe that by treating everyone with courtesy and respect and by offering a quality experience, we will continue to build loyalty throughout our organization.” Nature of Firm: Leadership Michael A. Woodhouse– Chairman of Board
Sandra B. Cochran – President and CEO
Doug Barber – Executive VP and CPO
Christopher A. Ciavarra – Sr. VP of Marketing
Nicholas V. Flanagan – Sr. VP of Operations
Edward A. Green – Sr. VP of Strategic Initiatives
Lawrence E. Hyatt – Sr. VP and CFO
Laura Daily – Sr. VP of the Retail division B. Organizational Structure Multi-Divisional Structure
2 Divisions: Restaurant and Retail
Each have own Regional VP’s and District Managers
Cooperative Form (Related-Constrained Strategy)
Centralized Characteristics IV. SWOT Analysis Putting it all together
A. SWOT Overview
B. Strategic Orientation
C. Attractiveness
D. Investment STRENGTHS :
Reduce/minimize employee turnover ratio
Brand identity
Largest market cap. $1.93 billion
Quick table turnover capacity
Strong investing focus on operational excellence
New value proposition on original menu, appealing to core users and younger and lighter consumers WEAKNESSES :
Low operating margin. (7.67%)
Lack of menu variability leading to low customer retention.
Filling positions not from within company promotions. Opportunities
Relatively New Emerging Market for Healthy Menu Options
Millennials are expected to make up 36% of the total workforce by 2020
Gluten free market is expected to grow annually through 2015 by 30%
Technology:Computerized Restaurant Revenue Management Threats
Industry slow growth
Snacking has been a common way to substitute a meal as 48% of all adults snack between meals.
Proposed Regulations Forcing Restaurants to Reduce Carbon Emissions
Minimum Wage Increase for Menu Price Increase B. General Strategic Orientation Opportunistic General Environment
Shifting Consumer Preferences
Increased Consumer Confidence
Strong Company
Favorable result from key success factor analysis
Strong brand equity Solid ROE & ROA C. Attractiveness Slow Growth
Mature Stage of Industry
Industry growth rate slowed and paralleled economic
Improving Competitive Position
Viable core competence in its brand identity and the culture it provides.
Prominent industry player
Market cap of 1.86B
Strong financial capital D. Investment As a company that is strongly positioned in a mature market, Cracker Barrel has the ability to grow internally and strengthen their long-term positioning.
Solidifying the brand. A. Generic Strategy Cracker Barrel generic strategy is Low cost.
Bargaining power is highly volatile to price.
Since the group’s average check price is already on the low end, minimizing fixed and variable costs are necessary to generate higher sales dollar retention.
Due to the industry’s operation in the mature stage. A low cost strategy is essential as demand growth rate is slowing down to a small increase compared to historical industry growth rates. Strategic Question How can Cracker Barrel increase their market share ? B. Recommendation •Corporate Level Strategy: Concentrated Growth C. Business Level Strategy Product development
Gluten-free menu
Market Development
Cracker Barrel Southern Hospitality Festival D. NPV Analysis Q4 2015: NPV Positive Inbound Logistics
Increase/alter food contracts with vendors
Seek gluten-free vendors
R&D for testing gluten-free menu items
Outbound Logistics
No change A. Managerial Implications – Value Chain Marketing and Sales
Increased advertisements through all mediums
Festival promotion
Introduce and promote gluten-free menu

Evaluate customer reception for gluten-free menu Competitors may imitate and improve upon gluten-free menu
Bob Evans has “Farm Festival” B. Managerial Implications: Competitors Various stakeholders will be affected by the implementation of the new strategy:
1. Employees: in festivals, new chefs
2. Suppliers: gluten-free suppliers, increase inventories
3. Customers: new demographic
4. Third parties: advertising agencies
5. Investors: more satisfied C. Managerial Implications: Stakeholders How the firm will need to adjust:
A.Value Chain
B. Competitor Dynamics
C. Stakeholders Impact Statement Cracker Barrel emerges as the leader within the strategic group as it exceeds all other firms in customer satisfaction, although the company has an average operating margin and limited geographic scope compared to its competitors. C. The Value Chain VI. Managerial Implications Competitor Dynamics Competitor Dynamics Cont. A. Generic Strategy
B. Strategic Question
C. Recommendation & Justification
D. NPV V. Strategic Choice Core Competence Cracker Barrel has strengths in its brand identity, culture, and retail segment of its business. A. Introduction
B. Brief History
C. Vision and Mission Statements
D. Strategic Question I. BEGINNINGS: Setting the Stage A. General Environment: Macro Factors
Red Thread for macro analysis- a statement regarding what the true drivers are II. EXTERNAL ANALYSIS: Identifying Opportunities and Threats B. Competitive Environment: The Arena
Industry Structure
Industry Life Cycle
Porter 5 Forces
Industry Attractiveness- Red thread regarding industry profitability
C. Competitor Environment: The Players
Strategic Group Analysis
Key Success Factor Analysis
Competitor Dynamics (Porter)Competitor Response
Red thread highlighting competitor activity A.General Environment: Macro Factors B. Competitive Environment: The Arena C. Competitor Environment: The Players Competitor Dynamics Cont. Competitor Dynamics Cont.
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