Dive Brief:

• Cracker Barrel bought a $140 million non-controlling stake in Punch Bowl Social from L Catterton, according to a pair of press releases.
• In addition to the initial stake, the restaurant company agreed to provide growth capital for future development and has the option to acquire a controlling or full ownership position at a later date. 
• Punch Bowl Social currently has 17 locations across 12 states and plans to add 11 units by the end of 2020. 

Dive Insight:

Cracker Barrel's investment in Punch Bowl Social may seem a bit out of left field at first glance, but with eatertainment quickly grabbing more casual dining market share over the years, it makes sense that traditional southern eatery would want to diversify. Seventy percent of consumers said they would rather visit an eatertainment concept than casual dining for group occasions, according to Technomic. 

Consumer sentiment is translating into sales. This segment is experiencing a much faster pace of sales growth than casual dining. Punch Bowl Social grew sales 34% last year to $46.5 million, with units averaging about $3.6 million in volume, according to Restaurant Business. Another popular player, Top Golf, posted sales of $163.5 million in 2014, but has already reached $300 million and an estimated 17 million visits in 2018. Comparatively, Cracker Barrel's comparable store sales grew 0.6% during fiscal year 2018 compared to fiscal year 2017. 

Cracker Barrel's investor may need some convincing, however. The company's new concepts haven't gone over well with its top investor Sardar Biglari of Biglari Holdings. He previously called its fast casual concept Holler and Dash Biscuit concept "ill-conceived." The company has seven locations as of September, but doesn't currently have plans to open any new locations this year, according to an SEC filing.

But diversification may be the only way for casual dining restaurants to grow, especially since they have been struggling with same-store sales and declining guest counts. The Cheesecake Factory and Famous Dave's each opened their own fast casual concepts earlier this year, while Hooters is planning to grow its fast casual concept Hoots now that it's under new ownership.