Activist investor says Cracker Barrel's fast casual concept is 'destined to fail'

Dive Brief:

Cracker Barrel's largest shareholder, Sardar Biglari of Biglari Holdings, sent CEO Sandra B. Cochran a letter Wednesday urging the chain to sell its fast casual concept, Holler and Dash Biscuit House. Biglari called the brand, which has seven locations and launched in 2016, an "ill-conceived project destined to fail."
Biglari claims the ROI of new stores was "miscalculated" and not "a good use of our capital." He also alleges that after total cost were factored in, Cochran's stated ROI of 16.2% "was closer to 4%."
The letter also expressed concerns over the company's expansion clip — the chain has opened 52 new locations since 2011, costing $240 million. In the closing of the SEC filing, Biglari demanded that Cracker Barrel either divest or eliminate Holler and Dash and provide financial data on New Cracker Barrel stores.

Dive Insight:

This isn't the first time Biglari has gone after Cracker Barrel's fast casual brand, but it's interesting that the criticism comes after his recent sale of thousands of shares. The company did not disclose how Holler and Dash has been performing financially in its Q2 earnings release or earnings call.

On paper, the Holler and Dash concept makes sense for Cracker Barrel. The outlook for the fast casual restaurant segment is much sunnier than casual dining's prospects. According to NPD Group research, the category has expanded at a compound annual growth rate of 7% between 2013 and 2018, and was the only U.S. restaurant segment that saw traffic gains during that time.

In a Fast Casual op-ed, Mike Chissier, Holler and Dash's chief operating offer, said that new technology and a cloud-based POS system is helping the chain capture lucrative Gen Z diners.

"In addition to traditional POS terminals, our waitstaff carry mobile ordering devices, and customers are able to use available self-service kiosks. During peak rush periods, line-busting mini iPads are used at the counter where customers can self-service order and quickly cash out on the spot," Chissier wrote.

Cracker Barrel isn't the only casual dining chain to test out fast casual brands. Most recently, Cheesecake Factory launched Social Monk Asian Kitchen in California. The company appears confident in the new brand, putting the development of its full-service brands Grand Lux Cafe and RockSugar Southeast Asian Kitchen on hold.

The country kitchen chain has also experimented with off-premise initiatives, including third-party delivery to drive growth. Cochran said the company is happy with the results of delivery so far, though she noted last quarter that the company's off-premise push has led to mixed guest satisfaction and operational issues. Later this year, Cracker Barrel will expand delivery to 170 stores, with plans to reach 400 locations by the end of 2019.

It's off-premise business has jumped 20% for the year, SVP and CFO Jill Golder said on the company's earnings call. Last year, off-premise represented close to 7.5% of sales and is expected to reach 9% of overall sales for fiscal 2019.

While the brand appears to be finding its footing in off-premise, time will tell if it's able to ease investor concerns over Holler and Dash.